Economist, BSP link Peso’s historic low to bad governance, infra controversy

Economist and former Bangko Sentral Deputy Governor Diwa Guinigundo on Oct. 29 cited bad governance as a factor for the weakening of the Philippine peso.

The peso further declined, reaching a historic low of Php 59.13 against the US dollar at the close of trading on October 28.

Guinigundo said that there are fundamental and nonfundamental reasons behind the weakening of the peso during an interview call with DZMM Teleradyo.

The economist explained that one nonfundamental factor is political uncertainty, noting that investors and local business owners may be discouraged when they perceive bad governance in the country.

“Nakita natin na almost 30 to 40 percent pala ng budget natin napupunta lang sa bulsa ng ilang politiko at ilang mga kontratista. Eh so anong matitira sa investment dito sa Pilipinas…eh tayo huling huli na sa Southeast Asia in terms of infrastructure tapos 30 to 40 percent ng infrastructure budget nawawala pa… nananakaw pa,” Guinigundo added.

He also cited the culture of impunity and the lowered economic growth forecasts from international financial institutions, like the International Monetary Fund (IMF), World Bank, and Asian Development Bank (ADB), as additional nonfundamental reasons.

The economist mentioned that there are also fundamental factors influencing the peso’s decline.

“Yung sinasabi nating fundamental basis…ang ating pakikipagkalakalan sa ibang bansa, lagi po ‘yang negative, in other words, deficit po tayo. Sa katunayan, last year ang atin pong deficit is nearly 69 billion dollars, ibig sabihin, mas marami ‘yung lumabas na dolyar sa ating import… pagkatapos ‘yung pumasok naman sa atin na mga export…kaunti,” Guinigundo noted.

The former Bangko Sentral ng Pilipinas (BSP) deputy governor then emphasized that the Philippines relies on declining foreign investments and debt payments, which reduce the dollars coming into the country and weaken the peso.

The central bank, meanwhile, issued a statement on the matter on Oct. 28.

“The Bangko Sentral ng Pilipinas (BSP) allows the exchange rate to be determined by market forces,” the central bank said.

The BSP added that it continues to maintain robust reserves and participates in the market mainly to dampen inflationary swings in the exchange rate rather than to prevent day-to-day volatility.

“The recent peso depreciation may reflect market concerns over a potential moderation in economic growth due in part to the infra spending controversy, as well as expectations of additional monetary policy easing by the BSP,” said the central bank, explaining the factors behind the currency’s decline.

The BSP then stressed that the peso remains supported by steady remittances, strong inflows from Business Process Outsourcing (BPOs) and tourism, low inflation, and ongoing structural reforms that help cushion the economy from external shocks.