Accessibility links

Philippine Currency Falls Sharply Against Dollar - 2003-08-27

The Philippine currency has fallen sharply against the U.S. dollar recently, largely because of domestic security and political concerns. Currency traders in Asia say the peso's slide is not likely to trigger a sell-off in other regional currencies.

The peso has weakened more than one percent during the past eight trading days. On Tuesday, it hit a 31-month low of 55.60 against the dollar.

Its rapid slide has spawned concerns that investors will sell off other Southeast Asian currencies, just as they did in the 1997 Asian financial crisis. Then, the depreciation of the Thai baht led to selling of regional currencies.

Currency strategist Thio Chin Loo of the bank BNP Paribas in Singapore says that is not likely. She says investors are now more discerning.

"Investors differentiate various Asian countries and they tend not to lump Asia as a whole," said Thio Chin Loo. "So with domestic problems in the Philippines weighing down on the peso, we had Asian countries do very well."

Other Southeast Asian currencies have remained stable this week.

Currency analysts say domestic political turmoil is to blame for the peso's depreciation. Investors remain cautious about the Philippines after a failed military mutiny last month.

Rovic de Guzman is chief currency dealer at the Union Bank of the Philippines. He says the peso's slide is a concern.

"But this is probably brought about mainly because of security concerns," he said. "You already have a jittery market and so every time bad news filter in, the effect on the exchange rate tends to get exaggerated."

A weak peso could hurt the economy. Finance Secretary Jose Isidro Camacho says that for every one-peso depreciation against the dollar, the cost of repaying the country's foreign debt rises by about $27 million.

There are fears that opposition groups could use the weak peso to stir up unrest ahead of national elections next year.

President Gloria Arroyo has ordered the central bank to stabilize the foreign exchange market and punish speculators. Following her announcement, the peso recovered slightly. The peso has fallen more than six percent from its peak in May.