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ASSESSING THE DEPRECIATION OF THE PESO AND ITS IMPLICATIONS ON THE

FUTURE OF THE PHILIPPINE ECONOMY

November 12, 207

In 2010, I have had a good chat in Facebook with a former classmate in high school, now based
in the United States, worked as a manager in a Power Utility Company and most likely a retiree
by now about the continuous Diaspora of Filipino professionals in search of a green pasture from
another country that they prefer, particularly the United States of America. Since the 1960s, USA
has become a haven for Filipino immigrants, especially those who were able to obtain their US
citizenship on a legal manner. Aside from its conducive natural environment and abundant
resources, geographical size, cool climate, vast greeneries and beautiful landscapes, United
States was eminently became a military superpower and the richest country in the world that
anyone who had had a great aspiration for progress would be attracted to locate it, make a great
way and create a difference in its endless land of opportunities.

Truly, its 2.5% accumulated economic growth rate since its achieved its independence in 1776
from English colonizers had epitomizes the gargantuan economic abundance that the country has
experienced in so many years now despite its ups in down during the economic depression in the
1930s. Today, many ordinary Fil-Am retirees wanted to go back to the Philippines and spent
their retirement here since they think that the monthly pension that they receive from the United
States government is much worthy to spend in the country with the exchange rate on an average
of PhP 50.0 to US $1.0. With this level of exchange rate, there are some Filipino-Americans who
see and feel how lowly the standard of living of some if not mostly of the Filipinos. Note that
more than 10 million Filipinos in spite of the social consequences had been forced to apply and
work as an OCWs only for the sake of getting the mighty dollar and augment their low living
standards which they could not find inside the country. After living for many years in abundance
in the United States, many visiting Fil-Ams were adamant and looked awkward in accepting how
poor still the majority of the Filipinos has become. With this premise, I had tried to look some of
the major factors specifically on the management of the foreign currency that made the Filipinos
living standards dwelt into poverty since achieving its independence from the Americans in July
4, 1946.

The Philippine piso, also referred in English by its former name peso, is the official currency of
the Philippines now. As a former colony of the United States of America, the country used
English on its currency, with the word "peso" appearing on notes and coinage until 1967. Since
the adoption of the Filipino language for its banknotes and coins, the term "piso" is now used.
The standard international spelling per ISO 4217 was changed to "piso" in 2017.

In the beginning, the Filipino peso was equivalent to US $ 1.00. Harmonizing to official
beginnings, the Philippines foremost experience devaluation of its currency in 1934 when the
United States was undergoing the worst economic crisis in history – the Great Depression. Since

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our currency was pegged to the US dollar the US authorities passed the Gold Reserve Act of
1934 which devalued the US dollar and accordingly devaluing also the peso at P 2. 00 to US $ 1.
00. From 1935 up until the early 1960s the exchange rate remained at P2.00 to US$1.0.

Then, on November 8. 1965, the International Monetary Fund officially reduced the gold
contents of the peso by half, thereby deprecating its value to P 3. 95 per dollar. This action by the
IMF was best described by Filipino economic expert Dr. Gregorio S. Miranda: “For rather some
clip, the Philippines was in a province of pecuniary crisis brought approximately, among others,
by authorities overspending particularly for intents of political expedience or economic jussive
moods. In order to salvage itself from bankruptcy, the authorities had to boost itself up by
seeking loans, for loans about to mature by the terminal of 1969. The authorities did, and in so
making, in consequence, surrendered its pecuniary sovereignty to the International Monetary
Fund from which it sought and got a 3rd tranche, or a loan to cover an old loan about to mature.
The drifting rate is thereby the merchandise of the IMF’s attempt to reconstitute our foreign
duties premised on certain conditions”.

Therefore, on February 21. 1970, the Central Bank promulgated CB Circular No. 289 which
allowed the peso to drift and seek its true market value. This created an addition in the monetary
values of imported goods and locally produced goods with imported constituents. Finally, by
June 1983, the Central Bank devalued the peso to P 11. 00 to a dollar. After four months, on
October 5. 1983, the peso was further devaluated with a rate of P 14. 00 per US $ 1. 00. This
ulterior depreciation was decided upon when the balance of payments shortage increased by $
800 million by the 3rd quarter of 1983 and the Central Bank could no longer afford to finance
farther shortages.

There was no clear cause as to the devaluation of the peso from P 14.00 to P 25.75 during the
Aquino Administration but the US stock market crisis in 1987 may keep the key to our
apprehension. Called the Black Monday, an autumn in stock market monetary values in the
United States on October 29, 1987 created turbulences in the universal capital markets. It
triggered a fiscal crisis around the universe including London and Tokyo. It was considered a
global economic crisis. The same thing happened in 1997-1998 when Asia experienced a fiscal
crisis which shook and rocked monetary values of half the world’s currencies and brought the
peso value down to P 28. 00 per US dollar.

In early 2000, P 50.00 per dollar exchange rate has been the consequence of the maturing of our
IMF and World Bank loans which had already ballooned to $ 66 Billion in 2004. These were
merely the direct accounts as to why the value of the peso is bit by bit deprecating. However,
there are still some implicit in factors that had brought about these events. The Philippine Peso,
as the country's medium of exchange has gradually diminished in value. From P 2.00 to the US
dollar in 1935, and had dwindled down to P 55.65 in 2005. Historically, the Philippine Peso
reached an all time high of 56.34 in October of 2004 and a record low of 37.84 in May of 1999.

Through the years and various administrations, we can see below its dramatic decline.

| PERIOD | ADMINISTRATION | RATE / US$ |

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| 1935 - 1943 | Manuel L. Quezon | P 2.00 |
| 1943 - 1945 | Jose P. Laurel | P 2.00 |
| 1945 - 1946 | Sergio Osmena Sr. | P 2.00 |
| 1946 - 1948 | Manuel Roxas | P 2.00 |
| 1948 - 1953 | Elpidio Quirino | P 2.00 |
| 1953 - 1957 | Ramon Magsaysay | P 2.00 |
| 1957 - 1961 | Carlos P. Garcia | P 2.00 |
| 1961 - 1965 | Diosdado Macapagal | P 3.95 |
| 1965 - 1969 | Ferdinand E. Marcos | P 3.95 |
| 1969 - 1983 | Ferdinand E. Marcos | P 11.00 |
| 1983 - 1986 | Ferdinand E. Marcos | P 14.00 |
| 1986 - 1992 | Corazon C. Aquino | P 25.75 |
| 1992 - 1998 | Fidel V. Ramos | P 28.00 |
| 1998 - 2000 | Joseph E. Estrada |P 50.00 |
| 2000 - 2004 | Gloria M. Arroyo | P 56.65 |
| 2004 - 2006 | Gloria M. Arroyo |P 51.65 |
2006 - 2010 Gloria M. Arroyo P 44.43
2010 - 2016 Benigno Aquino III P 47.70

Since the Bangko Sentral ng Pilipinas opened in 1949 the country has persisted in devaluing the
currency in order to decrease the country’s debt in real terms. As a consequence, the peso has
lost 99% of its value since 1949, based on the current price of gold. Note the following
significant movements of the piso currency with respect to the country’s political history since its
evolution from the 1960s.

1961: President Diosdado Macapagal allows the peso to float on the free currency
exchange market, unpegging it from the US dollar to stimulate economic development.
Its value sinks from P2 to P3.9 to the dollar.

1970: This is due to the First Quarter Storm, where a series of heavy demonstrations and
protests and marches take their toll on the country. The value of the peso slips from P4 to
P6 to the dollar.

1983: Ninoy Aquino assassinated. The country rapidly deteriorates, culminating in the
EDSA Revolution. Value of the peso dives from P8 to 20 to the dollar over a few years.

1989: A series of ugly coup attempts threatens the Aquino administration, including a
bloodbath in January 1989. Peso descends from P21 to P27 to the dollar over two years.

1997: The Asian Financial Crisis occurs, and I can't understand it no matter how many
times I check Wikipedia, but the peso crashes from P26 to P41 to the dollar in a single
frickin' year.

2000: Economic mismanagement and political instability during the Estrada


administration, plus charges or corruption leading to an impeachment trial. Peso
nosedives from P40 to P50 to the dollar.

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2008: Hello Garci controversy, an alleged election fraud, fertilizer scam controversy,
National Broadband Network scandal and Maguindanao massacre made the
administration of Gloria Macapagal Arroyo shaky as trust on governance diminished.
Exchange rate went up to P44.4 to US $1.0 due to effective economic management of her
administration.

2015: Benigno Aquino III has been bombarded with numerous scandals, including the
PDAP/DAP scandal, Yolanda Typhoon Donation Projects scandal and the Mamasapano
massacre.

As of September, 2015, it takes ₱1,390.87 modern pisos to equal the intrinsic purchasing power
parity of the 1903–1949 Philippine Commonwealth peso, as per its legal definition: 12.9 grains
of pure gold.

The peso depreciation affects many prices and income cases. The cost of foreign goods and
services increases. For instance, if one is traveling to other countries, the cost of travel (in local
peso terms) becomes more expensive: airline tickets, accommodations, meals, all purchases
abroad. Hence, a peso depreciation also has the effect of discouraging the purchase of imports.
Essential imports would still be bought, however, but now at higher peso costs. For instance,
crude oil that we need — even if the dollar price remained the same — requires more pesos to
bring it into the country for use. To foreigners, the cost of anything that we sell to them — be it a
good produced here or any resource we sell like labor, land rent, or capital service — will be
cheaper. Yet, the Filipino seller of the good receives more pesos per dollar of sale. Moreover,
peso depreciation lowers the cost of our exports and attracts foreign businesses to buy our goods,
but our exporter increases their peso revenues from their sales. Remittances to his family by a
Filipino worker abroad converts to more pesos for every dollar value sent home. In short, the
family receives more pesos per dollar sent. In general, this improves the peso income position of
the recipient. More pesos therefore will be in circulation in the economy.

Price inflation at home is a likely result. Domestic inflation is a likely outcome of exchange rate
depreciation. This results from the likelihood that local prices of goods — both home produced
and foreign-bought would rise in prices.

In 2016,the peso had depreciated rather sharply: the US central bank’s anticipated interest rate
hike; Trump’s election which brings uncertainty because he had advocated changes in American
policy on trade that would affect world trade and investments; and President Duterte’s
unfortunate rhetoric that impacts on foreign investor sentiments towards the country. All these
have contributed to the sharp drop and volatility of the Philippine stock market index as well as
the observed peso currency depreciation. Investors and businessmen make their decisions mainly
to reduce the risks they face or to assure their profits. They react to the perceived factors they
encounter in their operations.

However, the price impact of the peso depreciation could be neutralized or reduced by a
combination of policies — tax, spending, and other sector economic policies. It should be noted
that well-planned exchange rate depreciations could be useful. It has proven to be a major
element in the case of the typically successful “East Asian model of economic development.”

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Over time and at different episodes in their respective histories, South Korea, Taiwan, Thailand,
Indonesia, and Vietnam have used the depreciation of their respective currencies as the basis of
their export growth strategy.

Hong Kong and Singapore in their early years of growth have relied simply on removing many
barriers to trade and have maintained an exchange rate that approximated the market value of
their currencies. The two most successful Asian economies — Japan (during the early post-
World War II period when it was badly in need of reconstruction and recovery) and China
(during its recent decades of massive expansion) had relied on a weak currency to foster their
trade and industrial growth.

It was only during the 1970s that the Japanese yen had appreciated dramatically to the level it is
now, in the whereabouts of slightly above 100 yen to the dollar. Early during the postwar period,
the rate was maintained at 360 yen to the dollar. In the case of China, the currency had remained
fixed at a favorable rate to the US dollar for years until the last decade. Even as late as the 2016
US election, candidate Donald Trump had called China a currency manipulator to favor its trade
policy.

In the case of the Philippines there have been episodes in country’s own economic development
experience when, after serious balance of payments and macroeconomic crises, the currency had
weakened to the point of rendering Philippine goods and resources very competitive as a result
of exchange rate depreciation. But in the same breath when export and industrial growth were
about to expand and get further encouraged, policy reversals restored old relative prices, thereby
negating the gains from depreciation. Such reversals happened through the maintenance of
import restrictions, tariff regulations or raising resource costs, such as restoring high minimum
wages. At other times, it was through unintended exchange rate appreciation.

It did not help also that there have been economic restrictions imbedded in the Philippine
Constitution against foreign direct investments in important, but prohibited areas of investments
for foreign capital. Today, even as the country faces new challenges and is open toward further
liberalizing the investment frontiers involving more foreign direct investments (through the
announced agenda to amend the restrictive economic provisions in the Constitution as stated in
the government’s 10 point program), the opportunities for economic success are less encouraging
compared to other times.

In the final analysis, assessing the foreign remittances would still play a crucial role in the
country’s economy, providing more foreign currency than direct investment at over 10% of
GDP. Tourism is a newly developed industry but one with great potential, while the government
has also targeted business services outsourcing as a key future industry. Experts often tout the
Philippines to be amongst the next big developing countries in the world and could be one of the
20 largest global economies by 2050 if we would do all the right things today. We hope that on
this day, the Filipinos would now inherit and experience the true, real, and genuine fruits of
economic and social development that has been deprive from them for many years.

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Sources:

http://mpgonz.blogspot.com/2009/01/philippine-peso-from-1950-to-2009.html

https://spotbit.com/articles/philippine-peso-essay-sample-1137/

https://www.rappler.com/business/industries/210-capital-markets/118005-ph-peso-weak-2016-
forecast

https://en.wikipedia.org/wiki/Devaluation

https://www.rappler.com/thought-leaders/147861-peso-depreciation-should-we-be-worried

https://en.wikipedia.org/wiki/Economy_of_the_Philippines

https://en.wikipedia.org/wiki/Philippine_peso

http://pcij.org/stories/glorias-inglorious-record-biggest-debtor-least-popular/

https://en.wikipedia.org/wiki/Presidency_of_Gloria_Macapagal_Arroyo

http://www.exchangerate.com/country-information/republic-of-the-philippines.html

http://www.cebuexperience.com/dollar-to-philippine-peso/why-the-dollar-to-philippine-peso-
exchange-rate-is-so-bad/

http://www.philstar.com/business/2016/11/30/1648699/peso-depreciation-causes-and-
implications

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