The Philippine Peso - Asia's Rising Super Star
Zigfred Diaz
When the United States Dollar-Philippine Peso Exchange rate was still P44+ to a dollar, I told my dad to dump all his dollars, exchange it for peso and put it in mutual funds.
I am not certain if my dad listened to my advice, However the exchange rate is now about P 40.00 to a dollar.
Experts who give out a fearless forecast predict a 37 to 1 exchange rate by the 1st quarter of 2008. The more conservative ones say it will be P 39 to a dollar by 2008. However most of them agree that it will be in the P 30 +++ level by 2009. There are those who give higher than P 35 production, others lower say it is lower than that.
One thing is certain though, the Philippine Peso will keep on getting stronger in coming months because of the following:
1.)It's all about supply and demand - Basic economic principle, if demand is high prices goes up, when demand is low prices go down. In the same way, the more dollars there is, the cheaper it will be. Lesser demand for dollars also means cheaper dollars. The following reasons could give us an idea as to why the supply of U.S dollars is rising in the country:
a.) Increase in Overseas Foreign workers (OFW) remittances - An estimated eight million Filipinos, out of a population of more than 80 million, have left the country to seek work abroad. There are currently more than 11 million Filipinos worldwide. An increase in the number of Filipinos leaving the country for work is expected to continue and as this continues to grow, so does remittances. This steady and additional inflow of U.S dollars helps strengthen the Philippine Peso.
b.) Inflow of Foreign capital - The Philippines is ripe for investment. The Bangko Central has reported that from January-September 2007, "foreign direct investments (FDI) net inflows aggregated US$1.9 billion, higher by 22.3 percent compared to the US$1.6 billion recorded in the same period a year ago." Investors are now looking at the Philippines as a good place to invest because of several factors, among which are, effective Fiscal reforms implemented by the government, strong economic fundamentals, our growing business process outsourcing potential and liberalization of mining laws. A substantial portion of foreign investments went to mining, real estate and manufacturing. The effect of this is bullish stock market, low inflation rate, high GDP etc. These factors continue to produce a good business environment for investors as this trend continues more investors are expected to come in. With this "hot money" continuing to pour into our country, the supply of dollar continues to rise.
c.) More Tourist, More money - Tourists spend a lot of money while they are in the country. According to the Department of Tourism, Tourist arrival increased 8.6 percent from last year. This means that there 2.5 million more tourists. With the influx of more tourists, the supply of U.S dollars is further increased in the country.
d.) Export earnings growth - Despite the fact that exporters are having a hard time due to a stronger Philippine Peso, the export sector has reported growth last year due to the increase of Business Process Outsourcing investment in the country. It cannot be denied that the Philippines is still to one of the best place to invest when it comes to business process outsourcing.
e.) Political stability - People are tired of political bickering, political mudslinging and engaging in activities that call for the resignation of the president. It cannot be denied that the existing administration has maintained its grip and influence creating a somewhat stable political environment.
2.) Weakness of the U.S dollar - The Philippine Peso benefited from the weakness of the U.S dollar. Because of the sub prime mortgage crises, the U.S economy has continued to deteriorate resulting to a weaker dollar. Thus giving a chance for the Philippine Peso to appreciate much even further.
The year 2007 closed with the Peso being named as the best performing currency in Asia. It is said to have gained about 18 % against the U.S dollar.This trend is more likely to continue and a stronger peso is very much more likely in the month or even years to come.
Want to know more about financial management and investments ? Zigfred Diaz regularly blogs about these topics including other diverse topics as well. If you would like to know more http://www.zdiaz.com/ economic forecast that could affect investment decisions, visit his blog.
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