It has become customary for the Duterte economic managers and leaders of some business associations to promptly make optimistic assurances seeking to allay consumers’ apprehensions whenever the peso starts making a big decline in the foreign exchange market.

The favorite refrain is that a peso depreciation supposedly “boosts” Philippine exports because local products become more affordable to buyers paying with dollars abroad. Another upbeat reaction from depreciation defenders is that OFW families would be getting bigger peso amounts for the dollars remitted by their breadwinners overseas.

Since the peso started weakening last year, this kind of instant reaction has been mouthed by an assortment of administration officials, business leaders and some finance experts in interviews with the media. Their assurances make supposed “benefits” from a peso depreciation sound like winning a lotto draw.

How reliable are these declarations from the finance experts? A quick look at the latest trade statistics would dispute such overly optimistic views. Consider that in the January-April period this year (latest available data), the average peso rate against the dollar fell by 3.2 percent from the year before but instead of getting a “boost”, Philippine exports dropped by 6.2 percent.

Government statistics show that total exports in the four-month period totaled $20.96 billion, down from the year-ago $22.34 billion. On the other hand, Imports, due to the lower peso and to large purchases of expensive building materials from China, surged by 10.5 percent to $33.16 billion—the highest ever for that four-month period.

The pesos generated by the export revenues also did not look like “gains” from the exchange rate depreciation. Converted to pesos, export earnings in the first 4 months of this year reached P1,081 billion, which was below the P1,116 billion posted for the same period last year (computations based on average monthly exchange rates tabulated by the Bangko Sentral ng Pilipinas). Exacerbating the situation, more pesos are now needed to buy dollars in paying for imports and foreign debt.

This is only one side of the equation. Most Philippine industries are highly dependent on imported raw materials and machineries and spare parts. These imports therefore effectively cut the real value of revenues from exports because of higher production costs.

For instance, the leading exporting sector, electronics products such as semiconductors, registered total exports of $11.75 billion in the first 4 months this year. But to be able to produce these export products, the electronics manufacturers had to import $8.75 billion worth of components and other supplies, making the industry also a leading importer. The local content in the final product exported by the electronics makers is essentially the labor employed in the assembly, which makes up just around a fourth of the finished product’s value.

This is the same picture that emerges in many other local manufacturing industries. Companies that produce for markets abroad need to import varying amounts of imported raw materials, not to mention factory equipment and machineries, for their products to become competitive in those markets.

Thus, the assertion that a drop in the peso exchange rate instantly benefits Philippine exporters is not necessarily accurate. The Duterte economic managers should stop making such pronouncements that only raise false expectations from the affected sectors. They instead should be working harder on attracting more investors into manufacturing activities that have deep linkages with domestic producers of basic resources and supplies to reduce the levels of imported content.

RECIPIENTS OF REMITTANCES

As for remittances that local households receive from family members working overseas, a peso depreciation translates into bigger peso amounts they get from the incoming dollars.

However, since a depreciation also results in increased prices of consumer goods purchased with the remittance proceeds, the real value of the pesos that OFW families get is actually lower. Over time, ripple effects of rising prices on more sectors of the economy could even fritter away the increases in the remittances’ peso amounts.

For example, an OFW family residing in Metro Manila, where prices of food rose by an average 6.3 percent in the January-May period, a 3.5 percent increase in the peso equivalent of the incoming dollars (based on Bangko Sentral data) obviously means an erosion of the family’s purchasing power.

There were bigger rates of increases in transport fares, according to the Philippine Statistics Authority, along with other expense items such as household utilities, education, recreation, and health. Woe to those who consume large amounts of alcoholic beverages and tobacco for it was in this product group where the price increases under the TRAIN scheme hit hardest.

Results of a Bangko Sentral survey of consumer expectations revealed that in the second quarter of this year, OFW families have had to cut budgets allotted for a wide range of expenditure, with the exception of education which took bigger amounts ahead of the June start of the new school year.

The latest of the quarterly surveys, conducted in the first 2 weeks of April, showed that OFW households reduced the proportion of money set aside for food and other household needs, debt payments, medical and purchases of appliances and other durable goods as well as cars and houses.

In general, consumer sentiment across the archipelago—reaching just 3.8 percent on the confidence index compared to 13.1 percent the year before—was dampened by the escalating pace of price increases, which the respondents also expect to continue over the next 12 months, along with higher interest rates and a weaker peso.

Among OFW households, despite the increased peso proceeds from dollar remittances, more than a third—37.6 percent—said they were in debt during the April survey period, with the debt amounts eating up to 27 percent of incomes. The majority of these households are in the provinces, and most—a combined 87.7 percent—are in the low- and medium-income groups.

More than 16 percent reported being behind in payments. The reasons they gave for having difficulty in paying debt are: not enough income; additional expenses associated with the indebtedness; hard time in budgeting their money; no capacity to pay; no work, and high interest rate, according to the survey results.

All this only shows that getting more pesos for dollars sent by relatives abroad does not necessarily insulate OFW households from the difficulties spawned by a weaker peso, rising cost of living, and the wave of price increases caused by the TRAIN scheme’s indiscriminate imposition of taxes on the populace.

DISCLAIMER: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.