Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
BREAKING NEWS - United States Galloping Towards Nuclear War with China Proxy North Korea - 26th Sep 17
Here’s Why Turkey Can’t Stay Out Of Syria - 25th Sep 17
Hidden Gems Shows A Foreboding Stock Market Future - 25th Sep 17
10 Reason You Should Use Ridesharing To Save Money - 25th Sep 17
Commodities King Gartman Says Gold Soon Reach $1,400 As Drums of War Grow Louder - 25th Sep 17
Stock Market Mixed Expectations, Will Stocks Continue Higher? - 25th Sep 17
22 charts and 52 questions that will make you Buy Gold - 25th Sep 17
Speculation Favors Overall Higher Silver Prices - 25th Sep 17
The Advertising Breakthrough Revolutionizing Gaming - 25th Sep 17
Stock Market Forming a Reluctant Top - 25th Sep 17
Grid Forex Strategy - All You Need to Know - 25th Sep 17
Catalonia, Kurdistan, Patriotism, Flags and Referendums - 24th Sep 17
Two Key Indicators Show the S&P 500 Becoming the New ‘Cash’ - 24th Sep 17
The Felling of Sheffield's Big Street Trees 2017 - Dobcroft Road - 24th Sep 17
Advantages of Forex Trading - 24th Sep 17
Stocks, Gold, Dollar, Bitcoin Markets Analysis - 23rd Sep 17
How Will We Be Affected by a Series of Rate Hikes? - 23rd Sep 17
Fed Quantitative Tightening Impact on Stocks and Gold - 22nd Sep 17
Bitcoin & Blockchain: All Hype or Part of a Financial Revolution? - 22nd Sep 17
Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms - 22nd Sep 17
Will North Korea Boost Gold Prices? Part I - 22nd Sep 17
USDJPY Leads the way for a Resurgent Greenback - 22nd Sep 17
Day Trading Guide for Dummies - 22nd Sep 17
Short-Term Uncertainty, As Stocks Fluctuate Along Record Highs - 21st Sep 17
4 Reasons Gold is Starting to Look Attractive as Cryptocurrencies Falter - 21st Sep 17
Should Liners Invest in Shipping Software Solutions and Benefits of Using Packaged Shipping Software - 21st Sep 17
The 5 Biggest Bubbles In Markets Today - 20th Sep 17
Infographic: The Everything Bubble Is Ready to Pop - 20th Sep 17
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

The Philippine Peso Squeeze 

Currencies / Forex Trading Apr 18, 2017 - 11:37 AM GMT

By: Dan_Steinbock

Currencies In the first quarter, the Philippine peso depreciated against the US dollar. Internationally, this was attributed to President Duterte’s policies. In reality, it has a lot to do with the expected US rate hikes. But there is a reason why misguided geopolitics now overshadows Philippines.

In the recent quarter, the Philippine peso depreciated by 0.88 percent against the US dollar. It was the only currency in Asia to do so. For the first time since 2009, the peso drifted to 50 per US dollar.


Much of international media attributed the fall to President Duterte and his “unlawful” policies. The number of such reports has increased since last fall and escalated through the spring, particularly in US-based media, including some of the largest global financial news hubs.

At best, these reports reflect an odd discrepancy between the fundamentals of the Philippine economy and the way it is portrayed internationally. At worst, they illustrate a gross misrepresentation of those fundamentals.

The geopolitical peso story

As the peso peaked at 50.40 in early March, international media saw the real culprit in President Duterte. who is “involved in unlawful killings and corruption,” as Bloomberg’s Ditas B. Lopez put it. The headline told the story: “Asia’s ugly duckling of the year is the Philippine peso, thanks to Duterte.”

Actually, this narrative did not start in early 2017 when the Philippine currency began to weaken against the US dollar. It did not reflect news; it proactively shaped news. It began already in September 2016 when peso was still 46 against the dollar. From January 2017 back to September 2016, the Bloomberg author’s Philippine stories included “Southeast Asia's Worst-Performing Currency Is in for Another Tough Year,” “Philippine Peso Completes Worst Month in 16 Years,” “Duterte's Peso Rout Runs Counter to the Booming Philippine Economy,” “Philippine Officials Seek to Soothe Investors Spooked by Duterte.”

Bloomberg was not alone. In the Barron’s (March 22, 2017), William Pesek’s headline tells the story: “Philippine peso’s troubles just beginning. The peso is down 8% and investors are dumping stocks amid doubts about Duterte’s economic agenda.” Here the peso is seen “buckling under the weight of a chaotic and distracted administration," and "lots of body bags, more than 8,000 and counting." The peso’s fall is attributed to “impeachment talk” (about Duterte). In the past investors, were “clamoring for peso assets thanks to predecessor President Aquino’s structural upgrade drive.”

Like many others, Barron’s mistook Aquino’s stated economic goals with his actual achievements. No questions are posed about the dramatic rise of the drug trade under Aquino's watch, the complicity of public officials, and media silence about the drugs. Instead, marginal figures (Gary Alejano) with an anti-democratic mutineer record are presented as “opposition politicians.” Flawed drug wars statistics is quoted as accurate. Senator Leila de Lima is portrayed as a figure of integrity, despite her gross abuse of public office and funds, and cooperation with drug lords. And Vice President Robredo’s UN speech, which penalized her credibility, is presented as testimony of courage.

Most distressingly, most of these accounts are quiet about the alleged Goldberg plan - that is, the alleged regime change plan by the former US Philippines ambassador to replace Duterte - which advocated exploiting the Philippine public and private sector, along with international NGOs and international media, exactly in the way that these reports have done.

Peso among Southeast Asian currencies

As the peso has depreciated against the US dollar, the Bangko Sentral (BSP) has put a positive spin to the story. In this narrative, the relative strength of the peso in the past plus lower inflation explains the currency stability.

The story is largely true. Between 2009 and 2013, the peso strengthened against the US dollar from 49 to 41. In the past quarter, it weakened to 50.

In international media, the fall was compared with the alleged strength of the Japanese yen, Korean won and other currencies. Yet, comparing apples and oranges may not be useful. The peso is an emerging-economy currency; yen and won are advanced-economy currencies. In the latter, per capita incomes are five times higher than in the Philippines.

In Vietnam and Myanmar, per capita incomes are closer to those in the Philippines. In the past years, their currencies have also experienced strong depreciation. In contrast to the peso’s 25% fall, the Vietnamese dong has weakened over 35% since 2009 and Myanmar kyat 55% since 2012.

There is still another problem with the international media accounts about the peso’s fall. It did not happen under Duterte’s watch. Instead, it began in the middle of the Aquino era, with the Fed’s exit from quantitative easing and the first rate hike around 2013 and 2016. That’s when the peso fell from 41 to 48 per dollar. 

Last year, the Philippine current account did shrink to 1%, while the trade deficit soared to a record $25 billion, and the peso depreciated accordingly. Nevertheless, Philippine exports are expected to recover while remittances and business process outsourcing revenues should remain robust.

The stability of the peso has not disappeared. In fact, in early April, when all Asian currencies took hits, the peso bucked the trend by rising on strong net inflows to the Philippines equity market. What this suggests is that investors are looking past the international media narrative and are instead focusing on the probable gains of the Duterte economic agenda.

Strengthening dollar, weakening peso

As the Fed has exited QE and initiated tightening, US dollar hit its 14-year high last fall. It has been fueled by rising government bond yields and the Fed’s anticipated hikes) and expectations of Trump’s fiscal expansion via infrastructure stimulus.

What makes the peso trajectory harder to project vis-à-vis the US dollar is the uncertainty associated with the dollar. As the US must borrow ever more to finance its trade deficit, rising debt is pushing America deeper into the red. In the last quarter of 2016, foreign ownership of US debt outpaced US claims on foreigners by $8.4 trillion, which means a deficit that’s almost half of US GDP.

In contrast, the Philippines continues to enjoy significant long-term economic potential, even though - after months of misguided stories about the Philippine economy - international investors have been spooked by their own media.

As international focus lingers on political controversies associated with Manila's regional rebalancing, the economic promise of the Duterte policies has been ignored. However, that's not about economic fundamentals but about geopolitics.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife