Peso depreciates anew as investors lose confidence

Political wranglings and the impending Cabinet shakeup have caused investors to lose confidence in the peso just as it appeared to be finally regaining its strength against the dollar, analysts said yesterday.

At the Philippine Dealing System (PDS), the peso plunged by 38.50 centavos to close at 40.550 yesterday from Wednesday's close of 40.165 to the dollar.

For the first time in 16 weeks, the peso ended above the 40 to the dollar barrier on Monday, closing at 39.980 to the greenback. Traders said the peso's recent gain was due to the Thai baht's recent gains, ample supplies of the dollar and the local banking system's smooth transition to 2000.

The peso continued to gain ground on Tuesday, ending 13 centavos higher at 39.770 from Monday's close of 39.980 to the dollar.

However, news of Finance Secretary Edgardo Espiritu's surprise resignation last Wednesday weighed down the foreign exchange market, traders said, adding that the peso's decline went against fundamentals, as regional stocks and currencies were expected to gain after the Dow Jones' overnight rally.

Analysts said the renewed political uncertainty and the Cabinet revamp convinced some banks to stock up on dollars anew.

Sources from the Bangko Sentral ng Pilipinas (BSP), however, said the foreign exchange market is just taking advantage of any opportunity to speculate since there is no real demand for dollars. Dealers said bulk of the demand for dollars came from offshore accounts.

The BSP, however, is not about to intervene at the foreign exchange market at this point since it believes that the situation will eventually calm down once the new Cabinet line-up is announced.

Sources said with the change in leadership at the Department of Finance, market players are taking advantage to trade the peso since the government's foreign borrowing program would temporarily be put on hold.

The finance department, under the leadership of Espiritu, planned to source its financing needs from the international capital market.

Trade Secretary Jose Pardo succeeded Espiritu as finance secretary. But traders said they have yet to decide whether Pardo would be a suitable replacement since his views on fiscal policy remain unclear.