Economist sees peso sliding down to 61.25:$1 next year

CLARK FIELD, Pampanga – The peso is likely to depreciate further to 61.25 to the US dollar by next year, but stressed that this should not be cause for alarm and would even be beneficial to the country, a leading economist said.

Speaking before the Pampanga Chamber of Commerce and Industry (PamCham), led by local business magnate Levi Laus over the weekend, Bernardo Villegas, senior vice president of the University of Asia and the Pacific, said that a higher exchange rate "will continue to encourage exporters" and that "appreciation of the peso will cause exporters to flee."

He cited the case of China which, he noted, "does not want a strong currency". As a result, China has dollar reserves of about $500 billion, in contrast to the Philippines’ $17 billion reserves.

He said he expects the peso to depreciate by three to four percent from 2006 to 2010.

Villegas also noted that in the Arroyo administration, the country’s gross domestic product (GDP) growth rate grew at "a normal rate" of between four to six percent. But he noted that the country has lagged behind Vietnam whose growth rate ranged from 6.4 to 7.5 percent.

"The Philippines should have a growth rate of more than seven percent," he stressed, saying this rate is the only way the government can improve the plight of some 34 percent of the population "in dehumanizing poverty".

"If we cannot change the rate (to go beyond seven percent) in the next two years, then let’s change leadership," he told members of the PamCham.

Villegas also cited the need to boost agriculture growth beyond two percent, as he noted that the national population grows at such rate. He stressed the need for "bigger network of irrigation systems" and measures to cope with the El Niño weather phenomenon.

At the same time, Villegas also downplayed the effects of continuing increases in fuel cost. "It’s really a blessing in disguise," he said, citing similar circumstances during the Marcos administration which prompted the late President Marcos to push for the development of hydrothermal projects. The development of hydrothermal plants in various parts of the country reduced the country’s electric power dependence on fossil fuel down to 49 percent, he noted.

Villegas said that already, the spiralling cost of fuel has prompted the government to encourage alternative sources of energy such as windmills, ethanol, and natural gas. "Perhaps `10 years from now, only 10 percent of us will be using oil," he said.

Villegas also urged the government not to rely too much on China despite its high growth rate of about nine percent. "China will suffer from a hard landing in 2007 and the Philippines and Japan should prepare for this. China is overheating," he said.

"We must look for our growth in the domestic market (within the Association of Southeast Asian nations). We should spread our risks in as wide an area as possible, " he stressed.