US need for funds real reason for strong peso — Estanislao

SAN FERNANDO, Pampanga – US Treasury bills being floated abroad are "the real good reasons" for the improved peso-dollar exhange rate, former Finance Secretary Jesus Estanislao said.

Estanislao, who is now president and chairman of the Institute for Solidarity in Asia (ISA), said "if you are really looking for a good real reason (for the improved peso rating against the US dollar), we have to thank the United States for it."

"The US is accumulating a lot of deficits with the rest of the world which means they (Americans) have to float quite a lot of treasury bills, which means therefore that there’s a lot of money (dollars) out there," Estamislao said.

Estanislao also said that the inflow of remittance from overseas Filipino workers and the reduction of National Government deficit also helped, but to a limited extent.

"Of course,  the OFW remittances and what the government has been doing (to reduce deficit) have been helpful but the real big reason is the deficit of the US spreads a lot of money all over the world and that money has to be placed somewhere and it just so happens that many of our stocks are undervalued and therefore the Philippine stocks exchange has gone up," he noted.

Estanislao also justified the recent increase in the expanded value added tax (EVat) from 10 percent to 12 percent, saying that this should not significantly impact on the cost of basic commodities.

"When you look at the overall (situation of the economy),  as long as the peso keeps on improving, you are better off as a country, " he said.

"The immediate impact of Vat increase from 10 percent to 12 percent, is small compared to what happened with the dollar exchange rate. Look at that comparison and things will come out better, That’s why we don’t have a revolution," he stressed.

Estanislao said that "precisely because of the EVat, our interest rates are going down, and because of lower interest rates, your debt service payment is also decreasing.

He also noted that "many of the commodities that we have are produced from imported raw materials and so while  the EVat has gone up, the peso-dollar exchange rate has improved too and therefore the impact on prices (on basic goods) would be minimal."