CPBO urges government to prepay dollar loans

The government should prepay some of its dollar-denominated obligations while the peso remains strong against the dollar, a government think-tank recommended in a report.

According to the Congressional Planning and Budget Office (CPBO), the peso could appreciate to as high as 39 against the dollar this year.

It said that while the appreciation of the peso against the dollar has been hurting exporters and beneficiaries of overseas Filipino workers, it also presents opportunities for the government.

It also said that local manufacturers can also benefit from the steady appreciation of the peso against the dollar.

“While there are losing sectors, the peso appreciation presents opportunities to some. The government should prepay some of its dollar-denominated obligations. Local manufacturers should also import the much-needed capital equipment to improve their productivity,” the think-tank said.

CPBO said that the rapid appreciation of the peso against the dollar particularly in the fourth quarter of 2007 has led to the peso’s overall gain of almost 15 percent last year.

The strengthening of the peso was mainly attributed to the robust inflow of OFW remittances, supported by the improvement in foreign portfolio and direct investments.

Mixed reactions on the peso appreciation, however, are expressed by different sectors of the economy.

The government, for its part, welcomed the appreciation because of reduced debt servicing while importers enjoyed lower prices of imported products.

On the other hand, OFWs whose spending power weakened and exporters whose competitiveness declined have called on the government to mitigate the impact of the peso appreciation against the dollar.

The CPBO expects the peso to further appreciate against the dollar this year and could range between 39 and 41-to-the-dollar.

Furthermore, the think-tank expects inflow of remittances to remain strong and the outlook for foreign investments to remain positive.

At the same time, CPBO cautioned monetary authorities against intervening in the market.

“While the government is committed to support an exchange rate that is market-determined, the Bangko Sentral ng Pilipinas is compelled to intervene to maintain market stability which can, however, result in huge losses,” the think-tank said.  Several programs have also been introduced to mitigate the losses of affected sectors such as the extension of credit facility to exporters and investment opportunities for OFWs, the CPBO said.