Pardo: Peso slide no cause for alarm

"Don't worry about the peso slide."

These were the reassuring words from Finance Secretary Jose Pardo, who told the Greenhills Walking Corp. breakfast forum at the Ristorante La Dolce Fontana in Greenhills, San Juan yesterday that the country's gross international reserves of $16 billion are equivalent to 4.7 months of imports.

Pardo said the figure represents "the highest reserves in the country's history" while inflation averaged only three percent in the first quarter of the year.

While the peso continued to fall yesterday, the country's economic managers are still not worried.

Members of the Economic Coordinating Council (EEC) assured President Estrada that the continuing fall of the peso was merely temporary and that the Philippine currency would recover soon.

In a meeting at Malacañang, ECC members led by Pardo, Trade Secretary Manuel Roxas II and Bangko Sentral ng Pilipinas Gov. Rafael Buenaventura told the President that the main cause of the peso's sudden dip the other day was the raising of interest rates in the US.

They allayed fears that the recent bombings in Metro Manila and the hostage-taking in Mindanao by Muslim extremist rebels were the biggest factor in the peso's nosedive.

The peso closed yesterday at 42.91 to the dollar, a new 19-month low.

Buenaventura, however, said economists have predicted that the peso would stabilize at about 41 to the dollar soon.

"The peso will eventually go back to a better equilibrium," he said. "This is not just the forecast of the BSP but also of economists and international banks."

Buenaventura clarified that although the peso was "affected to some degree by exaggerated reports" on the ongoing conflict between government and Muslim forces in Mindanao, still its fall was the result of rising interest rates in the US.

"The peso has gone down and no question about it, it was regional. But then, of course what is happening here (in the country) continues to affect the peso," he said.

Pardo also told the Greenhills Walking Corp. that the government intends to use part of its projected P31-billion savings from a five percent cut in the budget of line agencies to finance development projects to boost the economy in strife-torn Mindanao.

He said that the P31 billion is aside from the supplemental budget being proposed by lawmakers this year to replenish the budget of the Armed Forces which is fighting the separatist Moro Islamic Liberation Front (MILF) and the extremist Abu Sayyaf.

"The five percent cuts in the budget, or about P31 billion, will be a standby fund and ready for re-allocation. Part of this can be used for security and economic needs of Mindanao. We want to pour in more development (funds) there," he said. "Since it (Mindanao) is a priority, it can have as much as it needs."

Pardo also said that there might be no need for any supplemental budget since the government expects a "swift and peaceful" resolution to the conflict in Mindanao involving the MILF and the fundamentalist Abu Sayyaf, which is still holding 21 mostly foreign hostages in Sulu.

He said the government is sticking to its expenditure program this year and would still keep within an anticipated P62.5-billion budget deficit target by the end of December.

Pardo said the Cabinet Cluster E on national security had told President Estrada that its members believe the Mindanao conflict can be resolved in a short time.

"The President wants Mindanao to become the country's food basket. But this can only happen if there is peace there," he said.

The President approved last week a five-percent mandatory savings for all government agencies with the proceeds to be used as a buffer fund in case revenue collection targets are not met.

Pardo said the government is also closely monitoring prices of basic commodities to prevent undue increase in prices. However, he ruled out any imposition of price controls, saying it is against the principle of free enterprise.

The conflict in Mindanao and other security problems have contributed to the plunge of the peso to 42.89 to the dollar as of yesterday morning as nervous investors held on to their foreign exchange. As a result, interest rates also shot up.

Despite these gloomy economic indicators, businessmen remained generally optimistic that prospects for this year would be better than last year's.

"The general sentiment among businessmen is that they still feel they will do better this year than last year. But they want the government to resolve the armed conflict (in Mindanao) as soon as possible," Miguel Valera, president of the Philippine Chamber of Commerce and Industry, told the same breakfast forum.

Jimmy Tang, president of the Federation of Filipino-Chinese Chambers of Commerce and Industry, said most of their members are taking the opportunity to invest now so that when the situation normalizes, they would already be ahead of the competition.

"It is now the best time to buy some (shares of) stock because they are at the lowest levels. There is always an opportunity because the fundamentals are still good. There is no way (the economy) could go down further," Tang said.

Sergio Ortiz-Luis, president of the Philippine Exporters Confederation, said businessmen in General Santos City have experienced higher export revenues the past few weeks despite the ongoing conflict in nearby provinces.

"The situation there is normal. Exports are increasing. The businessmen there are not afraid of any slowdown in business activities," he said.