Camacho gets GMA go-signal to defend peso

Time to send in the cavalry.

President Arroyo has given the go-signal for her finance chief to join forces with monetary authorities to stop speculative attacks on the peso amid aggravating fears of possible repercussions of Argentina’s currency crisis.Presidential Spokesman Rigoberto Tiglao said yesterday the President met with her economic managers led by Finance Secretary Jose Isidro Camacho after the peso breached the 54-to-$1 level yesterday.

The peso traded at a six-month low of 54.30 to the greenback before closing at 53.70 amid rising calls for the Bangko Sentral ng Pi-lipinas (BSP) to intervene aggressively to check the slide.

"The peso is very much undervalued now," Tiglao said. "This level of 54 to $1 is not really its value."

The BSP said earlier it would not intervene because the volatility was partly due to concerns about possible sovereign debt defaults in Argentina and Turkey.

While stressing Malacañang’s policy of respecting the independence of the BSP, Tiglao said the President believes the finance secretary has "an important role to play" in helping stabilize the country’s financial system.

"She believes the BSP is an independent body, but because the finance department issues other instruments, Secretary Camacho will probably be coordinating with BSP Governor Rafael Buenaventura," Tiglao said.

Tiglao reassured the public that the panic over the re-emergence of the "Latin American syndrome" was merely temporary.

The syndrome refers to the world economic slowdown of the 1970s when South American countries, led by debt-strapped Peru, were forced to devalue their currencies. Recently, Argentina’s loan default to creditors has began pulling down most of the world’s currencies.

"When there is a major development in the world financial system, the obvious reaction of the business community would be to take a defensive posture, which would be to go to the strongest currency – the US dollar," Tiglao explained.

He pointed out that as soon as the market absorbs the impact, the dollar will seek its real value, "which means the peso would also go back to its old level."

Gov’t targets still on track

Despite the sharply depreciating peso, the government stuck to its key economic and fiscal targets yesterday while boldly predicting the currency could not slip below 55 to the dollar.

Economic Planning Secretary Dante Canlas said the weakening of the peso was boosting exports in some growth industries. He insisted monetary authorities were against defending the currency at the cost of eroding foreign exchange reserves.

"I think it is self-correcting and I don’t really see the peso reaching 55 or 60 to a dollar as some funds managers are predicting," Canlas said. "At this point in time, we’re still sticking to our gross domestic product (GDP) growth target of 3.3-3.8 percent."

He said the target is more likely 3.3 percent, given "current developments."

Dealers said a raft of domestic concerns, including the budget deficit and the Abu Sayyaf crisis in Mindanao, was aggravating fears of the possible repercussions of Argentina’s currency crisis.

The BSP said it was providing liquidity when necessary.

"But we should take note that we should not be wasting our bullets when the volatility is because of external factors," Buenaventura said.

He said there was strong demand for the dollar due to heavy imports and debt payments by companies as well as the external concerns.

"This relates more to the problem in Argentina and now, even Turkey. The fear is that there will be a contagion," the BSP chief said. "What we can see now is that there are so much inflows but no massive outflows."

These problems are also depressing the stock market, where prices are down 7.4 percent from end-2000.

Canlas said leading indicators showed the country attained a GDP growth of 2.8-3.0 percent in the three months to June.

After a four-percent growth in 2000, the economy grew 2.5 percent in the first three months after exports were hit by a global slowdown.

"Although the general perception is that all exports are down, that’s not the case. There are some export products that are growing and many of them are agricultural like coconut oil, copra meal, bananas as well as well as fishery products like tuna and prawns," Canlas said.

He pointed out the said sectors were benefiting from the weakening of the peso while noting personal consumption spending stayed at a healthy 3.5 percent pace.

Canals said the government remained on target to curb the budget deficit to P145 billion for the whole year.

The deficit for the first half stood at P76 billion, or below the P80- billion ceiling for the period.

"The weakening of the peso doesn’t have too much of an effect on our deficit target," Canlas said.

He pointed out that although tax collection has been "below target, some of the other agencies have exceeded revenue targets," with the Bureau of Treasury raising P4 billion more than expected.

Canlas said President Arroyo’s Cabinet was putting together a "package of policies as well as programs and projects that will more or less provide some short-term solutions to some of the economic problems being faced by those displaced by the economic slowdown."

Meanwhile, Budget Secretary Emilia Boncodin admitted that the government’s original P49 to $1 foreign exchange assumption in the proposed 2002 budget has to be raised to P50 to $1 "to reflect a more realistic value." The Department of Finance earlier confirmed the President’s economic advisers have agreed to defer submission of a budget proposal until the market stabilizes.

Boncodin said the average forex rate for the entire year will be used in setting budget figures.

"Our estimate had been P49 to $1 but now it’s P50 to $1," she said. – With Eva de Leon