Dollar hoarders will get burned — DOF

Finance Secretary Jose Isidro Camacho warned yesterday dollar hoarders, including banks, that they stand to lose heavily by holding on to their dollars in the hope of a continuing peso slump.

The peso gained 50 centavos against the greenback in trading yesterday, closing at 53.20 to $1 from Wednesday’s 53.70.

Camacho, tasked earlier by President Arroyo to work with monetary authorities in thwarting speculation, predicted a reco-very for the battered currency.

"We cannot really force them to sell dollars but what we can tell them is that the exchange rate won’t get any higher. So they better sell now before the value of the dollar goes down," he said.

Last Wednesday, the peso hit a six-month low of 54.33 to the dollar before closing at 53.70. Blame has been placed on dollar hoarders trying to cash in on market panic over possible repercussions of a potential loan default by Argentina.

The all-time intraday low was 55.75, recorded on Jan. 17 at the height of people power II that toppled President Joseph Estrada.

Asked if the peso would breach the 55-to-$1 barrier in the coming days, Camacho replied: "If I am to be followed, that won’t happen."

He said the government will provide additional sources of dollars to the Bangko Sentral ng Pilipinas (BSP) to boost the defense against speculative attacks on the peso.

"We need to improve the liquidity because the market is only one-way. Everybody’s buying (dollars) and nobody wants to sell," Camacho said.

The finance chief has been meeting with BSP Governor Rafael Buenaventura since Wednesday night, but has declined to provide specifics.

"We agreed on several measures but we can’t name them," he said.

Sources said inflow of some $500 million is expected from earnings from the Malampaya natural gas fields as well as another $500 million from a planned global bond float.

Camacho said they would be helping the BSP so that "it can move more aggressively in the foreign exchange market."

He pointed out, however, that the government does not want to use up its foreign exchange reserves to defend the peso because they are needed to cover imports.

The reserves stood at $14.56 billion as of end-June, the BSP said.

Camacho also linked the peso’s weakness in recent sessions to a lack of investor confidence.

"Right now, the reality is we have a law and order problem in the Philippines and there are external economic problems. A combination of these things has reduced our confidence level," he said

Officials have blamed fears of debt defaults in Argentina and Turkey as the key external factors putting pressure on the local currency.

Dealers said the BSP sold at least $80 million in the spot market yesterday. Last Wednesday, they claimed the BSP unloaded nearly $100 million dollars after the peso slipped to a six-month low.

Buenaventura would not categorically confirm yesterday whether the BSP had intervened.

"We did say that from time to time we will provide liquidity, but it doesn’t necessarily mean all (the dollars) came from us," he said.

BSP rejects capital control

Buenaventura also ruled out imposing capital controls or raising key interest rates to help the peso.

"President Arroyo is committed to a liberalized foreign exchange, unimpeded by capital controls or exchange controls. If there’s anyone that will impose the exchange controls it will be the BSP and you know I will never do that," he said

Raising key overnight rates is likewise not an option.

"The weakness of the peso is not interest-rate driven. They should be maintained," Buenaventura said.

The BSP decided yesterday to leave key interest rates unchanged despite the volatile peso.

"No change," Buenaventura told reporters when asked if the BSP has decided on overnight rates for next week.

The BSP last cut its overnight rates by 50 basis points on May 18, which brought total cuts to six percentage points since December.

It borrows funds overnight at nine percent and lends at 11.25 percent.

Buenaventura also declined to comment on market speculation that the BSP may adjust the reserve requirement of commercial banks.

The BSP raised banks’ liquidity reserve requirement by four percentage points in October to seven percent to stem the peso’s fall. With the statutory reserve requirement at nine percent, the total reserve requirement now stands at 16 percent. The lifting of the requirement is seen as a way to siphon off liquidity and dampen speculation against the peso.

As this developed, Presidential Spokesman Rigoberto Tiglao said the attacks on the peso are expected to taper off as soon as the President

formally unwraps her package of "bold economic measures" during her State of the Nation Address on Monday.

Tiglao pointed out that even the banking sector was confident that the speech will help restore investor confidence in the country and consequently boost the recovery of the peso.

"I was in the bank yesterday and I was told the peso run depends a lot on what the President will say in her SONA," he said.

In a related development, the President has ordered all government-owned and controlled corporations (GOCCs) to refrain from buying dollars to prevent additional pressure on the exchange rate.

Tiglao said the directive have been relayed by finance secretary to the heads of GOCCs.

"This is because a few weeks back, when the peso was slumping, there were reports the GOCCs themselves were buying dollars," he said. "What the DOF is doing is to make sure that dollar demands do not come from the state firms."