Exchange Controls: Not an option - Camacho

Finance Secretary Jose Isidro Camacho said yesterday imposing capital or exchange controls to defend the peso was not an option at this time.

Reacting to statements by President Arroyo in Malaysia on a possible currency peg, Camacho said the government was committed to the free trading of the peso.

"We don’t expect such controls to be necessary. They are hard to envision and will hinge on circumstances," he said.

He explained that the Philippines and Malaysia have totally different economic dynamics. Unlike Malaysia, the Philippines is highly dependent on foreign borrowings, he said.

Camacho stressed, however, that the government was prepared to act to curb currency speculation.

Foreign exchange traders said the government is highly unlikely to impose controls given the country’s limited foreign reserves, which are among the lowest in East Asia at $14.3 billion at the end of July.

"We don’t have the economic muscle to impose controls," the treasury head of a Philippine bank said. "The reserves aren’t there and we’re not Malaysia."

Other currency strategists warned that if the perception takes hold that controls are in the offing, there would be a massive outflow of dollars from the peso market.

For his part, BSP Gov. Rafael Buenaventura said the issue of imposing currency controls to boost the peso had not been discussed with the President.

The BSP chief said, however, such measures could be done given the necessary conditions. He refused to elaborate.

Last month, Buenaventura ruled out imposing capital controls or raising key interest rates to help the peso when it hit a six-month-low of 54.33 to the dollar.

"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.