EDITORIAL - The peso under attack

There’s no conscience in the foreign exchange market; you can’t stop investors from engaging in currency speculation. Four years ago foreign speculators, driven by the forces that propel the market – fear and greed – left this region en masse, bursting the Asian economic bubble and leaving several nations in ruins. That economies could collapse at the click of a mouse spooked most Asian nations enough to implement drastic reforms. Economists are also studying the measures adopted by Malaysian Prime Minister Mahathir Mohamad to prevent speculation against the ringgit – measures deemed draconian but which seemed to have worked for his country.

The Philippines, which had instituted reforms to strengthen its banking system, was one of the least affected by the Asian flu. But corruption scandals, political instability and problems such as ransom kidnappings have brought the peso down to levels much lower even than the Thai baht. Now the peso is being further weakened by a global slowdown and jitters over a possible default by Argentina on its debt payments. The peso is vulnerable and major speculators in the banking sector are again at work, according to the governor himself of the Bangko Sentral ng Pilipinas, Rafael Buenaventura.

Having worked for a long time as a banker in the private sector, Buenaventura must know what he’s talking about. He probably even knows the people who engage in major currency speculation. The problem, he says, is that if caught, such speculators can get off lightly with a daily fine of only P30,000. If you can make millions from currency speculation, what’s P30,000?

The light penalty should not stop the Bangko Sentral from going after the speculators who are bringing their own currency down. The peso is being weakened by both external factors and domestic problems, among them peace and order and protracted political instability. But pure speculation for profit also plays a major role. Monetary officials should work with Congress and Malacañang to hammer out measures that will strengthen the financial market. The latest currency crunch should reveal the weaknesses in the market that require reforms.