Timely

Imagine if world crude prices are at their current $90/barrel and our currency remained at P55:$1 or worse.

Imagine what domestic pump prices for oil products would be. Imagine the inflationary impact of those pump prices. Imagine the turbulence in our streets due to high inflation, worthless peso wages, spiraling deficits forcing government to cut back on social spending and economic investments.

Imagine how lame our economy would be if the peso was hobbled by weak confidence. Investors would not dare convert their hard currencies into pesos for fear of losing out in the exchange rate before their investments could produce profits. This was what happened for decades as the peso consistently eroded. Investors came in for quick, speculative activities and pulled out before the peso lost any more value. The economy was starved for long-term investments.

As a consequence, unemployment rose and our labor force migrated. Poverty widened, abetted by a suicidal population growth rate. Our politics was constantly turbulent.

The peso, last Tuesday, broke through the psychological P44:$1 barrier despite BSP efforts to slow its rise.

Exporters bemoan that fact because it makes their products less price competitive abroad. OFWs dislike that because they have to send more dollars for the same amount of pesos. Some export enterprises have closed shop. Over time, we are likely to see a shift in the profile of our migrant workers, from low-paying menial jobs to better-paying technical jobs.

At any rate, the strong peso has not significantly dented migrant worker outflow. What it has done is to influence an increase in remittance inflow, which in turn strengthens the peso even more.

On the upside, however, the strengthening of the peso has helped cushion the impact of higher crude oil prices worldwide. To some extent, the rise in the dollar-value of crude oil is influenced by the collapse of the dollar against all major currencies. European economies, for instance, have added to the demand pressure on oil prices because they are buying their supplies ahead of schedule, taking advantage of the relatively cheaper dollar-denominated oil, considering the strength of the Euro.

The price of our oil imports has a cascading effect on the prices of consumer items across the board. The mitigating effect of an appreciating peso has saved our consumers from the scourge of steep price rises for basic commodities.

Furthermore, the strengthening of the peso has encouraged investments in our economy. We see that in the strength of our stock market.

More important, the rising peso has encouraged more and more Filipinos to invest in stocks and bonds. For October, the BSP reports that the average daily volume in the domestic bond exchange program has risen to P5.2 billion, more than double the P2.5 billion the same period last year.

The country’s mutual fund industry reports that total assets under management (AUMs) reached P84.7 billion. That is 12.9% higher than the P75 billion under management just at the start of this year.

That is encouraging news. All the while, the Philippines recorded one of the lowest savings and investment rates. Those low rates crippled our ability to capitalize our own economy in order to grow faster.

Our low savings and investment rates is not entirely due to our undeveloped culture of personal financial management. The high inflation rates and constantly depreciating currency in the past did not encourage ordinary Filipinos to save. Since inflation outstripped deposit rates, it made little sense to hold money in banks only to lose their value. Consequently, Filipinos resorted to salting dollars or sneaking their savings abroad.

Today, it makes sense to save and invest. The macroeconomic fundamentals are sound. There is little expectation of gross volatility. Younger Filipinos are learning the fundamentals of personal financial management.

It used to be that I was constantly amazed when, during visits to Singapore, I would eavesdrop on young Singaporeans in restaurants constantly comparing notes in their stock investments. The average Singaporean yuppie, I observed, looked at the business pages first to check on their investments before turning to the sports page. At that time, the average Filipino newspaper reader checked the showbiz page first for the latest gossip.

Things are beginning to change. I have met many young Filipinos who are trading stocks online. At the coffee shops, they trade notes on the new projects of listed firms. They are, thank heavens, less interested in the antics of our politicians.

This has to be said: the peso today is at the P43:$1 and not, as Lucio Tan predicted a few years back, at P100:$1 because we have greatly improved our fiscal management. Our appetite for borrowing is diminishing and our discipline for raising the required revenues is improving.

This did not happen by a stroke of luck. It required acts of great political courage by the administration to achieve an acceptable level of fiscal discipline. That set the timely condition of economic stability that is now the basis of our robust economic performance.

Remember that even when under great political siege in 2005, the administration bit the bullet and imposed the expanded VAT. Mindless agitators were rallying in the streets against tax reform.

Had they gotten their way, had the administration lacked the political will to do what was right, the peso would indeed be at P100:$1 today and there would be riots in our streets.