New | Stronger peso brings pain for Philippines
Huge cash inflows from outsourcing deals and citizens working abroad have led to a sharp rise in the currency, upsetting the nation's exporters
Nearly US$40 billion a year piles into the Philippines, thanks to work its citizens do abroad or for outsourcing firms, but the windfall also brings pain through an overvalued currency and the risk of catching the "Dutch disease".
Economists gave that name to an ailment which hit the Netherlands long ago after it discovered large gas reserves, which spurred big cash inflows. These made the guilder strengthen so much that Dutch-made products became uncompetitive, and the country's manufacturing exports plummeted.
In the Philippines, inflows from outsourcing contracts and millions of citizens working overseas lift incomes yet also have made the peso appreciate sharply, to the point where Barclays reckons it is the most overvalued of the world's widely traded currencies.
A strong currency could derail expansion for Philippine manufacturers. The sector, disappointing for decades, grew 8.1 per cent last year, and the Philippines - despite poor infrastructure and rolling power cuts - seems well placed to grab some production leaving China because of rising costs.
But Sergio Ortiz-Luis, who heads the Philippine Exporters' Confederation, said too strong a currency meant "we will be left behind".
JP Morgan said that from June last year to last month, the peso's trade-weighted exchange rate appreciated about 15 per cent after accounting for inflation.
