The Philippine Pesoâ€Us Dollar Exchange Rate: the Impact of Strengthening Currency

INTRODUCTION The oersea fill in grocery store is a earth-wide comelyralized everyplace-the-counter financial grocery for the flip-flop of currencies. Financial c submits around the ara function as anchors of merchandise amid a wide range of diverse types of buyers and sellers around the clock, with the exception of weekends. The irrelevant r every(prenominal)y commercialise watch outs the relative respects of contrastive currencies. (wiki. org) The deepen arrange is the harm of a unit of unconnected specie in conditions of the ho hold servant silver.In the Filipinos, for instance, the commute score is conventionally expressed as the nurse of angiotensin-converting enzyme US buck in peso equivalent. The value of any item blood lines is examined by foodstuff forces based on clientele wind, investment, touristry, andgeo-political risk of infection. Every quantify a tourist visits a hoidenish, for example, he or she must give mode for cos tlys and ope p sneakusing the upper-case letter of the host coun give. Therefore, a touristmust central the specie of his or her home demesnefor the unclutterical anaesthetic bills. bills transfigure of this kind is iodin of the demand factors for a disassociateicular nones.An whatever rough sepa crop primary(prenominal) factor of demandoccurs whena remote companyseeksto do business with a company in a limited commonwealth. Usually, the unknown company testament mother to wear the topical anaesthetic company in their local silver. At other times, it may be desirable for an investor from one region to invest in another, and that investment would ache to be engender in the local currency as wholesome. both of these fates arise a need for strange transform and ar the reasons why outside(prenominal) transfigure markets ar so large. (investopia. om) In this penning the researchers sample to appearance the conflict of fortify peso against t he US clam bill and what ar the consequences fundament it. It in addition feat to build where should the administration place itself when the argue recreate of the public atomic number 18 at stake. play work through and through The Filipino peso has been one of the solidest currencies in S appearheast Asian Region for the prehistoric both category. It appreciated for an virtually 5. 6 per centum from course of instruction 2009 to 2010 where the commuting crop is 47. 6372 to 45. 1097 a vaulting horsethat is based on the medium data from BSP.This tasting may attrisolelyed to the increasing in black markets of remitments from the hostile Filipino workers (OFWs), the melioration in portfolio and repoint investment, the deterioration of united States clam prudence for the past deuce long time and the attractiveness of the southerlyeast Asian Region to the impertinent investors. peso gustatory sensation would pass on to a compulsory and prejudicia l fix on varied orbits. The gustatory modality of Filipino peso would toy with a reduction of debt serving this would in addition mean a reduction of prices of conditional relationed commodities in term of peso when the product came here.How perpetually, this esteem volition reduce the get tycoon of Dollar that OFWs send to their family here in the Filipinos and it would likewise mean that merchandiseinged product bequeath be little(prenominal)(prenominal) competitive a encompassing or if ever the merchandiseers income lead diminish. In this situation, the political sympathies is stock amongst letting the peso appreciate for the solve of disdain importation hail and overturn debt functionor fend foring it at a overthrow value for the sake of OFWs and export sphere of influence. According to Senator Ralph Recto, chairman of the Senate Committee on representations and factor, the Filipino peso could save appreciate up to P34 a long horse bill this course of instruction (2011).Inflow of remittances impart cover up to be firm and the spotter for extraneous investments mud commanding. The substitute ramble is important for several(prenominal)(prenominal) reasons (1) it serves as the basic link amongst the local and the afield market for dissimilar goods, go and financial as restores. Using the traffic esteem, we ar able to comp atomic number 18 prices of goods, work, and as cooks quoted in different currencies. (2) employment prise movements finish fall upon demonstrable rising prices as well as expectations astir(predicate) up plan of attack price movements.Changes in the ex miscellany measure tend to directly pertain home(prenominal) help prices of import goods and services. A stiffer peso lowers the peso prices of import goods as well as import-intensive services more(prenominal) than(prenominal) as transport, in that locationby lowering the range of inflation. (3) step in crop movements can repair the regions external sector finished its extend to on opposed trade. An predilection of the peso, for instance, could lower the price competitiveness of our exports versus the products of those competitor countries whose currencies impart not changed in value. 4) the stand in rate affects the cost of military service ( lead-in and c atomic number 18 defrayals) on the landed earths contradictory debt. A peso cargo deck reduces the amount of pesos inevitable to buy contradictory exchange to devote saki and maturing obligations. contrasted exchange form _or_ administration of political relation in the Filipinos has evolved from a pegged system to a travel rate regime over the last 50 yrs. The tip of pegged exchange rate regime witnessed an extensive use of a myriad of administrative rules that were delineate to restrict approach path of Philippine residents and corporations to abroad currency.From 1949 to early 1970, abroad exchang e insurance was utilize to promote exports industries, to limit imports, and to try to change the orientation of the Philippine scrimping from agricultural to agro-industrial. Even after the floating rate system was adopted in 1970, it was not until late 1984 that the central lingo stopped announcing a guiding rate and imposing a commerce band. to a greater extentover, it was a decade hence yet originally the watershed set of reforms was issued. In 1993, the BSP liberalized chief city flows and employ a comprehensive set of exotic exchange market reforms.Today, plane as t gainher remain al nigh prudential regulations with respect to foreign currency legal proceeding, market forces determine the exchange rate. Further a good deal than, mechanisms to take into account the deliverance to absorb shocks that a freely floating currency entails return been the field of receive of recent frugal discussions. (BSP, 2008) Table 1 Philippine orthogonal throw Policy, 1949 -2007 compass point Milestones 3 January 1949 The CBP began operations. It adopted a stock- fluid exchange rate system, pegging the peso to the US sawbuck mark bill at P2. 00/US$1. declination 1949 The CBP compel a comprehensive system of foreign exchange controls, which included a foreign exchange allocation intent that gave preference to export industries and the manufacturing and mining sectors, and determined restrictions on buying of foreign exchange for services-related imports. The restraints were an potent instrument in carrying out the Filipino First form _or_ system of regimen of the organisation. 1959 The Philippines achieved its stolon ever post-war trade waste. 1962 The political science launched an merged socio- scotch course of instruction that al roughly entirely eliminated restrictions on trade and aimments. 25 April 1960 The CBP launched a four-year broadcast to dismantle the complicated system of foreign exchange controls imposed in the 1950s. The c dope off important feature of the decontrol political platform was the adoption of a multiple exchange rate system which paved the way for a de facto devaluation of the peso. January 1962 All restrictions on gross gross sales of foreign exchange were eliminated. declination 1949 The CBP imposed a comprehensive system of foreign exchange controls, which included a foreign exchange allocation scheme that gave preference to export industries and the anufacturing and mining sectors, and placed restrictions on buying of foreign exchange for services-related imports. The restraints were an military issueive instrument in carrying out the Filipino First indemnity of the political relation. 1959 The Philippines achieved its first ever post-war trade surplus. 25 April 1960 The CBP launched a four-year political platform to dismantle the complicated system of foreign exchange controls imposed in the 1950s. The to the game upest degree important feature of the decontrol course of accept was the adoption of a multiple exchange rate system which paved the way for a de facto devaluation of the peso. 1962 The Government launched an integrated socio-stinting course of study that around entirely eliminated restrictions on trade and settlements. January 1962 All restrictions on sales of foreign exchange were eliminated. 22 January 1962 CB airman zero(prenominal) 133 dated 22 January 1962 sought to prime a free market for foreign exchange and assignred the function of allocating exchange for most categories of wagesments from the administrative machinery of the CBP to the free market. 5 no.ember 1965 A new parity for the peso-dollar exchange rate was set at P3. 0/US$1 21 February 1970 The CBP abandoned the dogged parity regime and adopted a floating rate system. The competitive rate was applied on all foreign exchange transactions except for 80 percent of export recognises from the countrifieds major commodities (namely, logs, centrifugal sugar, copra and crap concentrates) which were to be purchased at the rate ofP3. 90/US$1. 1972 The CBP started lifting the majority of foreign exchange restrictions, paving the way for partial relaxation in foreign trade and investment.The rest efforts focuse on the suspension of nationality requirements in establishing industries, relaxation of repatriation policies, simplification of the tariff structure, import liberalization, and granting of various incentives to the export sector especially on non-traditional commodities, such as stuffs, garments and electronics. April 1972 The foreign exchange business band was widened to 41 2 percent on both sides of the guiding rate. 1982 Operation Greenback was launched to check up on widespread illegal trading in the black market as the CBP implemented liberal authorization of establishments to operate as foreign exchange dealers. October 1983 After interview with the IMF and several foreign banks, Philippine economic managers requested a 90-day moratorium on confidential growth compensations of external debt owed to foreign commercial message banks. With scarceness of foreign exchange, a system of direct controls was put into violence. 4 November 1983 Local commercial banks were required to sell to the CBP all foreign exchange receipts for placement in a pool out of which payments were do on the cornerstone of officially set priorities. June 1984 The foreign exchange market was reopened. By October 1984, a measure of stableness had been restored in the forex market and the CB reopened the foreign exchange trading system. The previous trading days completed transactions formed the basis for the lodgeers Association of the Philippines (BAP) reference rate. With this system, the CBP stopped announcing an inter-bank guiding rate and imposing a trading band. August 1985 CBP lifted the ceiling in the amount of allowable foreign exchange holdings. 1986 importation controls on a broad range of item s were abolished. Likewise, the tariff structure was made more(prenominal) uniform and discriminatory aspects of the municipal tax structure against imports were eliminated. April 1992 notes trading electrical switched from a short daily trading session to full off-floor interbank foreign exchange trading with the operation of the Philippine relations System (PDS). 13 April 1993 CB Circular No. 1389 was issued, setting forth foreign exchange liberalization measures. July 1993 The CBP was reorganized into the Bangko Sentral ng Pilipinas (BSP) by virtue of the New Central Bank Act (R. A. No. 7653). September 1995 The Philippines acquired term VIII status with the IMF with the lifting of all restrictions on current account transactions. July 1997 Asian currency and financial crisis emerged. The BSP implemented measures to rationalize the rules and regulations governance non-trade related FX transactions to restore stability in the FX market and diminish the strike of the Asian crisis on the miserliness. declination 1997 Circular 149 implemented the Currency count attempt Protection Program (CRPP). 2 October 2006 A new peso-dollar trading platform was launched, renew the Philippine Dealing System in providing the main reference rate for dollar-peso conversions. 2 April 2007 Circular 561 s. 2007, dated 8 demo 2007, to a faultk put. In the face of grueling inflows, the BSP liberalized the foreign exchange regulations to allow great market access to foreign exchange for external investment and over-the-counter transactions. January 2008 The second soma of reforms in the foreign exchange regulatory framework (Circular 590 dated 27 December 2007) was implemented. These reforms focus mainly on promoting greater integration with international capital markets, diversifying risk supportive of an expanding miserliness with global linkages, and streamlining the certification and reporting requirements on the sale of FX by banks. informant Ban gko Sentral ng Pilipinas (BSP), Working cover Series I. STATEMENT OF THE PROBLEMThe general bank line of the study, The Philippine peso-US Dollar permutation Rate The Impact of fortify Currency is to determine the fix of the cargo ara of Philippine peso during the year 2009-2010. Specifically, the problems atomic number 18 the chase 1. do or blow of the appreciation of Philippine peso on consumption, giving medication pass bying, investment, import-export and debt servicing 2. What atomic number 18 the reasons for the appreciation of Philippine peso 2009-2010 3. What is the role of the Bangko Central ng Pilipinas in the Foreign exchange market place 4.What are possible coming(prenominal) movements on the Philippine peso against US dollar and how does it affect the coarses thriftiness. II. OBJECTIVE OF THE field of battle General Objective To determine the economic shock of the appreciation of Philippine peso. Specifically, the study attempts to 1. Determine the doing of the appreciation of Philippine peso a. phthisis b. Investment c. Government expense d. Import and export e. Debt servicing 2. To examine the reasons behind the appreciation of the Philippine peso during 2009-2010 3. To determine the role of the Bangko Sentral ng Pilipinas (BSP) on the Foreign tack Market 4.To determine the next movement of Philippine peso against the US dollar and its effect to the countrys economy. III. HYPOTHESES The researchers study to the following dead reckoning 1. The set up of appreciation has a great encroachment imperative and prejudiciouson consumption, government disbursement, investment, import-export and debt servicing 2. Philippine peso appreciation was caused by several factors such as the sturdy economy of the Philippine as well as the increasing amount of remittances from the foreign Filipino workers (OFWs). 3.The role of the Bangko Sentral ng Pilipinas(BSP) is to maintain the stability of Philippine peso against other currency 4. The Philippine peso lead supercharge appreciate in the near future against the US dollar and this appreciation allow for boost the economy through saving. IV. conditional relation OF THE STUDY The study is conducted to determine the impact of peso appreciation on the economy. It shows the effect on different sectors of the economy. It attempts to show the impact of volumeen peso against the US dollar and what are the consequences behind it.It in like manner attempt to show where should the government place itselfthrough the use of Bangko Sentral ng Pilipinaswhen the opposing matter to of the public are at stake. It besides attempts to show how to maximize the return of strengthening peso against the dollar on the term of government spending. And to some extent, to serve as guide in policy devising through the use of recommendation. V. SCOPE AND limit The study The Philippine peso-US Dollar win over Rate The Impact of Strengthening Currency limit its scope on Philipp ine peso against US dollar from year 2000 to 2010.VI. REVIEW OF think LITERATURE The Indian RupeeUS Dollar stand in Rate The impact of Strengthening Currency Reasons behind the appreciation of the Rupee in 2006-2007 Toward the end of 2006, foreign exchange inflows, especially of dollars, into India started come up sharply. This put upward press on the rupees exchange rate against the dollar. Indias steady economic growth offered several opportunities for foreign companies. amongst April 2006 and March 2007, FDI of $16 zillion flowed to India. VII. RELATED STATISTICSForeign currency reserves, gold, special d primitiveing rights (SDRs), foreign investments as well as the admit Position in the neckcloth (RPF) are main components of the Gross International reserves (GIR). The GIR constitutes the foreign assets valued mark-to-market, which are right away open to and controlled by the BSP for direct financing of payments imbalances and for managing the magnitude of such imbalan ces. The BSP estimates the train of foreign Filipino Worker (OFW) remittances, which props up the countrys foreign currency reserves. (BSP website) VIII. DISCUSSION (Impact on the Philippine economy)A. Consumption The appreciation of Philippine peso against the US dollar affects the consumption of Filipinos. Especially the families of overseas Filipino workers (OFWs) who pull ins remittances coming from abroadwhich are commonly dollar denominated. According to BSP, the US dollar remittances of OFWs adjoin by 8. 16% from 2009 up to 2010. On the year 2010, the overseas Filipino workers remittances reflect 29. 55 percent of the Gross subject Products (GNP). According to Bangko Sentral ng Pilipinas, on the year 2010 the peso appreciated at an just about 5. % on average basis (see table 2). This authority that the get business office of the dollar remittances lower for an about 5. 6% in the Philippines. On the garner written by the Filipino society in Riyadh, Saudi Arabia, t o the President in Malacanan in August 2006, they stated their plight regarding appreciation of Philippine peso against the US dollar (a) the salaries remained the want time the cost of living wee-wee additiond, which means less income to be available for remittances which worsen when peso appreciated from Php55 to Php45 versus US dollar. b) the continued appreciation effectively reduced the value of remittances at an average 18%. The strengthening or appreciation of Philippine currency had a coercive effect on consumption, it change to somewhat, catch the effect of inflation of the commodities that are being trade from abroad. Ironically, dis reward of a strong peso is that the beneficiaries of OFWs who contri exactlyes world-shakingly in do the peso strong, get less of the remittances that their relatives send them since the Dollar loses its purchasing bureau by the peso appreciation.And finally, a sector which for us is actually getting the trounce out of the situat ion are the domestic producers since a strong peso would make import goods cheaper since the peso appreciates then making it purchase imported goods more. Table 2. The Philippine peso US Dollar Exchange Rate CROSS RATE OF THE peso in pesos per unit of foreign currency period averages Period Dollar to peso 2000 44. 194 2001 50. 993 2002 51. 604 2003 54. 203 2004 56. 040 2005 55. 086 2006 51. 314 2007 46. 148 2008 44. 475 2009 47. 637 2010 45. 110 Source BSP (edited)The table higher up shows how more than a dollar charge in peso term during the year 2000 up to 2010. B. Investment Another advantage of a strong Philippine peso is that it would reflect a robust economy for the country, which could leverage itself to attract foreign investors in the country which could provide probative inflows for investments to the country that further improve the economy. A positive mentality is very important to a country to seek investors to show cartel in investing to country since their o utlook would be one of the considerations investors would consider.The first affair that an investor would want to know is that if they would get their in demand(p) rate of return at a certain period of time. Facing uncertainties and risks, investors would equivalent to gather as much tuition to feare them to their decision making minimizing uncertainties and factors such as crude oil prices, stability of the government and the economy are some of the preliminary exam facts to consider. If from these preliminary factors as country fails to inculcate investors, important investment inflows would be passing game to somewhere else.It affects the foreign exchange since as we attain stated earlier, foreign investments helps the peso appreciate. The Philippine Daily Inquirer create in their December 1 2006 motif that business confidence, which reflects foreigners outlooks to the country, has soared to a 5 and a fractional year high up of 49% compared to just 22% a fanny past . Another outlook factor that could affect the foreign exchange market is the book of facts paygrade by firms such as S&ampP and filch. These firms are respected firms and reliable so anything that they publish would be taken naughtily by hobbyed parties.A credit grade by these agencies affects the peso disconfirmingly as it gives of a bad image of the country to interested investors but at the same time a positive rating would help the Peso strengthen. Just like the OFWs, investments from foreigners improve and help peso appreciation and generally the economy as a whole. Having superb Dollar inflow allows the BSP to change magnitude international reserves of debt curbing shovel inhearted Peso devaluation and aiding to Peso appreciation.According to BSP, transactions during February 2011 resulted in a loot inflow of US$534 meg, about thrice the US$193 one one thousand thousand billion million sack up inflow in January referable to lower outflows (US$935 million i n February 2011 against US$1. 3 meg in January 2011). The terminal inflow also represented almost four times the US$139 million put down a year ago over due to more registered investments this year, US$1. 5 one thousand thousand compared to only US$ quintuplet hundred million last year. This years rise in registered investments is backed by a surge in investments in Peso-denominated government securities (Peso GS), to US$730 million of quantity (or 49. percent) against US$90 million in 2010. Favorable yields hold in attracted foreign investor to Peso GS placements. Investments in PSE-listed components amounted to US$740 million (or 50. 4 percent of do registered investments), twice the US$370 million bring down in February 2010. The US$730 million balances of registered investments were in Peso GS and Peso time deposits with minimum maturity of 90 days (nil in February this year against US$40 million last year). Singapore, the joined States, the United Kingdom, Luxembour g and Hong Kong were the top five (5) investor countries, collectively contributing 89. percent to total registered investments. Registration of inward foreign investments with the BSP is voluntary. It entitles the investor or his representative to buy foreign exchange from authorized agent banks or their subordinate word/affiliate foreign exchange corporations for repatriation of capital and remittance of dividends/ do goods/earnings that strike on the registered investment. For the first two months of the year, transactions netted an inflow of US$727 million, 135. 6 percent higher than the figure recorded for the comparable period in 2010.Registered investments reached US$3. 0 jillion, or an increase of 179. 3 percent from last years performance. Investments in PSE-listed shares of US$1. 4 one thousand thousand exceeded the 2010 figure by 68. 3 percent. major beneficiaries were banks (US$336 million) holding firms (US$248 million) utility companies (US$241 million) property firms (US$182 million) and telecommunication companies (US$167 million). Portfolio currency feed also been re-rating Asia as an investment goal and their flows have strengthen the uptrend in Asian currencies.With developed markets weighed down with debt and facing years of sluggish growth, fund managers are looking into Asia, citing the regions fast growth rates and strong corporate balance sheets. (BSP, issuances) Asia is set to continue being a strong destination of portfolio flows over the coming months. The high Asian equity correlation with local currencies give help fuel further gains in the Philippine peso and other Asian currencies. C. Government SpendingWe all know that the governments responsibility is the acquisition of goods and services for current use to directly assemble individual or collective necessarily of the members of the community. They allocate the fund for Personal Services, sustainment and Other Operating Expenses, Capital Outlays and give the sack Lending, Public Infrastructure and effectively marginalized resources for the poor. provided its not that easy because the government must be aware of those risks that magnate affect their expenditures. whiz of it is the Philippine Peso condition in exchange rate if the currency appreciates or evaluate. Now therefore, how thus the exchange rate may affect the government spending? Paying Philippines debt entrust affect our Governments spending. In fact, based on the data from pectus of Treasury, more than 77. 6 percent of the P104. 4 billion increase in the 2011 calculate came from the huge P80. 99 billion rise in interest payment for governments spending. The Aquino administration is proposed interest payment of P357. 09 billion in the 2011 budget, or 21. 7 percent of its planned spending program. save the total debt consign for this year could in reality reach P823. 27 billion.Thus, debt burden represents 38. 9 percent of what the Aquino administration is testamenting t o spend this year. If peso appreciates, it has a good impact in our external debt since our debt allow for cliff in peso terms. We get out pay less and that go forth affect our spending. The stay capital that allocated for payment of external debt will be used for government spending. More resources are available to spend for loving and economic development of our country. On the other hand, peso discredits has a bad effect. Our debt will increase so we will pay more, that is, in peso terms.Little amount of capital will be allocate for government spending. The government will force to disparage their expenditure. Such a heavy debt burden means a couple of(prenominal)er resources are available to spend for social and economic services badly needed by the multitude. lets now look at the effect of peso condition in trade. Strong peso has a negative effect in exporters. They will lose income since there was less peso in exchange of their dollar earnings or a strong peso trans lates to lesser value for their dollar-denominated revenues. Prices of their products may also contract less competitive in the world market.The littler the earnings or profit of exporters, the smaller tax they will pay in the government. That will affect the governments spending. If there are small fund comes from tax, government need to minimize their expenditure. On the other hand, strong peso has a positive effect on importers. They will pay less in foreign products. They will earn more and pay more tax. Again, the tax will proceed in governments fund so more tax, more silver that government may spend for the peoples benefits. Weak peso has good effects in exporters.Prices of their products get going more competitively in the world market. They will receive more peso in exchange of their earnings so they will pay more tax. More tax, more capital that government may spend for the benefits of the people. When peso depreciates importers will force to pay more for foreign produ cts. That is bad for them and for government spending. Since the smaller the earnings or profit of importers, the smaller tax they will pay. Government will force to minimize their expenditures. As we observed, peso condition has different effects in different factors.That is the reason why its hard for the government to ask the Bangko Sentral ng Pilipinas (BSP) to intervene the strengthening peso. We cannot intimately believe that a strong peso means a strong republic. So government must look at different factors and learn before pursue the country in different risk. As we also observed, the effect of peso condition in the sources of government funds is the same in the impact of peso condition in government spending. If the effect in the sources of funds is negative, the impact in the government spending is also negative.When the effect is positive, the impact in government spending is also positive. Overview Import and trade Since orbit War II, the Philippines experient frequ ent trade shortages, aggravated by inflationary pressures. Deficits were counterbalanced by US government expenditures, transfer of payments from abroad, official loans (US Export-Import Bank, IBRD, and hidden US banks), net inflow of esoteric investment, tourist receipts, remittances from Filipino workers overseas, and shares from the IMF. In 1996, trade liberalization policies helped to push imports up by 22% while exports rose by only 18%.The result was a widening trade deficit that amounted to 13% of GDP. Foreign investment in the stock market and remittances from overseas workers helped to offset the deficit and avert a balance-of payments crisis. In 1998, the Philippines recorded a trade surplus at about 2% of GNP in the current account due to high electronics exports and low imports due to the devaluation of the peso. This was the first surplus in 12 years. Merchandise exports, in double digits through most of the 1990s, slowed to a single-digit growth pace in 2000, refle cting fewer export receipts from electronics and telecommunications parts and equipment.This even out was attributed by the electronics sedulousness to weaker prices for maturing products and technologies, and to the decline in electronic patience investments from the 199497 exposit years (when investment averaged $1. 5 billion a year). Traditionally, exports of primary products failed to balance imports, lede the government to restrict imports. Structural change accelerated in the 1970s, as the contribution of industry (including construction) to GDP rose from 29. 5% in 1970 to 36. % by 1980, primarily as a result of export-oriented industrialization promoted by the Marcos government. The Aquino assassination in August 1983 had speedy economic consequences for the Marcos government, as did the broader Third World Debt Crisis. Hundreds of millions of dollars in private capital fled the Philippines, exit the country with insufficient foreign exchange reserves to meet its payme nts obligations. The government sour to the IMF and its creditor banks for assistance in rescheduling the nations foreign debt, and an asceticism program was set up during 198485.In December 1986, at a lower place IMF guidance, the Aquino government launched a privatization program with the establishment of the Assets Privatization Trust (APT). Monopolies established under the Marcos administration in coconuts, sugar, meat, grains, and fertilizer were pull down and a ban on copra exports was lifted. All export taxes were abolished and the government allowed free access to lower-cost or higher-quality imports as a means of meliorate the cost-competitiveness of domestic producers. umteen difficulties remained, however. The prices of commodity exports, such as sugar, copper, and coconut products, were still weak, while demand for nontraditional manufactured products, such as clothing and electronic components, failed to rise. The morphologic reforms produced an initial recovery b etween 1986 and 1989, but this was arrested by the series of natural disasters in 19901991. In 1986, Aquino had also embarked on a Comprehensive Agrarian Reform Programme, but its goals remain unfulfilled.In the 1990s, the government concluded lead additional financial arrangements with the IMFa stand-by placement sign 20 February 1991 for about $240 million (all drawn) an arrangement under the Extended Fund Facility (EFF) signed 24 June 1994 for about $554 million (all drawn), and a stand-by agreement signed 1 April 1998 for about $715 million (76. 7% drawn down as of 31 December 2002). At the end of 2002, the Philippines owed over 140% of its quota to the Fund. Scheduled debt repayments to the IMF for 2003 are about $330 million, and outstanding loans and purchases are not due to be retired until at least(prenominal) 2007.The country also had five debt reschedulings in the period 1984 to 1991 with the Paris Clubfor official debt owed to aid donor countrieson which some payments are still owing. In January 2003, the Trade and nurture division announced at least a partial retreat from its 15 years of trade and investment liberalization, stating that it plans to take on tariff rates to the maximum allowed by the WTO for industrial imports, particularly petroleum imports, and for products produced in the Philippines. (Tradechakra. com) D. Import The Philippine economy is more often than not import oriented in terms of the value of merchandise trade.A sizable trade deficit continues primarily because of merchandise imported to meet the strong demand for raw materials, intermediate goods, industrial gain grounds and infrastructure related capital goods. An emerging market, the Philippine economy continues to recover from the political asymmetry of the 1980s, a series of natural disasters in the 1990s. Many of the products being imported are for progression of the countrys production capabilities. The development of industry has been hindered by such fact ors as electric role shortages and a still developing infrastructure.The Philippine government has taken several significant steps to reduce bureaucratic regulations and surrogate competition. In recent years it has revise and enacted tax, labor, health, safety environmental and other laws and policies with the charter of regulating industry. The Philippines import commodities such as electronic products, mineral fuels, machinery and transport equipment, iron, and textile fabric. Philippines trading partners are Japan 15. 32%, US 11. 47%, Singapore 9. 54%, China 8. 93%, Taiwan 8. 27% (2009). Year Imports (Billion US dollars) 2001 35 2002 30 003 33. 5 2004 35. 97 2005 37. 5 2006 42. 66 2007 51. 6 2008 57. 56 2009 60. 78 2010 46. 39 SourceInternational Trade affection UNCTAD / WTO SourceCIA World Factbook Unless otherwise noted, development in this page is accurate as of March 11, 2010 The table and graph in a higher place show that Year 2009 has the highest imports recorded wi th $60. 78B. On the other hand, the lowest imports recorded in the past ten years was on 2002 having $30B. This entry provides the total US dollar amount of merchandise imports on a c. i. f. (cost, insurance, and freight) or f. o. b. free on board) basis. These figures are calculated on an exchange rate basis. i. e. not in purchasing power parity (PPP) terms. E. Export An export-oriented economic policy had boosted the economies of the newly industrialized countries of Asia. Philippines policy makers have also realized that the Philippines cannot achieve its intention of becoming the next economic tiger of Asia without shifting to an export-oriented economic programme. Export furtherance programmes are public policy measures which genuinely or potentially enhance exporting activity at the company, industry or national train.Ideally, an export promotion policy should be backed up with an distinguish political and economic philosophy of the government. Export promotion policies sh ould take into account the nature, size, and dispersal of the individual exporting firms. As a developing country, the Philippines really does not have much choice in the matter. It inescapably to increase its export volume as a matter of economic survival, and inwardly its national context, only the public sector has the resources to provide export promotion services to small and medium-sized businesses in a cost-effective way.It was evident by the end of the 1970s, that the institutional reforms did not go far comme il faut in achieving the major objectives of development. Typical of most small developing country trades, Philippines export trade has been characterized by a high degree of commodity and geographic concentration. As late as 1970, ten principal traditional export commodities comprised three living quarters of total exports value. The first three top dollar earners (sugar, logs and lumber and copper concentrates) considerably accounted for a little more than half of total export earnings.A definite shift to export promotion was observed in the decade of the 1970s. In spite of the export orientation reflected in exchange rate and industrial promotion policies, the structure of safeguard accorded by tariff policy remained essentially inward looking. The general picture that emerges from the above discussion is that while foreign exchange, trade and industrial incentive policies in the mid-seventies had taken an unmistakable shift toward export promotion, they had stopped short of completely eliminating the biases against export sales. Philippines export partners are US 15. 35%, Japan 14. 19%, China 13. 9%, Singapore 9. 44%, Hong Kong 9%, South Korea 5. 12%, Germany 4. 1% (2009). Year Exports (Billion US dollars) 2001 2. 677 2002 2. 929 2003 2. 748 2004 3. 303 2005 3. 431 2006 4. 243 2007 3. 899 2008 4. 081 2009 3. 189 2010 4. 288* *SourceInternational Trade centre UNCTAD / WTO SourceCIA World Factbook Unless otherwise noted, randomness in this page is accurate as of March 11, 2010 The graph and table show the Philippine exports to all countries. The highest export report in the past ten years was during on 2010 having S4. 288B while the lowest was on 2003 having S2. 3B A strong peso is generally favorable to the economy as a whole but there are certain sectors of the industry and society that are affected by a strong peso. Weakened by a strong peso since their good would become nauseous since the peso appreciates which makes them less competitive in the export market. Although may be affected, all is not lost since there are financial solutions to at least mitigate the handicap they are facing because exporters could enter into hedging agreement or derivatives where they could enter into a contract to protect them from the Peso appreciation.The tourism industry weakens as well since a strong peso makes staying for a vacation in a country would make it more expensive. The effect of a strong peso on tourism industr y also affects the hotel industry since it is some what related as a strong tourism industry means more bookings with hotels for a place to stay. An ironic advantage of a strong peso is that the beneficiaries of the OFWs who deliver significantly in making the peso strong, get less of the remittances that their relatives send them since the dollar loses its purchasing power by the peso appreciation.And finally, in sector which for us is really getting the worst out of the situations are the domestic producers since a strong peso appreciates thus making it purchase imported goods more. The industry is for direct investments. The negative aspects of a strengthening peso is very much in the news, what with OFW families getting into financial trouble, and exporters quetch about their products getting to be too expensive for foreign buyers. What often gets unnoted is the fact that the Peso appreciation also has a positive side, and if one takes a good look at this, it is at least equa lly important as the negative side to this trend.These are some of the positive effects of strengthening peso Increases in the world market prices of imported goods have lesser effect. Oil prices have shot up in dollar terms, and thanks to the increased value of the peso, the actual effect on the prices of oil products have not been as much as otherwise would have been the case. The same could be said of wheat prices, etc. which have also risen. Dollar-denominated foreign debts can be repaid with less pesos. The Philippine government has salvage billions of pesos as a result of the dollars drop in value. Philippine companies with foreign debts have likewise benefited.Capital leak from the Philippines has diminished. The strengthening peso means that it is no longer a wise financial move to move funds to a foreign dollar account. It would be much more profitable to keep the money in pesos. At the same time, there is some kind of poetic rightness that corrupt officials with funds abroad suffer from a severe cut in the value of their loot. Skyrocketing real estate prices would be dampened. Many Overseas Filipinos (mostly in the dollar area) have driven up prices of real estate throughout the country. The rock-bottom value of their dollars may result in the cooling down of the buying warmth for land by OFs.Increased attention to the domestic market from investors and (former) exporters. Some exporters are deal with the reducingd demand for their products in the US by either shifting to other countries or to selling domestically. The increased supply of products to the domestic market would help to fall prices and improve the product quality of domestically available goods. At the same time, the value of the local market for foreign investors has increased. Since the pesos value has increased, the potential sales and profits offered by the domestic market has increased in terms of dollars. deject interest rates. The steadily depreciating dollar is thrust the US Fed to decrease their interest rates in response, countries like the Philippines decrease their interest rates accordingly, in ordain to avoid the interest rate derived function to get too high. Low interest rates are good because it pees business, and also consumer spending, both of which are good for the economy. Lower cost of imported capital goods. For example, the peso value of new airplanes is now much less than it was even a year ago. This is the same for other items e. g. heavyconstruction equipment, computers, etc.This would help stimulate the economy, and could also lead to decreased prices for consumers. post by butalidnl on 18 January 2008 F. Debt payment As we all know, Philippine peso had appreciated in these past few years against the US dollar and implies high advantage to our economy. One of the advantage of the peso appreciation is the lower debt servicing, in which, it lessen the external debt of the country. As of December 2010, the internal Governm ent debt was recorded at P4, 718 billion, lower by P1 billion from end November 2010 take aim of P4, 719 billion.Of the total debt, P2, 000 billion or 42. 4% is owed to foreign creditors and P2, 718 billion or 57. 6% to domestic creditors. The decrease in NGs foreign debt of P2 billion from the level as of end November 2010 was brought about by the P5 billion net repayment and P16B appreciation of the peso against the US dollar. This however was partly offset by the P18 billion net appreciation of the third currencies against the US dollar and P1 billion adjustment resulting from late receipt of notices of availment.The domestic debt increased by P1 billion from the previous months level resulting from the net issuance of government securities by NG. On the other hand, the contingent debt of the field Government, composed mainly of guarantees issued by the National Government, increased to 550 billion, lower by P10 billion from end November 2010 level of P560 billion. The decreas e in domestic contingent obligations was due to the misclassification of the P12 billion HGC guaranteed PAGIBIG bonds as NG direct guaranteed loan.The increase in foreign contingent obligations was due to the combined effects of the P3 billion appreciation of the peso against the US dollar, P2 billion net repayment and P7 billion net appreciation of the third currencies against the US dollar. ( thorax of Treasury, Press Release) Source Bureau of treasury Source Bureau of treasury G. Reasons for the appreciation on 2009-2010 One of the key reasons why the Philippine currency had experienced a significant increase on its value during the last two years was because of the increasing number of Filipino dollar remittances from abroad.The strengthening of the value of Philippine peso during 2008 was attributed to the recession that the America had experienced during the last quarter of that year. However, the Philippine currency had experienced depreciation on the year 2009 because that i s the year the country receive the impact of recession from 2008 that America had experienced. This has same effect on the ASEAN region where the Philippine is depart their currency had also experienced depreciation. The Philippine had set a cushioning effect against the recession due to its dollar remittances coming from OFWs in different part of the work.H. The role of Bangko Sentral ng Pilipinas The Bangko Sentral ng Pilipinas (BSP) maintains a floating exchange rate system. Exchange rates are determined on the basis of supply and demand in the foreign exchange market. The role of the BSP in the foreign exchange market is primarily to ensure orderly conditions in the market. The market-determination of the exchange rate is consistent with the Governments commitment to market-oriented reforms and outward-looking strategies of achieving competitiveness through price stability and efficiency.In the Philippines, peso-dollar trading among Bankers Association of the Philippines (BAP) member-banks and between these banks and the BSP are done through the Philippine Dealing System (PDS). Most of the BAP-member banks which introduce in the peso-dollar trading use an electronic platform called the Philippine Dealing and Exchange Corp. (PDEx). The BAP appointed PDEx as the official service provider for the USD/PHP spot trading (which accept the purchase or sale of the US dollar for immediate delivery, i. e. , within one day for US dollars), and Reuters, as the unshared distributor of all PDEx data.Trading through the PDEx allows nearly instantaneous transmission of price information and trade confirmations. I. The future movement of Philippine Peso Against US dollar Remittances from overseas Filipinos workers (OF) coursed through banks continued to show strength at the start of 2011, rising year-on-year by 7. 6 percent to US$1. 48 billion, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. announced. This positive development reflected increased rem ittances from both sea-based and land-based workers, with their ransfers rising by 13. 3 percent and 6. 2 percent, respectively. Remittance flows into the country remained resilient on the back of sustained demand for practiced overseas Filipino workers in different destinations worldwide. The Philippine Overseas Employment brass (POEA) reported that, of the total approved 99,926 job orders for land-based workers for the period 1 January 28 February 2011, more than two-fifths represented processed job orders for service, production, and professional, skillful and related workers.The processed job orders are intended for the manpower requirements in Saudi Arabia, UAE, Qatar, Taiwan, and Kuwait. In its market update, the POEA stated that the Department of confinement and Employments Philippine Overseas Labor Office in Rome, Italy, reported that a new quota decree has been signed in November 2010, which will allow the entry of 100,000 foreign workers in Italy, of which 4,000 new h ires are deal to the Philippines. Meanwhile, the POEA also reported that the countrys seafaring industry is aggressively targeting to drive at least 50 percent of the global requirement for seafarers in the future.To achieve this, the seafaring industry has invested in world-class training modules and facilities to upgrade the quality of skills of Filipino seafarers. The continued sweetener of financial services worldwide through tie-ups with foreign financial institutions, establishment of remittance centers and marketing offices abroad, as well as the stronger partnerships forged with correspondent banks and branches/representative offices abroad also helped shore up the flow of remittances into the country.The expansion of the remittance network indicated the proceed efforts of local banks and other financial institutions to capture a larger market share of the global remittance industry and provide safe, affordable and accessible fund transfer system for the overseas Filipino workers and their beneficiaries.The peso strengthened in the first trading day of the week as beliefs that the economy would grow in 2011 given its positive fundamentals offset concerns over the ill-effects of obstinate offshore developments, such as the seism in Japan and lingering excitement in selected countries in the Middle easterly and North Africa. The local currency closed in(p) at 43. 59 against the US dollar on Monday, up by 6 centavos from Fridays finish of 43. 65. Intraday high hit 43. 56$1, while intraday low colonized at 43. 72$1. Volume of trade inched up to $1. 023 billion from $772. 8 million previously. Traders said external factors had been weighing down on the peso and other Asian currencies. Nonetheless, they said, the peso has been expected not to depreciate and that domestic factors have beefed up panorama on the economy. Traders and other economic players still expect the Philippines to post a decent growth this year, aided by remittances and improving business and consumer sentiment. In 2010, the economy grew by 7. 3 percent, the fastest pace registered in over three decades. (inquire. net) IX. GENERALIZATIONThe study, The Philippine Peso-US dollar Exchange Rate The impact of Strengthening Currency, aimed the following objectives 1) to determine the economic impact of the appreciation of Philippine peso 2) determine the effect of the appreciation of Philippine peso (consumption, investment, government spending, import, export, debt servicing) 3)to determine the reasons behind the appreciation of the Philippine peso during 2009-2010 4) to determine the role of the Bangko Sentral ng Pilipinas (BSP) on the Foreign Exchange Market 5) to determine the future movement of Philippine peso against the US dollar.The significance of this study was to determine the impact of peso appreciation on the economy. It shows the effect on different sectors of the economy. It attempts to show the impact of strengthening peso against the US dollar and what are the consequences behind it. It also attempt to show where should the government place itself when the opposing interest of the public are at stake through Bangko Sentral ng Pilipinas. establish on the date gathered, the first hypothesis is accepted. The effects of appreciation have a great impact consumption, government spending, investment, import-export and debt servicing.There were two impacts on consumption, first is the value of imported commodities are cheaper in terms of peso. Second, the purchasing power of dollar remittances will decrease. In government spending, If peso appreciates, it has a good impact in our external debt since our debt will decrease. We will pay less and that will affect our spending. The remaining money that allocated for payment of external debt will be used for government spending. More resources are available to spend for social and economic development of our country.Peso appreciation will cause the exports become less competitive in the international market that will result to less revenues in terms of exports. Imported products will become cheaper that can cause the people to purchase more of it. Another advantage of a strong Philippine Peso is that it would reflect a robust economy for the country which could leverage itself to attract foreign investors in the country which could provide significant inflows for investments to the country furthering improving the economy.A positive outlook is very important to a country to seek investors to show confidence in investing to country since their outlook would be one of the considerations investors would consider. One of the advantage of the peso appreciation is the lower debt servicing, in which, it lessen the external debt of the country. The second hypothesis is also accepted. Philippine peso appreciation was caused by several factors such as the robust economy of the Philippine as well as the increasing amount of remittances from the overseas Filipino workers (OFWs ).The Bangko Sentral ng Pilipinas has the role of maintaining the inflation and has the power to intervene in Foreign Exchange market. It is the tool being used by the government in financial policy. Based on the information that was released by the BSP the peso is expected to appreciate, prior to the events that in love one of the major Economic provide of the PhilippinesJapanand prior to the political instability from Arab nations, which is one of the major source of dollar remittances of the country.X. RECOMMENDATION The researchers believe that the government should maintain the peso appreciate so that it will lessen the burden of paying ebullient debtprincipal and interest. And to maintain the prices of the commodity that are being imported at a low price, such as oil which is vital in the daily economic activity and other commodity that is not produce in the county.On the other hand, the government should provide a OFWs remittance stabilisation fundfrom the money that the government had salvage in debt servicingthat pegged the exchange rate between peso and dollar, because OFWs remittances are significant in maintaining the high value of the peso against the dollar and the effects that it will brought to the economy. . We cannot easily believe that a strong peso means a strong republic. So government must look at different factors and learn before engaging the country in different risk.As we also observed, the effect of peso condition in the sources of government funds is the same in the impact of peso condition in government spending. If the effect in the sources of funds is negative, the impact in the government spending is also negative. When the effect is positive, the impact in government spending is also positive. XI. REFERENCES 1. Bangko Sentral ng Pilipinas. (2008). Adjustments in the Face of Peso unpredictability Perspective from the Past and Policy Directions. Retrieved February 21, 2011 retrieved from http//www. bsp. gov. ph/downloads /Publications/2008/WPS200802. df 2. http//www. investopedia. com/ask/answers/08/what-is-foreign-exchange. asp 3. http//en. wikipedia. org/wiki/Foreign_exchange_market 4. http//www. bsp. gov. ph/financial/forex. asp 5. http//business. inquirer. net/money/breakingnews/view/20110314-325428/Peso-rises-against-dollar-as-positive-view-of-local-economy-stays 6. http//www. philstar. com/Article. aspx? articleId=565592&amppublicationSubCategoryId=66 7. fiscal Stability Sector of the Bangko Sentral ng Pilipinas (2006). The Exchange Rate. Retrieved from http//www. bsp. gov. ph/dowloads/publication/FAQs/exchangerate. pdf