The Market Monitor Minding the Nation's Business
By Luis Leoncio
Local business groups gave mixed views on the effects of the Chinese government’s move to devalue the yuan to counter its slowing economy.
A devalued currency makes Chinese exports cheaper, thus, increasing the demand for China-made products.Filipino exporters, however, expect that a weaker yuan would not significantly affect Philippine exports as long as the peso tracks the movement of other Asian currencies.
“Provided the BSP (Bangko Sentral ng Pilipinas) allows the peso to devaluate and track the yuan and other currencies, especially of our competitors in Asia, it will not affect our exports so much,” said Sergio Ortiz-Luis Jr., president of the Philippine Exporters Confederation Inc. (Philexport).
He welcomed the recent moves of the BSP in not stepping in to defend the peso.
“It should not have much impact provided the peso’s depreciation is not prevented. Our competitiveness, thus, will not be affected,” he said.
The surprise devaluation of the yuan has triggered concerns over the growth slowdown of the world’s second-largest economy.
In June, China was the Philippines’s third largest overseas market, with 11.4-percent share in total exports and shipments valued at $600.92 million. Japan and the United States remained the country’s top export markets.
Ortiz-Luis said that weakening export receipts due to the economic deceleration of major trade partners can be offset by stronger trade-facilitation efforts to help exporters integrate into global value chains and capitalize on free-trade agreements. Trade facilitation is key to cushioning the impact of the global economic slowdown on Philippine exports, he added.
Ortiz-Luis also said that export performance in May declined by 17.4 percent to $4.89 billion, from $5.93 billion a year ago, bringing total export receipts for the year until May to $23.53 billion, or 5 percent lower compared with the same period last year.
He attributed the weaker performance to the softening of export markets like China and the still fragile economic growth of Japan and the US.
As such, Ortiz-Luis underscored the role of trade facilitation to make up for the “market failures” in such areas and still achieve the national export target of 8 percent to 10 percent this year.
Cultivating a more competitive peso is also a good strategy. The export community, he said, “welcomes the trend that shows the peso may continue to depreciate in the coming months to catch up with its peers in the region, helping the Philippines stay competitive against its export-oriented neighbors.”
“Whereas before, the BSP has been staunch in guarding the strength of the peso, it now seems to be inclined to keep the peso at levels that will support the productive sectors of the economy-exporters and overseas Filipino workers.”
BSP Deputy Governor Diwa Guinigundo explained that monetary officials in some external trade-dependent countries devalue their currencies to boost it on the back of soft economic prospects overseas.
The Philippines did not go with the flow, and Guinigundo traced this to the country’s strong macroeconomic fundamentals.