The peso has fallen against the US dollar to its lowest level in seven years, at P48.25 to one dollar. That’s a depreciation of 5.55 percent from the average of P45.71 just before President Duterte’s election.
The stock market has fallen below the 7553 index-point-level, down one percent from Monday’s index close, and down 3.74 percent from the 7846 level on July 4 this year.
Analysts were telling me stock prices have risen so high to about 21 times projected earnings of listed companies, making them very expensive to buy, they should go down to 17 times earnings. This implies that stocks should go down some more, by about 19 percent, or in index terms to maybe 6400 index points.
The problem is that the peso drop and the stock market correction happened after a number of expletives uttered by our popular President.
First, Duterte suggested American soldiers, numbering a little more than 100, should get out of Mindanao. While these forces seem to be helping us, they are also a magnet for attacks by Filipino Muslim insurgents.
Next, Duterte made remarks indicating he didn’t care whether the Philippines would lose its investment-grade credit rating or whether foreign investors would pack up because of his seemingly erratic policies, err mouth. On Sept. 22, in Misamis Oriental, he made the dirty finger sign at the European Union for making warnings about his campaign against illegal drugs. “Fuck you! Why are you complaining?” he sneered at the Europeans.
Monday, Sept. 26, he hinted at a major policy shift by disclosing that in his talk with Russian PM Dmitry Medvedev in Laos, he was about “to cross the Rubicon” in his relations with the US.
Analysts were then quick to blame Duterte’s mouth for the drop in both the peso rate against the dollar and the stock market index.
To me, even if the President had hemmed in his expletives, the peso and the stock market would have lost value just the same. Why? Because of external or global developments.
The US is widely expected to raise interest rates probably by December. This should trigger an outflow of funds from outside the US like Asia, into the mainland.
Also, the global economic outlook is not that good. “The overall weakness in the global economy presents the biggest threat to the achievement of the outcomes desired by President Duterte and the nation as envisioned (in his economic) strategy,” says Albay Rep. Joey Salceda.
Duterte wants economic growth rate of seven percent per year up to 2022 and to cut poverty significantly from 26 percent at present to 16 percent also by 2022 (the reduction would free almost ten million Filipinos from poverty) by ramping up public infrastructure spending to 5.4 percent of GDP (the value of economic output) and to seven percent of GDP by 2022. That infra spending is equivalent to P8.2 billion in six years, almost a third of my estimated P25 trillion total Duterte spending over the same period.
So should we worry? No.
The Philippines is not that deeply connected to the world. We do only $58.64 billion worth of exports and $66.6 billion of imports. Net income from abroad (P1,540.9 billion at constant 2000 prices) is only 16.8 percent of Gross National Income (P9,134.7 billion at 2000 prices).
As for investments, Filipinos are now investing more abroad than what foreign investors are investing in the Philippines. So if these foreign investors threaten to pull out, Duterte is probably right in saying he doesn’t care. The Philippines, after all, is a net exporter of capital.
Which is why the so-called investment-grade credit rating is not that significant, unlike before. Why? Because the Philippines does not need the foreign loans and the so-called foreign direct investments.
Filipinos have plenty of money. The savings rate is 30 percent or GDP or P4.2 trillion of idle money. In the central bank’s vault is some P2 trillion worth of deposits under special account by commercial banks. It’s deposits of the people the banks refuse to give back as loans to those who need the money.
In 2015, foreign investments reported by the Bangko Sentral was $2.52 billion.
How much did Filipino expats earn and remit last year? $28 billion—more than 11 times the $2.52 billion investment inflow.
How much did the Philippines earn as business process outsourcing and call centers last year? $25 billion – ten times the $2.52 billion foreign investments.
Will so-called foreign investors make good their dare to leave the Philippines? No.
Why? Because they never had it so good in the Philippines. In many of the industrial zones operated by state-run Peza, foreign locators are getting more tax incentives than the value of investments they have brought into the country or the equity they have put into the business. In other words, we are being hoisted with our own petard.
No wonder, Finance Secretary Sonny Dominguez wants to reduce, if not withdraw the so-called fiscal incentives given these so-called foreign investors. From now on, fiscal incentives should be “transparent, targeted, performance-based, and time-bound.” Easily P34 billion of such incentives should be withdrawn.
However, there are some taxes the Duterte government is planning that you should worry about.
Like the P10 per liter excise tax on gasoline and other petroleum products and the P10 tax per liter on so-called sugary products like soft drinks and orange drinks. Per liter of Coke or Pepsi will easily increase by P20. Your favorite cup of Starbucks will increase by P20. And with the increase in prices of diesel, gasoline and other petroleum products, which are bellwether products, prices of nearly everything will skyrocket.
Now, I worry.