PAMANTASAN NG LUNGSOD NG MAYNILA (University of the City of Manila) Intramuros, Manila GRADUATE SCHOOL OF MANAGEMENT CASE ANALYSIS

December 09, 2007

PESO HITS 7 - YEAR HIGH OF 42.27 TO $1 AND STRONG PESO DELAYS RP EXPORT PLAN**
An upbeat foreign investor sentiment allowed the peso to defy rough regional currency markets & rally to a new seven-and-a-half -year high of 42.27 to a dollar before closing at 42.305 last Monday, 3 december 07, in the aftermath of a failed mutiny last week. The peso, which was also supported by the strong inflows from overseas Filipino workers that accumulated during the long weekend, gained 44.5 centavos from Thursdays finish of 42.75 to a dollar. Currency traders said the local currency opened at 42.55 and appreciated throughout the year to close near the days high of 42.27, the highest level hit by the peso since touching 42.07 on June 6, 2000. Volume traded at the Philippine Dealing System amounted to $621.1 million. I think that in the case of the Philippines, the strength of the peso is a one-way street. Its just a question of up to how much it will rise further, a foreign banker said. The banker predicted that the peso could break past the 42:$1 barrier and hit a high of 41.75 against the greenback before the year ends. A currency dealer from a big local bank said: The market is focusing again on fundamentals, on increased flows during the period so it favored the Philippine peso. Plus, we might be seeing a further weakening of the US dollar so its also helping the sentiment other than the continuous inflows. The trader said the foreign exchange market had discounted the short-lived political noise caused by the stand-off at the Manila Peninsula at the Makati central business district last Thursday. The peso, now Asias best performing currency this year, has gained 15 percent against the dollar after ending 2006 at 49.03:$1. Other Southeast Asian currencies also firmed up against the dollar last Monday but concerns on the US property downturn weighed down other currencies in the region like the Singapore dollar, Taiwan dollar and the Korean won. Consuelo Garcia, head of ING Philippines financial markets, said the investment outlook was boosted by progress in the governments privatization of large power assets. For instance, she noted the governments receipt last Thursday of P58.5 billion in payments for the sale of a controlling stake in

geothermal crown jewel PNOC Energy Development Co. ING, along with the state-owned Development Bank of the Philippines, was a financial adviser to the PNOC-EDC privatization. The winning bidder was a consortium led by the Lopezes. Garcia said also noted the governments successful bidding for the 175megawatt Ambuklao-Binga hydropower plant complex, which was won by the Aboitiz group. The highprofile privatization of Transco (National Transmission Co.) will also fetch a very positive sentiment, she said. Currency traders said similar to what happened during the failed Oakwood mutiny launched by Trillanes group in 2003, the foreign exchange market was expected to rally after the weekend drama. Fending off more threats to the local sector, the Export Development Council (EDC) has been forced to hold off until mid-2008 the planning process for its new export plan. Sergio Ortiz-Luis, Jr., EDC Vice Chair and President of Philippine Exporters Confederation, said the plan that was initially meant to take effect in January was delayed due to strengthening of the peso, historic global oil price hikes, more increases in the price of electricity and the slowdown of the United States economy. These factors have forced organized exporters to this years target from 11-percent growth rate to 6 percent or even lower. We need (the extension) to be able to really put more flesh to the plan, he said. (These) trends moving against our survival have come in rapid succession in the second half of this year. According to the official, the EDC needs to review and consolidate the drafts that Philexport regional units and industry associations have prepared. The resulting plan must be practical enough for the government and private sector to achieve, Ortiz-Luis said. Drawing up the export plan may take until May, when the council hopes to submit the proposal to President Macapagal-Arroyo for approval, he said. Ortiz-Luis reiterated calls for export groups to avail of a P280-million export promotion fund, of which only P30-million worth of projects has been tapped. The fund was put together earlier this year to enable organized exporters to upgrade their ability to win bigger markets and counter the effects of a strengthening peso which has been eroding their margins. Last week, Ortiz-Luis urged the government to intervene and stop the continued appreciation of the peso amid fresh forecasts that the currency would further strengthen in the coming years. He said there was still a lot of the government could do to address the trend that has been adversely affecting families of overseas Filipino workers and those whose livelihood depend on exports. The government can choose to peg the exchange rate to P47 to the dollar, Ortiz-Luis said. It has always been saying that the steady uptrend is good for Filipinos, but nobody is benefiting from this except the government and the smugglers.

**By: Dorie C. Dumlao and Rommel W. Domingo Philippine Daily Inquirer December 4, 2007