Why is the peso so weak?

It started over dinner, as these conversations often do.

Former CHED Commissioner Dr. William Medrano Sr., CHED Regional Office VI OIC Director Gregorio Perez Jr., and I had just come from a long day spent on another task. We were tired, hungry, and finally seated. I cannot remember exactly how we got from whatever we were talking about to the peso. Dinner conversations have a way of wandering.

But there it was: PHP 64 to the dollar.

And the question that stayed with me afterward was not really whether the peso would reach PHP 65 or PHP 66. It was this: Why does the government seem relatively calm about it? And is expensive oil still enough to explain what is happening?

The concern is real. On October 27, the peso closed at a record low of PHP 64.17 against the dollar. It recovered somewhat afterward, but crossing PHP 64 was enough to get people’s attention.

President Ferdinand Marcos Jr. told the public not to panic. He pointed partly to rising oil prices and the pressure they put on the peso. Fair enough. The Philippines remains heavily dependent on imported energy. When oil becomes more expensive, we need more dollars to pay for it. Global uncertainty does not exactly make things easier either.

I can accept that. What I find harder to accept is stopping there. Because while we are explaining the peso, Filipinos are already living with the other numbers.

September inflation came in at 7.2 percent. A month earlier, it was 6.1 percent. Food and nonalcoholic beverages were up 6.7 percent, transport 14.6 percent, and housing, water, electricity, gas, and other fuels 8.4 percent.

Then came October 22. The BSP raised its policy rate another 50 basis points to 5.50 percent. I know. Basis points. Most people do not talk that way over dinner. We experience the economy much more simply.

You go to the grocery and put something back after seeing the price. You fill the tank and wonder when it became that expensive. You buy the same medicine you bought last month and notice it costs more. Somehow, the same PHP 1,000 you have always carried does not seem to go as far.

That is inflation without the chart. That is when PHP 64 begins to matter.

There is another side to it, and we should be fair about that. Filipinos earning dollars, OFWs, freelancers paid from abroad, and families receiving remittances get more pesos when the dollar rises. If somebody sends home USD 1,000, PHP 64 to the dollar certainly looks nicer than PHP 55. Until those pesos leave the house.

More pesos for your dollars? Of course that feels good. Then you start spending. Fuel costs more. So can electricity, transport, food, and plenty of other things that depend, directly or indirectly, on imports. Some of the advantage you gained on the exchange rate begins disappearing at the checkout counter.

Someone put the contradiction rather neatly: masaya kapag tumatanggap ng dolyar, masakit kapag gumagastos ng piso.

Then there is that argument I keep seeing online: Japan has more than JPY 100 to the dollar, so why are Filipinos making such a fuss about PHP 64? That is not how currencies work. Otherwise, we could improve the economy tomorrow morning simply by changing the denomination printed on our money.

What matters is not whether another country needs more units of its currency to buy a dollar. What matters is what has happened to our peso relative to where it was, how quickly it moved, why it moved, and what that movement does to the things we buy and the economy that produces them.

The BSP itself has long resisted the idea that it should defend some magical peso-dollar number. Governor Eli Remolona Jr. has said that intervention should be about managing excessive volatility, not maintaining a particular exchange rate.

That makes sense. There is no economic virtue in burning through reserves simply so we can say we dragged PHP 64 back to PHP 62.

Still, the BSP can only do so much. It can raise interest rates when prices are rising too quickly. It can intervene when the peso starts swinging too sharply. These things matter.

But a central bank cannot fix every reason prices are going up. An interest-rate hike cannot grow more rice. It cannot make imported oil cheaper. It cannot fix a port, shorten a supply chain, lower the structural cost of electricity, or persuade investors to put more long-term money into the Philippines.

Which brings me back to that dinner. Maybe we are asking too much of oil as an explanation.

Former BSP Deputy Governor Diwa Guinigundo has been making much the same point. Oil matters. So does what happens abroad. But we also have to look at what is happening at home — whether we are earning enough foreign exchange, bringing in investment, selling more goods abroad, managing public money well, and giving investors enough confidence in our institutions.

Another number caught my attention. The BSP expects the country to end the year with a USD 9.2 billion balance-of-payments deficit, about 1.8 percent of GDP. The current-account deficit is projected at USD 19.1 billion.

Oil is part of that picture, certainly. But it cannot explain the whole picture.

That distinction matters. We cannot control the world price of crude. We cannot stop wars abroad. We cannot tell the US Federal Reserve what to do.

But “global factors” can become a very comfortable place to hide. Our farms are ours. So are our dependence on imported energy, our industrial base, our infrastructure, the way government spends public money, the seriousness with which we deal with corruption, and whether investors believe the rules will remain fair enough for them to stay.

So no, every fall of the peso is not the President’s fault. That would be too easy. But what we do about the weaknesses already inside the country is very much a question for the government.

I am equally uncomfortable with the opposite habit: treating the exchange rate as a presidential report card. Critics suddenly become economists when the peso falls under a president they dislike. Supporters suddenly discover the global economy when it falls under one they support.

We have been doing this for years. Perhaps that is why I would rather not turn PHP 64 into another Marcos-versus-Aquino argument. The arithmetic may be useful, but history is rarely explained by one column in a spreadsheet.

The more difficult question now is whether several problems are beginning to reinforce one another.

The Philippine economy grew only 2.3 percent in the second quarter. Inflation is at 7.2 percent. The peso has crossed PHP 64. Interest rates have gone up again. Investment has also shown weakness.

That does not mean we should throw around the word stagflation casually. But neither should we dismiss the concern. When growth slows while prices remain painfully high, it is a question economists and policymakers have every reason to take seriously.

And when several warning lights appear on the dashboard, I am not sure “do not panic” is the most interesting thing to say.

Of course we should not panic. Panic has never lowered the price of rice. The better question is what those lights are trying to tell us.

By the time dinner ended, that was what I kept coming back to.

Most Filipinos will never study the balance of payments. They may not know what exchange-rate pass-through means. Many probably have better things to do than check the peso-dollar rate before breakfast.

But ask them what PHP 1,000 bought a year ago. Then ask what it buys now. That conversation might tell us more than PHP 64 ever could.

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Doc H fondly describes himself as a “student of and for life” who, like many others, aspires to a life-giving and why-driven world grounded in social justice and the pursuit of happiness. His views do not necessarily reflect those of the institutions he is employed by or connected with.