HH The Philippine Peso Squeeze

In the first quarter, the Philippine peso depreciated against the US dollar. Internationally, this was attributed to President Duterte’s policies. In reality, it has a lot to do with the expected US rate hikes. But there is a reason why misguided geopolitics now overshadows Philippines.

In the recent quarter, the Philippine peso depreciated by 0.88 percent against the US dollar. It was the only currency in Asia to do so. For the first time since 2009, the peso drifted to 50 per US dollar.

Much of international media attributed the fall to President Duterte and his “unlawful” policies. The number of such reports has increased since last fall and escalated through the spring, particularly in US-based media, including some of the largest global financial news hubs.

At best, these reports reflect an odd discrepancy between the fundamentals of the Philippine economy and the way it is portrayed internationally. At worst, they illustrate a gross misrepresentation of those fundamentals.

The geopolitical peso story

As the peso peaked at 50.40 in early March, international media saw the real culprit in President Duterte. who is “involved in unlawful killings and corruption,” as Bloomberg’s Ditas B. Lopez put it. The headline told the story: “Asia’s ugly duckling of the year is the Philippine peso, thanks to Duterte.”

Actually, this narrative did not start in early 2017 when the Philippine currency began to weaken against the US dollar. It did not reflect news; it proactively shaped news. It began already in September 2016 when peso was still 46 against the dollar. From January 2017 back to September 2016, the Bloomberg author’s Philippine stories included “Southeast Asia's Worst-Performing Currency Is in for Another Tough Year,” “Philippine Peso Completes Worst Month in 16 Years,” “Duterte's Peso Rout Runs Counter to the Booming Philippine Economy,” “Philippine Officials Seek to Soothe Investors Spooked by Duterte.”

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Disclosure: None. 

Dan Steinbock is the founder of Difference Group and has served as research director of international business at the India, China and America Institute (US) and a visiting fellow at the Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

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