June 27th, 2022
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) agrees with the position of incoming Bangko Sentral ng Pilipinas (BSP) governor Felipe Medalla that inflation is the priority of the central bank, not supporting the value of the Philippine peso against the US Dollar or any other foreign currency.
“I am not alarmed by the depreciation of the peso versus the US Dollar. It’s even debatable whether that’s a problem. For OFWs, for exporters, and practically any Filipino who earns foreign currency, that’s good news,” Salceda said.
“And besides, we have robust foreign currency reserves, a massive base of foreign workers, a growing BPO sector, and increasing numbers of freelancers who earn foreign currency.”
“Instead, what we should do is coordinate non-monetary measures that would help us earn more foreign currency,” Salceda added.
Salceda also cited that the country’s liquidity has not grown dramatically.
“Our M3 has grown only at a steady pace, bucking the trend among other countries that have dramatically increased their money supply. So, the problem isn’t really the Bangko Sentral’s monetary stance. The problem with inflation isn’t money supply. It’s in the supply side of the real economy – transport, food, and energy.”
“So, I agree with incoming Governor Medalla that the focus should be fighting inflation, not supporting the peso. I’ve seen how futile that can be when the problem is external. In the late 1990s, during my time in the markets as an investment banker, the Philippines tried to support the currency to insulate the country from the effects of the Asian Financial Crisis. That didn’t work then, and it wouldn’t work now.”
“What the BSP can do is continue its prudent exit strategy from the accommodative monetary stance – carefully ensuring that we do well in our balancing act between growth in the economy and the increase in prices.”
Salceda cited that, year-on-year, M3 only grew by 7.7% as of March 2022, slower than nominal GDP growth of around 12.77% year-on-year.
“That means the increase in broad money has been significantly slower than growth in the economy. So, I would even argue that we are not so much ‘dovish’ on inflation, so much as there isn’t much we can do anymore on the monetary policy side.”
“The problem is on the real sector. Insisting that the BSP be more aggressive with its policy rate hikes is a non-solution.”
Work on exports, easier OFW rules instead
Salceda instead says that “the best countervailing act to depreciating currency is to earn more foreign currency. Let’s work on our exports instead.”
“If foreign currency is more valuable now, then let’s work on earning more foreign currency.”
“So, I suggest that we enable more growth in the BPO sector by clarifying our fiscal treatment of work-from-home rules, towards something more accommodative.”
“The PEZA and the BOI will also have very important roles in this process. Some BPOs have already informed me that they are considering moving from PEZA to BOI, since there isn’t an issue there with work-from-home. Basically, they can apply as domestic enterprises under BOI, and avail of what I have always argued to be a more favorable package, which is performance-based tax deductions.”
“I am strongly suggesting to the DOF that we find a way to manage that transition, so that service-based enterprises can mostly be under BOI, and PEZA can focus on manufacturing for export.”
“Let’s also work on allowing our OFWs to return to work abroad if they wish. There are still working visa restrictions. And let’s ease deployment bans and restrictions, such as the quotas for nurses, which is still too low at just 6,500. The right to migration is a human right, after all,” Salceda added.