BACKBENCHER
Rod Kapunan
10/1-2/2011
Propping up the dollar
Lately, we are elated to hear that Bangko Sentral ng Pilipinashas accumulated an unprecedented foreign currency reserve of $76.5 billion, of which $600 million was earned only this year. But for all that, many are trying to reckon out why our finance managers refuse to use that to pay our bulging foreign debt. Such is logical considering that as of April 2011, the country has an accumulated P2.026 trillion external debt and P2.286 trillion internal debt, or a total of P4.712 trillion.
The suggestion makes sense. The trouble, however, is that the money at hand is not really one of pure capital, but more of stock-in-trade. Although denominated in currencies, they are commodities which the government uses to buy and sell in pursuit of a misguided policy of protecting those sectors benefitting in the trading of dollars.
For one to understand this complex trading mechanism, there is a need for us to know why this country is racing to accumulate much of those dollars. Accordingly, the government keeps on buying them principally to help our exporters sell their products at a higher value, for that would mean more earnings for them. The idea sounds great much that there appears in it a shade of patriotism. It is also good propaganda, for a favorable trade surplus means more revenues for the government.
But what many of us do not know is that the government keeps afloat the value of the dollar to appease the exporters. Alongside the exporters are the international money traders, which produce nothing, but take advantage of the policy by dumping their dollars purchased elsewhere to buy stocks, bonds and other forms of derivative instruments that usually would command a much higher “yield.”
Even if we take it that the policy is to help our exporters, again that is more of a myth. There is nothing in our manufacturing and industrial sectors that is adding to our foreign exchange earnings. Our export industries are mostly import-dependent industries, and the only earnings we derive are the wages earned and income taxes paid by our workers. That is no different from the current fad of business outsourcing. Similarly, we can no longer count on our agricultural exports much that other countries have long overtaken us in the international market on products we used to export.
Invariably, whatever profit is gained in our exports is readily siphoned by that stupid policy in subsidizing that currency. The huge foreign currency reserve has become a sort of pork barrel for the international and local financial oligarchy because it is from there where they buy those subsidized dollars to guarantee their usurious debt instruments.
Of course, our finance managers would not want to see the peso wholly depreciate. Even if it would result in the flooding of the dollars, nobody wins in a ruined economy. All they need is to keep the currency exchange attractive to foreign investors, and for us to use the little earnings to tide over our bankrupt economy.
Some will ask: Where is the government buying those dollars? The answer is simple. As a policy, the government compels our overseas workers to convert their remitted foreign currencies to peso at a price set by the collaborating commercial banks. For the fact that they are bought at a price lower than the prevailing market rate, their subsequent reselling earns for them billions of pesos.
It is in this sense that the principal amount used to purchase those foreign currencies cannot be strictly considered reserved currency. The only real reserve we could claim as ours is the negligible profit generated by the conversion of those currencies to peso and from the small revenue collected as remittance tax.
Our overseas workers and their families would not mind getting a lower rate in the conversion of their foreign currencies to peso and the deductions paid as tax. But definitely they will, if all of a sudden the dollar depreciates, or to put it differently if the peso appreciates, because it means a lower purchasing power for them. In that, one could see that their interest and that of the exporters are parallel which is to see the peso decompose without them knowing that the biggest winners in that con-game are the international money traders.
Although we have an almost the same situation as that of Mexico, the Mexican government refuses to fix the rate of those remitted currencies for fear it could cause a rapid depreciation of its peso, notwithstanding that it would in effect be subsidizing the value of the dollar, a policy we adopted here with open arms.
In fact, other countries are desperately racing to preserve their currency either by fixing their value as what Malaysia did, by their acceptance of other currencies that command higher value as what many are now doing, or by their purchase of gold like what China is doing, which in effect is a reversion to the gold standard.
In our case, as the government persists in buying those excess dollars, we are compelled to print more of our money. That exacerbates inflation, thus causing the prices of goods and services to increase unreasonably. Money traders also take advantage of the excess money supply much that it causes the peso to depreciate further.
The irony is that while we compel our overseas workers to convert their foreign currency earnings at a lower rate, portfolio investors, at the slightest rally of the dollar against the peso, would readily take out their profit, which is usually the difference in the appreciated value in buying those stocks and derivative bonds. In March this year, the gross outflow in portfolio investment amounted to $1.3 billion. This does not include the unabated flotation of those dollar-denominated government bonds.
In that, one could see how we discriminate against our own people. While we heavily tax our overseas workers who trudge and sweat it out abroad just to earn a few dollars, money market traders and portfolio investors are free to take out their money any time together with their profit with negligible or no tax whatsoever.
(rodkap@yahoo.com.ph)
