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The Philippine Peso - Asia's Rising Super Star

Author: ZigfredDiaz
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When the United States Dollar-Philippine Peso Exchange rate was hovering at around P44+ to a dollar, I adviced my dad to withdraw all his dollars, change it back to Philippine peso and place it in mutual funds.

I don't know if my dad has listened to my advice, but now the exchange rate is now nearing P 40.00 to a dollar.

More conservative experts say the exchange rate will be P 39 to a dollar by 2008. However other experts give the fearless forecast of 37 to 1 by the 1st quarter of 2008. Most of them would agree that it would stay in the P 30 +++ level by the year 2009. Some say it will be above 35 while others say it could be less than that.

One thing is certain though, the Philippine Peso will keep on getting stronger in coming months because of the following:

1.) The law of supply and demand - When demand is high prices goes up and when demand is low prices go down. The more supply of dollars there is, the cheaper it will be. The less demand of dollar there is, the price for getting dollars goes down also. And why is the supply of U.S dollars rising in our country? Consider this:

a.) Increase in Overseas Foreign workers (OFW) remittances - An estimated eight million Filipinos, out of a population of more than 80 million, have left the country to seek work abroad. There are currently more than 11 million Filipinos worldwide. An increase in the number of Filipinos leaving the country for work is expected to continue and as this continues to grow, so does remittances. This steady and additional inflow of U.S dollars helps strengthen the Philippine Peso.

b.) Influx of more foreign capital - According to the Central Bank, foreign direct investments (FDI) from January to September 2007 aggregated to US$1.9 billion. This is higher by 22.3 percent compared to last year's US$1.6 billion (In the same period). Most Investors now see that the Philippines is good place due to the following reasons, effective Fiscal reforms implemented by the government, strong economic fundamentals, our growing business process outsourcing potential and liberalization of mining laws. Most of the foreign investments in the country went to mining, real estate and manufacturing. This is the reason why the stock market remains to be bullish, the inflation rate is low, and the GDP is high etc. This results to a good business environment for investors. More investors are expected to come in as this trend continues. As more "hot money" flows into the country, the supply of dollar continues to increase.

c.) Tourist spending - According to reports Tourist arrival rose 8.6 percent from a year earlier. This means an additional 2.5 million tourists. The money tourists spend in the country helps push higher the supply of U.S dollars in the country.

d.) Export earnings growth - Despite the fact that exporters are having a hard time due to a stronger Philippine Peso, the export sector has reported growth last year due to the increase of Business Process Outsourcing investment in the country. It cannot be denied that the Philippines is still to one of the best place to invest when it comes to business process outsourcing.

e.) A more stable political environment - It seems that the Filipino people are tired of the political bickering, political mudslinging and involving themsleves with activities that seeks to unseat the president. The current administration has maintained a strong influence and a grip on the situation. This has somehow created a stable political environment.

2.) A weaker U.S dollar - While it is true that our strong economic fundamentals helped push the Peso upwards, it also cannot be denied that the Peso got a little help from the weakness of the U.S dollar. The economic problems of the U.S due to the sub prime mortgage crises has been causing the U.S dollar to futher weaken. This factor helped push the Peso upward.

Since it started to get stronger, the Philippine peso appreciated 18 % against the U.S dollar. This resulted to the Peso being named as the best performing currency in Asia last 2007. In the months or years to come, expect that the trend of a stronger peso will continue.

About the Author

The diverse educational background and experiences of Zigfred Diaz helps him write interesting articles regarding financial management, investments and other diverse topics. economic forecast that could affect investment decisions, visit his blog.