Dollar Weakens while Remittances Fall

Disagreement over Remittances Contraction

The Bangko Sentral ng Pilipinas (BSP) is predicting that remittances will remain flat this year.  That is they will neither increase nor decline throughout 2009.  Last year, remittances grew 14% but the growth for January was only 0.1%.  The Bangko Sentral’s reasoning is that much of the funds sent are for non-flexible spending such as mortgage payments for land.

However, the World Bank estimates a decline of 4% in remittances.  In either case these are bleak numbers.  Remittances make up 10% of the Philippine economy.  If 10% of the country flattens out and exports fall isn’t it likely that growth will go negative rather than merely slow down?

If BSP is actually manipulating the exchange rate as has been implied  by expats that have been here longer, wouldn’t they push the value of the dollar up so that growth would be at least stable?  Perhaps the central bank of the Philippines is not manipulating the value of the Peso as much as many think.  If the dollar is actually propped up now, I’d hate to see what it looks like without manipulation.

I don’t think that it is being manipulated, if it were I think the dollar would be much higher.  For most of this month, the dollar has been creeping lower.  If it is, I’m clearly missing something and I’m open to that possibility so let me know what you think!.

My last article on this subject predicted the dollar would fall, due to the The Federal Reserve Bank’s policy of buying back treasury bonds in order to flood the markets with dollars in hopes it would help the banks resume lending.  When I wrote that story, the dollar had been falling slowly against the Philippine Peso and was at 48.2299.  Now, about three weeks later the dollar has slide to 47.1696 or a drop of 1.0603 Peso.  This comes out to 0.02198 decline in about three weeks.   If it continues to fall at that same rate for a year, the dollar will fall about 38.2107%.

That’s a scary number for me but I don’t think a three week fall is really that meaningful to predict how the rest of the year will go.  What happens in the economy is far more predictive.  I thought the economy was turning around the US but numbers out in the last few days show consumer confidence is still way down.  If American’s wont spend the dollar should go.  This is only true if banks will not loan.

If American’s are keeping large amounts of cash in the bank, this will allow banks to loan more.  Since American’s are not spending and banks are no loaning there should be a larger demand for the dollar than those willing to part with their dollars.

The bad news for American’s may be good news for expats that are living on a fixed income from their savings.  There are so many factors out there that determine the final value, probably many that I’m not aware of.  I’m watching and learning as I go.  I welcome your comments and thoughts.

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