Source: Business Mirror (https://businessmirror.com.ph/embrace-weaker-peso/)

The government should welcome a weak peso rather than fear it if it wants to cut poverty faster and attract more foreign investments, according to an economist from the University of the Philippines (UP).

In a presentation at the Ayala-UP School of Economics (UPSE) Forum on Monday, National Scientist and UP Professor Emeritus Raul V. Fabella said a weak peso will make the Philippines an attractive investment destination and will encourage businessmen to consider long-term investments in the country.

To significantly reduce poverty incidence in the country, Fabella said the ratio of foreign investments to total investments should go up to as much as 30 percent.

“Even up to now, China’s [foreign] investment rate is around 40 percent. With 30 percent, we will be able to improve our infrastructure. To make it sustainable, the Philippines should have open markets and, I claim, that we should embrace rather than fear the weak peso,” he said.

However, Foundation for Economic Freedom Vice Chairman Romeo Bernardo said he does not agree that a weak peso can help cut poverty faster.

Bernardo also added allowing the peso to depreciate further just to make the country’s business environment more competitive could hurt the poor.

A weak peso would make imported products more expensive. This is a major concern, especially for a country like the Philippines—a net food and fuel importer.

“[A weaker peso] could lead to labor demands for higher wages and feed inflation further. This will not only negate the depreciation we need but could lead to a real appreciation, not to mention the impact of inflation on the poorest sectors,” Bernardo said.

But Fabella said the Philippines could take a cue from China, whose economic success was largely due to its decision to allow the entry of more foreign investors. He added that China’s economic success was ushered in by Deng Xiaoping, who opened his country’s doors to the world after Mao Zedong’s death in 1976.

Allowing free enterprise, foreign investment, and earning from exports enabled China to lift 600 million of its citizens out of poverty between 1980 and 2014. Poverty incidence rate fell to ,6.5 percent in 2014, from 88 percent in 1980.

Fabella said the government should also roll out improvements in the country’s infrastructure and lower the cost of power to attract more foreign investors.

He said lowering power costs could include exempting manufacturing firms from paying feed-in tariffs and completing the so-called One PHL Power Grid, as the country’s power grids remain “fragmented.”

Fabella said the government should consider continuing its privatization efforts, which could be aided by the lifting of restrictions in some economic sectors.

He noted that the privatization of government’s telecommunication assets in the 1990s enabled the business-process outsourcing sector to flourish in the Philippines.

Addressing poverty is one of the primary targets under the Millennium Development Goal (MDGs) and the new Sustainable Development Goals. Under the MDGs, poverty should have been halved by 2015. The SDGs aim to wipe out poverty by 2030.

However, the Philippines failed to meet its target of goal of cutting poverty incidence to 17 percent by 2015 under the MDGs. The target was based on the 34-percent rate in 1990, the baseline year for the MDGs.

In October former UPSE Dean Ramon Clarete said the Philippine GDP must grow by at least 6 percent every year until 2030 to eradicate poverty. Clarete said this economic growth should be accompanied by a 5-percent annual growth in per-capita income over a period of 25 years.

GDP growth in the Philippines averaged 6.2 percent between 2010 and 2015. In 2016 GDP expanded by 6.9 percent and 6.4 percent in the first semester.

Growing the economy, Clarete said, requires making food cheap and accessible for all as well as boosting the country’s trade and investment growth. Clarete noted that rice remains expensive not only for consumers but also for farmers.

Data showed that this is largely due to expensive trade costs. Clarete said trade costs in the Philippines are very high. The United Nations Economic and Social Commission for Asia and the Pacific pegged trade costs at 50 percent of world prices.