THE Philippines can adopt various measures, without or with legislation, to promote a competitive currency and mitigate the peso strength crucial in generating employment and higher tax collections, according to a senior economist.
Dr. Victor Abola of the University of Asia and the Pacific (UAP) School of Economics said the local currency’s appreciation against the US dollar has “very severe negatives”, including output and jobs loss, dollars drain, employment created abroad and significant tax losses.
“(There is) over-emphasis on inflation when employment generation and poverty is the main problem,” he said, noting the peso’s weakness has little effect on inflation.
Abola, during the recent annual International Contact Center Conference and Expo in Cebu City, said the 1.1 million new jobs created each year are lower compared to the 1.5 million to two million employment needed to reduce the country’s poverty rate drastically.
Citing a government data, he said that in five quarters to first quarter of 2013, average new jobs generated reached 452,000 due to the peso movement.
The economist also estimated that a P1 appreciation could result in P23.5 billion reduction in the country’s tax collections.
To mitigate the impact of the peso’s strength on the economy, Abola said the Bangko Sentral ng Pilipinas (BSP) can continue buying dollars, mandate an 18-percent reserve requirement (RR) for foreign currency deposits and raise the RR for both local and foreign deposits.
He said the national government can also buy back dollar debt and replace this with peso debt.
Abola noted that a change in the BSP charter is also imperative to include “maximum or full employment” and “competitive exchange rates” as goals.
The country can also adopt “tobin” tax on foreign exchange transactions and interest rate equalization tax to prevent carry trade, he added.
To alleviate the impact of a strong peso on local industries, Abola further said that the Board of Investments (BOI) can include the business process outsourcing (BPO) and exports below $1 billion among the pioneer industries.
Likewise, the telecommunications and power companies can subsidize rates to these affected sectors, he said. — Danielle Venz, PHILEXPORT News and Features