Philippine Peso to Fall 4 Percent, Port Operator Says

By Lilian Karunungan
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Oct. 17 (Bloomberg) -- The Philippine peso, which declined 14 percent this year, will drop another 4 percent as financial turmoil saps demand for emerging-market assets, according to the nation's largest port operator.

Slowing economic growth, consumer spending and capital outflows will send the currency to the weakest since November 2006, Rafael Consing, treasurer at International Container Terminal Services Inc. said in an interview from Manila yesterday. Recession in the U.S. and Europe may crimp demand for Philippine goods, hurting the peso, he said.

``In my personal opinion, we could see the peso reach 50 if risk aversion continues and as the greenback is repatriated to recapitalize U.S. banks and corporations,'' said Consing, whose company has operations in Eastern Europe, Latin America, Africa and Asia.

The peso is poised for the first annual loss in four years and is the third-worst performer among Asia's 10 most-active currencies outside Japan. It gained almost 16 percent in 2007, according to the Bankers Association of the Philippines. The currency traded at 48.035 as of 12:46 p.m. in Manila.

Overseas sales contribute about a third of the country's gross domestic product and transfers from Filipinos living abroad a 10th. The U.S. is the Philippines biggest export market and No. 1 source of remittances. Europe accounted for more than a fifth of total trade.

``Our trading partners in the U.S. and Europe are close to a recession,'' Consing said. ``One doesn't really expect strong export numbers to those countries.''

Worker Remittances

The peso will also come under pressure as overseas workers' remittances decelerate and export growth slows, Consing said.

Money sent home by Filipinos rose 10.4 percent in August from a year earlier, compared with 25 percent growth in July, the central bank said in a statement in Manila on Oct. 15.

``We should assume such growth to be tempered, as they themselves might be tightening their belts and perhaps allocating more to savings than consumption,'' Consing said.

Non-deliverable forwards contracts yesterday showed traders are betting the peso will weaken 4 percent to 50.12 against the U.S. currency in 12 months. Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date.

Growth Forecasts

The Philippines cut its economic growth target four times this year, saying exports and remittances will falter amid a U.S. economic slowdown. The local economy may expand 4.1 percent to 5.1 percent in 2009, Economic Planning Secretary Ralph Recto said in Manila on Oct. 2. The previous forecast was for growth of 4.5 percent to 5.5 percent.

The Philippine Stock Exchange Composite index has dropped 42 percent this year, with overseas investors selling $781.6 million more Philippine shares than they bought, stock exchange data show.

The Philippines, Singapore, Thailand, Indonesia and Vietnam have seen their benchmark stock indexes in 2008 fall more than 40 percent as the contagion from the U.S. credit crisis spread around the world.

Governments from Washington to London to Berlin have been rushing to shore up banks, unlock lending and avert a financial catastrophe since credit markets froze up following the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc. U.S. lawmakers passed a $700 billion plan to bail out distressed lenders.

``The jury is still out on whether $700 billion is enough to stave off more bankruptcies among U.S. financial institutions, particularly the regional banks,'' Consing said. ``Any sign of second-round effects will exacerbate risk aversion and this could send U.S. dollar-Asia to new highs. In which case, we will see the peso reaching north of 50,'' he forecasts.

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net