Strong Peso Meaningless Amid High Oil Prices — Ibon

Instead of directly taking responsibility to ensure the country’s oil security in the face of a highly speculative and volatile international oil market, government could only ask the public to be thankful that the dollar is weak

By Arnold Padilla
IBON Features

MANILA, Philippines — Government’s best effort to appease a restless public due to drastic hikes in oil prices is to highlight the appreciation of the peso against the US dollar. While oil prices are rising, the peso is also hitting highs against the US dollar, according to the economic managers of President Gloria Arroyo. This “cushions” the impact of steep increases in global oil prices on local pump prices.

But far from appeasing the people, this pronouncement only underlines the defeatist policy of the Arroyo regime. Instead of directly taking responsibility to ensure the country’s oil security in the face of a highly speculative and volatile international oil market, government could only ask the public to be thankful that the dollar is weak and the price hikes the country is facing are “much lower” because of this. It only highlights how the Arroyo regime is so anti-people and so pro-market, leaving the poor and marginalized at the mercy of merciless market forces.

To begin with, even at a P43-foreign exchange rate, the impact of a US$75 per barrel-Dubai crude spot price is still debilitating to the local economy and people’s livelihoods. The minimum jeepney fare is again raised to P7.50 and there are pending petitions by various transport groups for another round of fare hike as the operators and drivers try to protect their already low income constantly attacked by oil price hikes.

The price of an ordinary LPG tank has jumped by around P49 since the start of the year. These are just some of the immediately direct impact of the oil price hikes on the public, impacts that are aggravated by already depressed wages and low incomes. Overall, according to the Bangko Sentral ng Pilipinas (BSP), a P1 per liter hike in oil prices increases the inflation rate by 0.10 to 0.14 percentage points after a 12-month period.

In addition, the strong peso does not in any way diminishes the vulnerability of the Philippines to global oil price shocks. It may to a certain extent “cushion” the impact of oil price hikes but the crucial question is for how long? Remember that the current peso appreciation is primarily the result of massive inflows of remittances from overseas Filipino workers (OFWs) combined with the overall weakening of the US dollar against the world’s major currencies. It is thus very unpredictable. If the tension in Iran escalates into a full-blown conflict, then the temporary relief that a strong peso offers is easily wiped out as actual supply disruption in Iran where the country imports around 40% of its crude oil translates into even steeper increases in pump prices. Plus even the peso value itself could fall as OFW deployment in the Middle East is affected by the conflict in Iran, further increasing local oil prices.