Peso’s real reckoning
Diversifying exports and attracting manufacturing investment is a decade-long project, but every year Manila delays starting it is another year the peso stays hostage to oil prices it does not control.
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Diversifying exports and attracting manufacturing investment is a decade-long project, but every year Manila delays starting it is another year the peso stays hostage to oil prices it does not control.
The peso will not return to its pre-crisis footing anytime soon, and pretending otherwise does Filipinos no favors.
The forces dragging it down — a structural trade deficit, an oil import bill that balloons with every Middle East flare-up, and a services-heavy economy that cannot earn its way out of the hole the way manufacturing exporters can — were present long before Israel and the US struck Iran.
The Strait of Hormuz standoff simply exposed a vulnerability Manila had been living with for years. Even if tensions in the Gulf eased tomorrow and oil prices retreated, the peso would not snap back to 55 or 56 vis-à-vis the US dollar. It would settle somewhere weaker than before because the underlying imbalance in what the Philippines buys versus what it sells to the world hasn’t changed.
That said, “no full recovery” is not the same as “nothing can be done.” The government has real levers, even if none of them work fast enough to satisfy a Senate hearing news cycle.
The most obvious is fiscal discipline. A wider deficit financed by more borrowing signals to markets that Manila is not serious about narrowing its twin deficits, and that signal costs the peso more than any single BSP rate move can offset.
Trimming the deficit, even modestly, would do more to restore investor confidence than another 25-basis-point hike.
Second, the country needs to stop treating remittances and BPO revenues as a permanent subsidy for its failure to build an export base. Every peso crisis exposes the same structural gap — the Philippines imports fuel, capital goods, and increasingly even rice, while its exports remain concentrated on electronics assembly that adds comparatively little value.
Diversifying exports and attracting manufacturing investment is a decade-long project, but every year that Manila delays starting it is another year the peso stays hostage to oil prices it does not control.
Third, Governor Remolona’s candor at the Senate hearing, while admirable, was tactically costly. Confirming publicly that the BSP won’t burn reserves defending 60 practically invited speculators to test the floor. Central banks rarely benefit from broadcasting the limits of their own resolve. The BSP doesn’t need to lie, but it needs a communications strategy that doesn’t hand markets a free option.
As for the human cost of a slide to 65 and beyond: it will not be evenly shared, and that is the part policymakers keep underselling.
A weaker peso makes imported fuel, medicine, and food costlier at a time when inflation is already running at twice the BSP’s target.
Jeepney and tricycle drivers, manufacturers dependent on imported inputs, and the majority of Filipino households already stretched by the 6.1-percent inflation print will feel this first and hardest.
Overseas Filipino workers’ remittances will buy more pesos — which is the one silver lining — but that cushion helps mostly recipient households, not the broader economy grinding through higher transport and power costs.
There’s also a sovereign-debt dimension worth flagging. The National Treasury’s decision to shelve the five-year jumbo bond sale because of the weak peso and rising rates is not a footnote — it’s a preview.
If Manila keeps needing to borrow in dollars or delay peso-denominated issuances because conditions are unfavorable, debt servicing costs compound the very deficit that’s weakening the currency in the first place.
That’s the trap: a weak peso makes fixing the fiscal picture harder, and a bad fiscal picture keeps the peso weak.
None of this is fatal. The Philippines survived worse currency routs in 1997 and 2018.
But surviving isn’t the same as thriving, and President Marcos’s economic team needs to stop talking about the peso’s weakness as an externally imposed misfortune and start treating it as the receipt for choices — on trade policy, on fiscal restraint, on industrial strategy — that were made, or avoided, long before Iran’s control of the Strait of Hormuz and the disruption of ships transporting oil from the Middle East to the world and its dire global effects became headlines.
