Strengthening Peso And A Fearless Forecast

The stongest peso since three and a half years ago is what last Friday's (February 10, 2006) closing rate to the US dollar says, at 51.48. It promises cheaper goods, Mar Roxas predicts. President Arroyo also "predicted that the peso would soon hit the 50 to the dollar mark" for want of a better forecast. Well, that depends on the market actually. You see, a strong peso-to-the-dollar at several cents is already more than the 2% VAT increse that has been added to consumer goods just this month. Let's take a concrete example by way of simple mathematics:

[WARNING: NUMBERS AND EQUATIONS AHEAD. IF YOU GET NAUSEATED AND IF YOUR VERTIGO GETS TRIGGERED BY COMPUTATIONS, READ AT YOUR OWN RISK OR SKIP TOWARDS THE LAST 4 PARAGRAPHS OF THIS POST]

In January 26, 2006, the PDS rate is US$1=PHP52.44, the difference being PHP0.96 to last Friday's.

To compare, a Filipino shells out PHP51.48 now that there's 12% VAT to buy, let's say, food. Let's put that side by side to shelling out PHP52.44 with 10% VAT and see what effectively is the cost of commodities, VAT excluded.

• At PHP51.48 with 12% VAT, cost of item before VAT is PHP45.96.
• At PHP52.44 with 10% VAT, cost of the same item before VAT is PHP47.67

The difference is PHP1.71 for the consumer, granting the price of commodieties has not increased. Now, if the price of goods increased by 2%, that would be a different scenario but still on the favor of the Filipino. See the following example:

At PHP51.48 with 12% VAT but with a 2% price increase (at PHP52.51 after VAT), cost of item before VAT is PHP46.88. It is still cheaper than the cost of goods in the previous month at PHP47.67.

Mar Roxas has a point. We may all enjoy cheaper stuff should the manufacturers of goods give us the much anticipated roll-back on the prices of their commodities, if at all. That is, if the peso sustains it's value and if the government could at least control the current "peaceful" situation in the country. Everything that are about to happen is crucial as one more bus bombing, "hello, Garci" scandal, coup-d-etat attempt, political destabilization in any form, catastrophe, tragedy, tempest, force majeure, or plague could make it scamper back to the PHP58 to the US$1 rate it had been forecasted to reach several months before.

Observe the increase in PHP value and you could readily see as to what this is attributable to just by knowing what is happening around us. At one point when Manny Pacquiao won in LA, our peso value increased. At our winning in the SEA games, it also did a climb. At the implementation of the new VAT reform act, again, it went it's merry way up.

The only aspect eveyone is anxious for is when will we feel the improvements. When the impact could be felt as an impact, to give the term justice. When do we enjoy a better life on the general? When to we eventually pay off half our foreign debt? When will poverty lessen?

We can only hope. Hope that it continually improves for all of us and hope for our leaders to know how to take us where we need to go.

posted by Fritz @ 11:46 AM