The peso is overvalued

Because of the country’s history of overvaluing its currency, it’s vulnerable to external shocks. According to the Bank of America, the Philippines’ external position is the weakest in Southeast Asia, with continuing deterioration of its current account deficit.

- CALIXTO V. CHIKIAMCO

hatis, the peso is too strong relative to other currencies. This means that our exports are less price-competitive in the global market, and imports are cheaper and easier to come in. Yes, even at P58 to $1.

I rest my case on the following grounds:

1. US President Trump has imposed a tariff of 19% on Philippine exports to the US, similar to that imposed on other countries like Vietnam (20%), which is the fourth biggest exporter to the US, and whose trade surplus with the US reaches $123 billion. The peso has hardly weakened since then to compensate for the tariff barriers.

2. Tradables continue to suffer. Manufacturing as a share of GDP has continued to shrink due to the strong peso. Manufacturing share of GDP decreased from 16.2% in 2023 to 15.7%. More telling is that the Philippines’ manufacturing share of GDP is just slightly ahead of Brunei, Laos, and Mongolia, and far behind Cambodia (27.8%), Thailand (24.3%), and Indonesia (19.0%).

What's worse, 55% of our exports are in manufactured electronics, which is highly import-intensive. Consequently, our biggest import is also electronics. The strong peso has continued to disincentivize backward integration.

The Philippines is deindustrializing, a phenomenon described by National Scientist Dr. Raul Fabella as “development progeria” or “premature ageing” where services dominate the economy, mainly due to a strong currency. The problem is that these services are low-end services, from retail to fast food, and not high-end services, like financial services, as in Singapore.

Moreover, high-paying entry-level jobs are in manufacturing. A shrinking manufacturing sector means fewer high-paying blue-collar jobs.