Friday, November 05, 2010

What should the Philippines response be?

The Fed unveiled plans to buy $600 billion in government bonds to help the struggling economy. Markets had expected the Fed initially to commit to buying at least $500 billion in Treasuries over several months.

In my previous post, I said:

"I fear that the Philippines peso will surge to 39 to the dollar in December when remittances will be traditionally high and the Feds money starts entering the financial system all over the world. More cheap imports for the Philippines I guess, and our exporters would be in pain. So are the OFWs who get less Peso for every dollar that they will send come December."


As a response, the Philippines should also do the same. Sell bonds worth 200 billion pesos and spend the money on infra projects.

It will not create inflation if the money goes to infra. The new pesos can easily be absorbed with dollar remittances come December. Either way its impact could rein the rise of the peso, or cause inflation. Price monitoring and control should be made strict by the DTI.

More pesos could create more demand locally, helping local industries and would provide capital for various economic activities.

Perhaps this way the Peso can stay at 42.