BSP to exporters: Hedge for protection

Posted at 08/21/12 9:13 AM

MANILA, Philippines -  Hedging was raised anew by the Bangko Sentral ng Pilipinas (BSP) as one way of protecting exporters against the peso’s appreciation, with a central bank official saying yesterday that traders should focus on boosting their market competitiveness.

“They should study how to hedge their (foreign exchange) position,” BSP Deputy Governor Diwa Guinigundo told The STAR in a text message.

Exporters last Friday voiced concerns over a rising peso, saying this could prompt shops to relocate to other markets or shut down altogether.

The local currency closed at P42.42 to a dollar on its last trading day last Friday. But before that, it has been trading at the P41-level for about a month. While a strong peso makes imports cheaper, it also makes export products abroad more expensive, resulting into lower earnings for traders.

But Guinigundo said this is not happening. “Assessing peso movement based on the simple nominal bilateral exchange rate between the peso and the US dollar will show peso appreciation to be reflective of the country’s resilient exports, remittances, BPO (business process outsourcing) earnings and foreign investments,” he explained.

Merchandise exports rose 4.2 percent in June to $4.310 billion, bringing the first seven-month figure to $26.753 billion, up 7.7 percent from last year. This was despite the peso appreciating by 4.1 percent during the first six months of the year to P42.12, BSP data showed.

In 2010 when peso reached the P45 to $1 level, hedging was introduced by BSP as a strategy to minimize exposure to an unwanted business risk such as foreign exchange fluctuations.

One type of hedging would be to secure a definite foreign exchange rate with your client ahead of his orders, BDO Unibank Inc. chief market strategist Jonathan Ravelas said in a text message.

“An exporter can ask for a quote or a rate even if the money that needs to be exchange is expected three months from now if the client is okay (with it),” he said.

“He can secure that rate and he does not need to worry about where the rates will be in three months,” he explained.

Guinigundo said BSP, in partnership with private banks, has distributed materials on hedging during “numerous seminars” held in the past.

But Philippine Exporters Confederation president Sergio Ortiz-Luis Jr. said most Philippine exporters have small shipments and therefore cannot practice hedging.

“The hedging facility is for big shipments with amount of between $100,000 and $200,000. The problem is about 98 percent of our exporters have smaller shipments that is why they cannot use it,” Ortiz-Luis said in a phone interview.

In response, Guinigundo said exporters should “improve their competitiveness.”

“What exporters should do…is to increase their productivity, enhance their product quality and search for new products and markets, and accelerate their turnaround. In short, they should learn how to compete in the global markets,” Guinigundo explained.