MANILA - Exporters may have dodged the impact of recent storms in the Philippines, but some players, including the small and medium-sized firms, will certainly the brunt of the local peso's gain, an industry leader warned on Friday.

Philippine Exporters Confederation Inc. (Philexport) President Sergio Ortiz-Luis Jr. said the country's exports are likely to drop by 20% this year as the peso continues to strengthen against the US dollar in a time of crisis.

The drop is equivalent to the revised export growth forecast made by the Bangko Sentral ng Pilipinas (BSP) on Wednesday. "Unfortunately, the peso is strengthening in the midst of the crisis. (Because of this), the competitiveness of exports are hit, leading to a longer recovery," Ortiz-Luis told reporters.

The peso traded at P46.38 to the dollar on Friday from P47.69 a year ago. 

Foreign exchange traders had said that the BSP has been intervening by mopping out excess liquidity in the foreign exchange market. 

Affected exporters

The exchange rate volatility hurts the firms that have purchased their raw materials when the peso was weak. Selling the finished products now when the peso is strong means their profits are squeezed.

For example, buying their raw materials when the peso was at P47 and selling the final products at P46 translates to losses. 

To make up for foreign exchange losses, they tend to sell their products at higher prices, reducing their competitiveness in the global market.

The trajectory of the exchange rate also hurts small and medium exporters who tend to have lower threshold for volatility.

Ortiz-Luis said such an exchange rate will take a toll on indigenous exporters, and may force them to shift to local markets.

"Indigenous exporters cannot survive on less than P47 (to the dollar), so they may hold on product orders now," he explained.

On the other hand, he said large-scale exporters such as those belonging to the consumer and electronics sectors can still survive at an exchange rate of P46 to P46.50 to the dollar.

At present, Ortiz-Luis said exports account for about 45% of the country's gross domestic product (GDP). 

On the way to recovery

Merchandise exports fell 30.3% for the first 8 months of the year to $24 billion, data from the National Statistics Office (NSO) showed.

For the month of August alone, exports dropped 21% to $3.47 billion.

The country's exports have been showing signs of recovery since June with a 24.8% annual drop. Since December 2008, exports have been declining at a range of 30% to 40%.

But because of "problems with the exchange rate," Ortiz-Luis said the expected recovery in exports may only be felt by next year.

"Exporters will have to retreat for a while," he said. Still, Ortiz-Luis hoped that year-on-year export figures in November and December will post positive growths.

"We're trying to explain to (the BSP) that we have to manage the exchange rate with a bias for exporters," he said, adding that the BSP should work on ways to control the peso's gain "over the medium and long term."

Remittances, too

Aside from exporters, Ortiz-Luis said overseas Filipino workers (OFW) will feel the effects of the peso's appreciation as they lose spending power from dollar-denominated remittances.

OFWs send money to their families and loved ones in the Philippines, fuelling consumption and keeping the economy afloat.

But with a weaker dollar, the same amount that they send home will only buy less in peso terms.

"Tatanggalan ng stronger peso ang pera ng mga OFW (The stronger peso will take away money from from OFWs)," he said, not citing figures.

Local companies also watch the pace of remittance growth for their own business and investment strategies. A decline in remittances, whether in amount or value, is a concern for them as these will impact company sales.

After posting the highest growth since November last year, the pace of remittance growth slowed to 2.8% in August. For the full year, the BSP is expecting remittances to grow 4% to $17.1 billion. With a report from Agence France-Presse