THE PESO closed weaker Monday against the US dollar after President Gloria Macapagal-Arroyo admitted Monday that the country is already in the midst of a fiscal crisis, dealers said.
"We are already in the midst of a fiscal crisis and we have to face it squarely--wielding our courage, resourcefulness, and solidarity as a nation and people," Arroyo said in a speech at national police headquarters.
Arroyo, a US-trained economist, said the government would also ask "sacrifices" from the people. Her admission came after economics professors warned that the economy could crash in two to three years unless the government curbed the ballooning budget deficit. She said: "I appreciate the concern and suggestion being put forth by well-meaning quarters to resolve the crisis and I take this as a sign of sincere concern that must be translated into deeper public awareness and action."
The peso closed at 55.85 to the dollar, its lowest level for the day and 0.13 peso weaker than Friday's close of 55.72. It opened at a high of 55.75 and traded softer for most of the session on volume of 126.62 million dollars.
Dealers said the local currency was widely expected to trade on a weaker note since corporations, particularly oil companies, buy more dollars for their financing requirements at the month-end.
The start of the import season has also increased the demand for dollars, they added.
"Investors have their attention on the country's fiscal problems, especially after President Arroyo admitted that we are already in a crisis. The President's statement has, sort of, alarmed the market," a local bank dealer said.
Another dealer said the peso traditionally weakens during this time of the year since "remittances from overseas Filipino workers are at their low and imports begin to increase."
Government economic managers are in a meeting to evaluate a proposal to declare a state of fiscal crisis, Presidential Spokesperson Ignacio Bunye said.
Such a declaration would allow the President to withhold, for a limited period, the release to local government units of a portion of their share in the revenues of the national government.
The Development and Budget Coordinating Committee, which is composed of representatives of economic agencies, including the central bank, the Department of Finance, and the Department of Budget and Management, has been directed to submit its recommendation to Arroyo "as soon as possible."
Dealers said the peso could be in for further weakness with banks likely to continue beefing up their dollar positions as the country's chronic fiscal problem weighs heavily on investor sentiment.
The peso is seen trading between 55.75 and 56.00 against the dollar, dealers said.
Economists from the state-run University of the Philippines had warned that the country has three years, at the most, to avert a financial crisis such as those experienced by Argentina and Turkey and that it only has a year to convince lenders it is doing something to prevent bankruptcy.
The country's total debt stood at 3.36 trillion pesos at end-2003, or 78 percent of GDP that year, while consolidated public sector debt (which includes obligations of state-owned firms) was at more than 130 percent of GDP.