The Peso Is Screaming — And Congress Is Screaming Louder
The Philippine peso broke through psychological barriers today, nearing the P64-per-dollar mark for the first time in history. The Manila Times and BusinessWorld both lead with it — and rightly so. But the real story isn't the number itself. It's the collision of forces that produced it, and the fact that our policymakers are pulling in opposite directions.
On one side: the Bangko Sentral ng Pilipinas (BSP) is being urged by economists to tighten further, to raise rates, to defend the currency. On the other side: Congress is stuffing over P1 trillion worth of patronage-driven programs into the 2027 national budget, according to a watchdog report published today. These two realities cannot coexist. Every peso the BSP tries to defend with higher rates, Congress spends away with reckless insertions that fuel inflation expectations.
This isn't a technical problem. It's a credibility problem.
The Triple Squeeze: What's Actually Happening
Filipino businesses are now facing a convergence of three shocks that mainstream coverage treats as separate stories but which compound each other brutally:
First: The peso crisis. At P63.80-plus per dollar, import costs are surging. Every dollar-denominated input — fuel, machinery, raw materials, technology licenses — just got more expensive. For manufacturing SMEs in Cavite and Laguna, this is an existential margin problem. For the BPO sector, it's a revenue windfall that will fuel wage inflation and eventually erode competitiveness.
Second: El Niño supply shocks. The El Niño threat to agricultural output and hydropower supply isn't a distant risk — it's a pricing signal already embedded in food inflation expectations. Rice prices will rise. Electricity rates will rise. These feed directly into the Consumer Price Index, which feeds directly into BSP's rate decisions, which feeds directly into SME borrowing costs. It's a doom loop.
Third: Fuel cost divergence. Gasoline is getting a rollback this week — good news for commuters, bad news for the narrative that inflation is receding. Diesel is rising by more than P0.50 per liter. This matters disproportionately for the Philippine economy because our logistics sector runs on diesel. A P0.50 diesel hike translates to 2-3% increase in freight costs within two weeks. Every sari-sari store, every e-commerce delivery, every cold-chain operation pays this tax.
The Global Context: Why This Isn't Just a Philippine Problem
The peso's slide cannot be divorced from what's happening in US credit markets. Payden & Rygel notes today that investment-grade corporate yields have crossed 6% — a level that hasn't been seen since the early 2000s. When US corporates offer 6%, why would global capital park in Philippine government papers yielding 6.5% with a currency depreciating at 8-10% annually?
This is the real mechanism behind the peso's weakness. It's not speculative attacks. It's rational portfolio rebalancing. The Fed's higher-for-longer stance, combined with fiscal deterioration signals from emerging markets like ours, creates a structural bid for the dollar that no amount of verbal intervention can reverse.
Meanwhile, the geopolitical chess game plays out in the margins: the Philippines refuses to cooperate with Taiwan on subsea cable protection (today's DFA statement), while simultaneously expanding Visiting Forces Agreements (VFAs). This is the Marcos administration walking a razor's edge — courting US security guarantees while avoiding Chinese economic retaliation. The market watches this dance nervously. Every misstep carries a peso cost.
The P1 Trillion Elephant in the Room
Let me be blunt about the budget insertions story, because the media is treating it as a footnote when it should be the headline: P1 trillion in unvetted congressional insertions represents approximately 14% of the national budget. If even a third of this is genuinely patronage-driven — and the watchdog's language suggests it is — then the fiscal deficit widens, bond issuance increases, and the peso faces additional depreciation pressure.
This is the structural contradiction at the heart of Philippine economic management: the executive branch asks the BSP to defend the peso, while the legislative branch spends it into oblivion. Investors see through this. Rating agencies see through this. The PSEi sees through this — which is why Philippine blue chips have underperformed regional peers for three consecutive quarters despite "strong" GDP growth numbers that nobody can verify.
The BIR Badge Fiasco: A Case Study in Regulatory Failure
The Bureau of Internal Revenue's decision to suspend its mandatory online registration badge rule is the story nobody is analyzing properly. On the surface, it's a privacy concession to online sellers and content creators. In practice, it reveals a pattern of policy-by-announcement followed by policy-by-retreat.
The BIR designed a system that required millions of micro-entrepreneurs to display tax identification on social media profiles. The backlash was predictable. The reversal was inevitable. But the damage to institutional credibility is done. Every time the BIR announces a rule and then retreats, it teaches the informal economy one lesson: resist, and the state will fold. This is how tax compliance culture dies.
For legitimate online businesses, this creates uncertainty rather than relief. Do you register or not? Will the rule come back in three months with a different format? The answer, based on three years of evidence, is probably yes.
What This Means for the PSEi This Week
The PSEi composite will face selling pressure on three fronts:
- 1Exporters and BPOs (TEL, IS, AC) benefit from peso weakness but face rising input costs from diesel and electricity
- 2Consumer-facing companies (JFC, SM, MER) will see margin compression as food and fuel inflation squeeze household wallets
- 3Real estate (REITs, developers) face the worst combination: higher borrowing costs from BSP tightening + weakening consumer confidence from peso anxiety
I expect the PSEi to test support at 7,200 this week. Any BSP surprise — a rate hold instead of a hike — could trigger a relief rally, but I'd sell into it. The structural story is bearish.
What SME Owners Should Do TODAY
Here's my direct advice for Filipino entrepreneurs reading this on their phone during lunch:
If you import anything: Lock in forward contracts NOW. The peso has no floor until the Fed pivots or Congress disciplines its spending. Every week you wait costs you 0.3-0.5% on your cost base.
If you're in logistics or transport: The diesel hike this week is not a blip. With El Niño reducing hydropower capacity, Meralco will seek rate increases by Q1 2027. Model your costs at P65/diesel and 15% higher electricity. If you can't survive that scenario, you need to pivot now, not in February.
If you're an online seller: The BIR badge suspension is temporary. Build your tax compliance infrastructure assuming it returns. The government's fiscal desperation (P1 trillion insertions mean they NEED revenue) means enforcement will intensify, not relax.
If you're borrowing: Refinance fixed. BSP hasn't finished hiking. The economists urging more tightening are the same voices who'll be quoted as "ahead of the curve" when the peso hits P65 and the BSP is forced into emergency action.
The Bottom Line
The Philippine economy is trapped in a credibility gap between its monetary authority trying to defend the peso and its legislature spending it away. The peso at 64 isn't a currency crisis — it's a governance crisis manifesting as a currency crisis. For business owners, the implication is clear: the easy-money era is over, the supply-side shocks are building, and the political class has no plan to address either. Build your fortress balance sheet this quarter, not next year. The squeeze is structural, not cyclical. And structural squeezes don't resolve themselves — they resolve through pain.
The most dangerous story today isn't the peso at 64. It's that P1 trillion in insertions passed through Congress while economists begged the BSP to tighten. That tells you everything about who actually controls the Philippine economy: not the central bank, not the market, but the people who write the budget.