Q. Why are you devaluing the peso?

A. We are not really devaluing the peso since the peso exchange rate is not fixed to begin with. What we have decided to do is to simply allow the peso to move within a new wider range consistent with a market-determined exchange rate policy. This will allow more timely adjustment in light of more difficult conditions prevailing in regional currency markets. Of course, under current circumstances, this has led to a depreciation of the peso but we expect this temporary situation to stabilize as markets are invariably self-correcting.

Q. What do you hope to achieve with this decision?

A. Our principal concern is to protect the well-earned economic gains of the Filipino people from current turbulence in regional currency markets. A more flexible exchange rate will conserve our international reserves and normalize interest rates to levels compatible with the needs of our fast growing economy. A more flexible exchange rate will also prevent speculators from gaining at the expense of the rest of the economy.

Q. Is this MB decision supported by the President and the Cabinet?

A. Yes, the President has actually issued a statement strongly supporting the Monetary Board decision.

Q. Is our situation similar to Thailand that is why we are doing this?

A. No. There are important differences between the Philippines and Thailand. Philippine economic fundamentals remain very strong. Our economic growth is accelerating. Inflation is declining. Our financial system is very healthy. And we are precisely allowing more exchange rate flexibility to preserve all of these gains.

Q. You said before that devaluation (or if you prefer depreciation) is bad for the economy. Have you changed your view?

A. Our policy remains the same. It is market conditions that have changed. A stable exchange rate is desirable provided that it is also consistent with underlying market conditions. Until recently, favorable market conditions made possible a stable peso exchange rate. However, market conditions have now become significantly more volatile.

Q. Isn't this more flexible exchange rate approach the same as the devaluation decision of the MB in 1990?

A. We are not pre-judging what the exchange rate should be as was done in 1990 when the exchange rate was adjusted from P25.75 to P28.00. This time we are allowing the market to find its own balance.

Q. Some quarters think you should have acted much earlier. Why are you acting only now?

A. In the beginning, the pressure against the peso was mainly speculative and opportunistic in nature and the BSP intervened in the market to counteract this. But overtime, it became clearer that the underlying market sentiment had changed. Therefore, it is only natural that the exchange rate should reflect this. Otherwise, the economy will only suffer adverse consequences down the road like a severe foreign exchange crisis. We had bitter experience of this in the early eighties if you will recall.

Q. Are you surrendering to the speculators by letting the exchange rate fluctuate widely?

A. No. In fact, a more flexible exchange rate policy is designed to discourage speculators and denies them the ability to make sure profits at the expense of the rest of the economy.

Q. What is the level of reserves today?

A. Our latest estimate is about $10.0 billion.

Q. What will be the effect of this new approach on inflation? Interest rates? Government revenues? Price?

A. In the long run, by allowing the economy to continue to sustain its growth and productive capacity, inflation and interest rates will decline, and government revenues will improve.