US$105 Bn

This number helps us understand whether another currency crisis could happen again. For those unfamiliar, it is what caused the Asian Financial Crisis.

Quick Recap

In the early 1990s, after a revolution and a failed coup d'état, the Philippine economy was on the path to recovery. The property sector was booming, and new buildings were being constructed rapidly. During this period, developers often borrowed in US dollars because the interest rates were lower (5% to 6%) compared to peso loans (12% to 14%). Everything seemed positive until Thailand experienced a currency crisis.

In July 1997, the Thai Central Bank was forced to switch from a "fixed-currency" system to a "floating-currency" system after exhausting its US dollar reserves, which were needed to maintain its policy.

[A "fixed-currency" system means that if a local wanted to import something and pay in US dollars, the exchange rate at which they purchased US dollars would remain constant and not fluctuate.]

Following this shift, the Thai Baht depreciated against the US dollar, dropping from US$ 1 = THB 25 to THB 49.

Fearing similar consequences for other emerging market (EM) currencies, including the Philippine peso, investors quickly sold off their EM currency holdings, causing these currencies to devalue against the US dollar. The Philippine peso depreciated from a rate of US$1 = PHP 26.4 in June 1997 to PHP 42.7 in six months.

As the peso depreciated, major Philippine companies faced the risk of defaulting on their dollar-denominated loans. These companies, generating most (if not all) of their revenue in pesos, needed more pesos to convert into US dollars to meet interest and principal payments. The most notable real estate event of this period was Metro Pacific's sale of its rights to develop Bonifacio Global City (BGC) to Ayala.

Since then, the PH central bank has learned from the Asian Financial Crisis and has amassed substantial dollar reserves to help manage fluctuations in the Philippine peso. For comparison, the Philippine central bank had only 2.8 months' worth of international reserves in 1996 (vs. 7.8x today). This time, the situation is more secure.