By ALBERT CASTRO

The strong peso has caused amortization defaults in mid-income housing according to a study done by First Metro Investment Corp. and University of Asia and the Pacific Capital Markets Research head Victor Abola.

Abola noted that defaults had run to as high as 35 percent in a mid-sized real estate company, the market most vulnerable to the strong peso.

The peso had gained close to 20 percent against the US dollar last year.

Retailers earlier complained that their sales had gone down by 10 percent before the Christmas rush, reflecting the 20 percent cut in the amount of pesos the families of migrant workers can exchange their dollars.

The strong peso has likewise slowed down the government’s generation of jobs, and lessened industry competitiveness.

The Bangko Sentral ng Pilipinas, Abola said should participate more in forex trading.

Abola in yesterday’s FMIC presentation of the Philippines’ economic prospects for 2008 stressed how the strengthening peso remains one of the two biggest stumbling blocks to economic boom.

He estimated a 6.3 percent GDP growth for 2008.

Abola was hopeful that the Philippines grew by 5.7 percent for 2007, considerably lower than BSP governor Amando Tetangco’s estimate of seven percent.

He said growth would have been primarily driven by continued government pump-priming, influx of mining investments, that complement the continued growth of the services sector.

Private consumption is expected to expand by 5.8 percent from 5.5 percent in 2006; government expenditures expanded by 11 percent, from 6.1 percent in 2006, and capital formation growing by 6.9 percent from 2.7 percent in 2006, according to Abola.

"Business is good. Long and medium-term trends are pointing upwards. Filipinos have extraordinary incomes and there is a fairly stable environment. Remittances from overseas Filipino workers are still up and portfolio investments are on the rise," he said.

Tagging the strong forex as the "Dutch Disease threat," Abola noted that the strong peso has already lessened the country’s competitiveness in the manufacturing sector, reduced jobs in the sector, and has limited private consumptions.

The strong currency has already caused 35 percent of overseas Filipino clients of one mid-size real estate company to default in their monthly payments. Abola said a further exacerbation of the situation could cause non-performing loans/assets of banks to hit 20 percent, the allowable limit for real estate loans that banks can service.

The manufacturing sector meanwhile has lost about 124,000 jobs in the past two years with the loss of competitive edge.