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FOR the
first time in almost half a century, the Philippines has
freed itself from the dictates of the International
Monetary Fund (IMF) by prepaying its debt owed to the
multilateral financial institution.
This was
made possible by the robust growth in the nation’s
dollar reserves—which as of last April hit $25.1
billion—due mainly to a combination of increased foreign
exchange revenues and foreign capital inflows, coupled
with prudent management of the country’s financial
affairs and structural reforms introduced by the Arroyo
government.
These
were among the highlights of the answers of Bangko
Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco
Jr. to written questions that I posed to him as vice
president of the Capampangan in Media Inc. (CAMI), in
connection with the organization’s May 29 media forum.
Excerpts:
What is
the marked difference now in the status, as well as the
operations and thrusts (administrative and policy-wise)
of the BSP under your helm compared to when it was under
your predecessors?
A major
difference is in the matter of foreign exchange supply.
Where before the challenge was to meet the foreign
exchange requirements of the economy such that priority
allocations had to be enforced, now we are faced with a
“problem of plenty” as a result of strong forex inflows
from exports, investors and record-high overseas
Filipino worker (OFW) remittances.
In fact,
we continue to have a balance of payments surplus and
record-high gross international reserves even as
government and certain private-sector firms started
prepaying loans last year.
Among
others, the BSP prepaid its loan with the IMF. Thus, for
the first time in more than 40 years, we are free of any
debt to the IMF and of economic conditionalities that go
with loan availments.
Inevitably, however, the parallel strengthening of the
peso has had adverse effects on dollar-earning sectors
such as exporters and OFWs. Nevertheless, since the peso
has been moving in tandem with regional currencies,
Philippine exports remain generally competitive.
Dependents of OFWs, on the other hand, benefit from
stable domestic prices.
For the
Bangko Sentral, the challenge is to manage the rise in
the amount of money in circulation or domestic liquidity
generated by the external surplus and to direct this to
productive sectors.
Inflation is at low, stable levels, 2.3 percent as of
April 2007, comparable to inflation rates in developed
countries. It is worth noting that we have tamed
inflation even as domestic oil prices are hitting
record-high levels. To recall, inflation rate reached
more than 30 percent in the ‘80s.
Insofar
as the banking sector is concerned, the challenge is to
implement the reforms that my predecessors have begun.
This includes the adoption of international best
practices, improvements in risk management, Basel 2
which sets risk-based capitalization for banks, and
ensuring adherence to the good governance tenets of
fairness, accountability and transparency.
On the
administrative side, at the BSP we continue to train our
staff to meet the challenges of risk-based supervision
and modeling behavior of economic variables to factor in
changes and developments in the financial markets.
Being a
career central banker, have you found, or do you find,
the need to chart a new course for the BSP in the
pursuit of its mandate?
Our
focus is not to reinvent the wheel but to continually
improve it and keep it running more efficiently. Thus,
while the membership of the Monetary Board has changed,
the BSP has remained steadfast in its efforts to stem
inflation and to keep the financial system stable over
the past two years.
With
this as our guide, our team has introduced improvements
in its current operations as well as continued its
pursuit of policy reforms started in the previous
administration. For instance, the BSP introduced
improvements to its inflation-targeting framework to
further enhance its conduct of monetary policy. The BSP
also recently approved a package of reforms to further
liberalize the existing foreign exchange regulatory
framework.
We also
launched the electronic rediscounting facility in
December last year. E-rediscounting represents a
milestone in servicing the liquidity needs of the
banking community and the credit requirements of the
public as it reduced processing time from a few days to
less than ten minutes.
In
addition, we have also intensified the social dimensions
of BSP policy. Foremost is our continuing advocacy of
microfinance to empower the poor and economically
challenged group of small entrepreneurs. We also pursue
economic and financial literacy programs to reach out to
our consumers, investors, overseas Filipino workers and
their beneficiaries.
In the
final analysis, we have not really veered away from the
thrust of our predecessors but have continued to pursue
the same track that they have started and make
improvements along the way.
Have you
implemented major policy changes since taking over as
BSP governor? If so, what banking or monetary
functions/activities were affected by these revisions,
and what did these policy shifts accomplish?
Major
initiatives were pursued in the area of banking
supervision. First, we supported the passage of the
two-year extension of the Special Purpose Vehicle Law to
allow further asset cleanup and bring the banking
industry’s asset quality ratios to their precrisis
levels.
Second,
we continued to prepare the banking system for the
phased-in implementation of the capital adequacy
framework compliant with the provisions of the Basel II
framework. In this regard, we issued in 2006 the
guidelines on the implementation of the revised
risk-based capital adequacy framework for the Philippine
banking system, which will take effect on July 1, 2007.
Other
prudential regulations were also strengthened to address
three vital areas of concern: enhancing risk management,
strengthening corporate governance and promoting greater
transparency.
We also
continue improvements on the inflation-targeting
framework, particularly the lengthening of the decision
period for monetary policy meetings, to provide more
time for analysis and evaluation of economic evidence.
Key
reforms were also implemented in the following areas:
§
FX
liberalization which has improved investor sentiment and
confidence in our ability to meet forex demand.
§
Debt
prepayment and debt reduction (i.e., prepay without
refinancing) which has resulted in big savings for the
country.
§
Buildup
of gross international reserves to record-high levels
which has enhanced investor sentiment.
§
Electronic rediscounting which has broadened and
facilitated access to the BSP’s rediscounting facility
even from the countryside. The benefit from lower
processing cost should eventually trickle down to
borrowers in terms of lower cost of borrowings.
§
Enhanced
payment and settlement systems which minimizes systemic
risk from high-value payments.
§
Better
and stronger protection for investors/depositors/bank
clients.
§
Promotion of mergers and consolidations to have stronger
and more competitive banks.
Gains
from reforms we continue to pursue are evident. Among
others, the banking system’s total resources have been
on an uptrend; total resources grew by 9.6 percent in
February 2007 on the strength of expanding deposit base
and higher capitalization.
The
asset quality of the banking system has also improved as
shown by the sustained decline in the commercial banks’
nonperforming loan (NPL) ratio: between February 2006
and 2007, NPL to total loan ratio dipped from 8.0
percent to 5.6 percent in February 2007 and dipped
further to 5.3 percent last March. Using the new
risk-based framework, the capital adequacy ratio of
commercial banks stood at 19.5 percent, way above the
statutory level of 10 percent set by the BSP and 8
percent by international standards.
Do you
consider the late and former Central Bank Governor
Gregorio Licaros Sr. your mentor? How deep was his
influence on you, in terms of managing the BSP’s and the
country’s monetary affairs? Had any of your other
predecessors influenced you, too? In what way?
I was a
statistician and became a junior economist during the
time of Governor Licaros. While I did not have the
opportunity to work with him closely, his concern and
support for the rank and file was truly inspiring. I am
grateful to him for it was during his term that I was
able to complete my master’s degree in Madison,
Wisconsin, under a BSP Scholarship.
I have
also learned from the other governors who led the Bank
after Governor Licaros.
Governor
[Jaime] Laya was the technocrat who proved that youth is
not a deterrent to a successful career.
Governor
[Jose B.] Fernandez was “The Negotiator.” I joined him
in many negotiations with external creditors.
Governor
[Jose] Cuisia laid the groundwork for the Charter of the
Bangko Sentral ng Pilipinas.
Governor
[Gabriel] Singson helped me appreciate legal aspects and
how important it is to read, read, read.
Governor
[Rafael]
Buenaventura, on the other hand, is a good role model in achieving solid
results in a seemingly effortless manner.
I had
close working relationships with my immediate
predecessors—Governors Gabriel Singson and Rafael
Buenaventura—in the formulation and implementation of
the monetary and foreign exchange policies of the Bank;
the management of the BSP’s international reserves and
the country’s obligations; the administration of the
BSP’s domestic credit operations; and the supervision
and regulation of the financial system.
In
addition, my years at the Central Bank, prior to my
assumption as governor, allowed me the opportunity to
develop crisis management skills. I was there during the
1983 external debt crisis; the 1990
Middle East conflict; the 1997 Asian financial crisis; and the
1999 political crisis.
On this
aspect, I have under my belt more than 30 years of
experience in managing the country’s monetary and
financial affairs.
What do
you hope to achieve as BSP governor in the medium and
long term? How do you want to be remembered as a person
and public servant?
As
governor of the Bangko Sentral ng Pilipinas, my goal is
to keep inflation at low and stable rates and to have a
strong, responsive and stable banking system. These are
key elements in sustaining balanced and sustainable
economic growth that enhance the quality of life of
Filipinos.
Also on
my wish list are:
§
For our
country to continue to have a healthy level of reserves
to make us less vulnerable to external shocks and to be
more equipped to respond to these challenges.
§
To
accelerate the development of our domestic capital
market for sustained and balanced economic growth.
§
To
institutionalize systems in the BSP so that the Bank can
be likened to a well-oiled machine which achieves its
mandate even in the face of challenges.
§
To have
a comprehensive economic and financial literacy program
on a sustained basis to help alleviate poverty and
improve the quality of life of Filipinos: for elementary
students through the integration in the curriculum of
saving and money management; for OFWs and their
dependents through briefings on strategies for wealth
creation; for industrious microentrepreneurs through
participation in microfinance; and for small and medium
enterprises through information programs on how to gain
access to credit and establish good credit standing.
§
To
institutionalize and sustain the growth and development
of microfinance in the Philippines. We have
institutionalized microfinance within the banking sector
by continuously ensuring an environment supportive of
microfinance to make it accessible to even more
borrowers. As of December 2006, total loans outstanding
of 212 banks to more than 650,000 microentrepreneurs had
reached more than P4 billion. What is encouraging is
that these borrowers had accumulated over P1.3 billion
in bank savings as of December 2006. Indeed,
microfinance has proven its capacity to liberate
industrious microentrepreneurs from poverty and to put
them on the way to financial independence. The gains we
have made in microfinance, therefore, give us the
confidence that we are on the right track in our efforts
to bring the benefits of our growing economy down to the
grassroots level through microfinance.
As a
person and as a public servant, I want to be remembered
as a man of integrity who served his country to the best
of his ability and made a difference in making our
country a better place for Filipinos. |
