Amando M Tetangco, Jr: Forging ahead toward higher ground
Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines
(Bangko Sentral ng Pilipinas), at the Bangko Sentral ng Pilipinas' 2010 reception for the
banking community, Manila, 14 January 2010.
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Leaders of the Philippine banking community, fellow workers in government, special guests
from the private sector, the diplomatic corps, the multilateral agencies, the academe and the
media, good evening. The members of the Monetary Board thank all of you for accepting our
invitation tonight.
This Annual Reception hosted by the Bangko Sentral is tradition we look forward to, as it is
an opportunity to gather thought leaders and the movers of the economy within this historic
Fort San Antonio Abad. In other words, it is a fascinating fusion of history and those who
make history. It is also an opportune time to reflect on the year just past, and to train our
eyes on what lies ahead.
Standing firm in the midst of a global downturn
First, let us have a brief overview of 2009: the year of the worst global recession in 80 years
and one of the most difficult years for central banks around the world. As a country, the
Philippines came out of this difficult period with a positive growth. Sure, our economy
expanded by a modest 0.7 percent for the first three quarters of 2009; nevertheless, this is
remarkable given that only a handful of economies escaped recession in 2009.
And while Bangko Sentral ng Pilipinas implemented liquidity enhancing measures at the
height of the global credit crunch, these were non-inflationary. Domestic liquidity growth as of
October last year was 12.5%. On the other hand, full-year inflation at 3.2 percent was well
within our target range of 2.5 to 4.5 percent. This indicates that we made appropriate
decisions taken 18-24 months ago, the estimated time lag for monetary policy to have full
impact.
Our external position remained strong, with a confidence-building balance of payments
surplus of $4.1 billion for the first 11 months and record high gross international reserves at a
preliminary $45 billion by year-end.
Equally important, our banking system remained sound and stable. We also avoided a credit
freeze as banks continued to lend to the productive sectors of the economy. In addition,
Bangko Sentral received last year international recognition for having the best regulatory
environment conducive for microfinance and for our pioneering regulations for mobile money
transfers that promote inclusive banking.
This is not to say that 2009 was perfect for us. But we are proud that the reforms we have
implemented together with the banking community and other stakeholders served us in good
stead and empowered us to stand firm in the midst of a global economic storm that crippled
many economies. This is the broad picture of 2009 that make us hopeful moving forward into
2010.
Diffusing the odds in 2010
Indeed, we have reasons for optimism. While rain clouds linger, the worst of the global storm
is over. The consensus is that the global economy has seen the worst and is on a recovery
phase. At the same time, the global financial markets reflect growing stability that whets the
risk appetite of investors.
Still, questions remain. First, no one knows for certain the final shape and speed of the global
recovery. Second, as the pace of recovery across countries varies, national authorities have
to carefully calibrate the timing for unwinding the support and stimulus mechanisms they had
put in place. Premature unwinding could put recovery at risk; on the other hand, delayed
response could stir up inflation and create destabilizing asset bubbles.
What I can tell you is that the exit strategy of the Bangko Sentral will be done gradually and in
stages as we have monetary policy space. As we execute our exit, we will always be mindful of
our underlying domestic conditions, with particular focus on the outlook for inflation.
For the broader financial system, proper focus should be on how to avoid the financial crisis
that triggered the global economic shocks. In forum after forum, we hear of the need to
modify operating standards and guidelines. Only last month, the Bank for International
Settlements released new guidelines on international standards for liquidity while focus on
large exposure risks and amendments to accounting standards continues.
Ladies and gentlemen. We did not build our banking system by chasing one change after
another. Instead, we made a collective decision to effect meaningful and appropriate
structural reforms that were far from easy. This includes risk-based supervision that is central
to our reform agenda. Together, we must continue to move forward along this path that will
allow us to identify and manage risks to the banking system.
Developing strong pillars for 2010 and beyond
Ladies and gentlemen. 2010 is not only about challenges and changes; it is also about the
chances and opportunities that lie ahead. Sure, our conditions are far from ideal, but our
economic fundamentals remain firm. Inflation is expected to be manageable and is forecast
to fall within the target range of 3.5 to 5.5 percent. In other words, we do not see drastic
changes in our policy rate settings.
At the same time, our external position will remain in surplus, with the BOP surplus expected
to range between $3-4 billion by yearend. This means that the peso will have fundamental
support. Consequently, there will be occasion for the BSP to build up its international
reserves to temper exchange rate volatilities.
I foresee that the banking system will remain sound and will continue to intermediate credit to
the productive sectors of the economy. This will create more opportunities for lending,
particularly to micro, small and medium enterprises of MSMEs. And as the economic
recovery goes into full swing, there will be greater prospects for fee-based activities in the
capital markets in support of infrastructure and expansion projects.
Final thoughts
Ladies and gentlemen, we avoided the worst global recession in decades because together
we forged the political will to implement challenging reforms long before the crisis struck.
Moving forward, let us commit once again to move forward together to ensure an even
stronger and more responsive banking system.
Finally, I have one more good news to share. This year, we are launching the Bangko
Sentral ng Pilipinas Art Competition which we call "Tanaw." This is the first time we are
launching a national painting competition. Our objective is to support the development of
Philippine art by providing incentives for excellence to Filipino artists. Bangko Sentral has
one of the most extensive collection of Philippine paintings and pre-historic gold in our
country today. This is due principally to the vision of Dr. Jaime Laya, former governor of the
Central Bank of the Philippines. Ladies and gentlemen, let us thank Dr. Laya for this legacy
with a round of applause. For your information, Dr. Laya has agreed to chair the BSP
Cultural Properties Acquisition Advisory Committee which counts as members National
Museum Director Corazon Alvina, Art Educator Deanna Ongpin-Recto, Art Critic Cid Reyes,
BSP Deputy Governor Diwa Guinigundo, BSP Director Fe de la Cruz and Monetary Board
Members Raul Boncan and Juanita Amatong as advisers. With this art competition, we
broaden Bangko Sentral's involvement in the preservation and promotion of Philippine arts
and culture. In the process, we create more reasons to be proud as a Filipino.
To all our guests, we thank you once again for your support to the Bangko Sentral ng
Pilipinas as we continue to serve our people and our country through better policies and
programs that keep our banking system sound and stable, in a fast-changing world. Let us
therefore offer a toast: to our continuing partnership in sustaining economic growth and
improving the quality of life for all Filipinos.
Mabuhay! Thank you and do enjoy the rest of the evening.