Amando M Tetangco, Jr: Enhancing resilience to sustain inclusive
growth
Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the
central bank of the Philippines), at the Year-end Philippine Economic Briefing, Manila,
18 March 2014.
* * *
Reflection of resilience
Quite often the picture that we associate with the word "resilience" is that of the bamboo tree
that sways to the violent winds and yet is not broken. It rustles. But doesn't snap In medicine,
we think of resilience as the body's ability to recover quickly from illness In psychology, we
conjure a state of being able to "bounce back".
Such pictures do characterize the Philippine economy, especially when we consider the
events of last year. We were buffeted from both the global and domestic fronts. But the
economy remained resilient.
Globally, the Fed's pronouncements and actions with respect to its withdrawal of
accommodative monetary policy (or the Fed tapering) brought heightened volatility to our
financial markets. The resulting market uncertainty and portfolio rebalancing got reflected in
a reversal of the strong capital inflows of previous periods. This led to depreciation pressures
on the exchange rate decline in our stock market and widening of spreads on our debt
papers.
While all of these were happening in the financial markets, the country was hit by natural
disasters, which threatened to weaken our growth prospects and unsettle inflation
expectations.
Against this backdrop, the resilience of the economy was evident. The economy continued to
grow by 7.2 percent in 2013. This performance beat market expectations and the
Government's target of 6-7 percent for the year. Inflation was at the low end of the
Government's target range of 3-5 percent. Meanwhile, our banks remained a source of
strength as the system's balance sheets stayed solid. Our external accounts continued to be
robust, buoyed by strong structural flows such as remittances and receipts from BPO and
tourism. Our GIR remained more than adequate by most yardsticks. And, prudent fiscal
management provided the policy space for re-building and stepped-up government spending
on infrastructure that is expected to form the base for sustained economic growth.
Risks to the resilience story
Can we expect this strong performance to continue? What are the risks to this resilience
story? Let me quickly run through some threats to resilience.
On the global front. First, we see continued uneasiness among global investors from
uncertainty in the next steps of the Fed. This may cause capital outflows and with that,
greater financial market volatility. Second, many analysts also predict the slower growth in
Asia to continue. This could have an impact on intra-Asian trade, which had compensated for
weakness in trade with advanced economies in the recent periods. Third, the risk that recent
political turmoil, including in Ukraine, may escalate. This could affect international commodity
prices, global financial markets, and undermine global growth prospects.
Closer to home. we need to be watchful, among others, of our own disaster risk management
efforts that could affect sustainability of our growth performance; and potential upward
adjustments in domestic utility rates that could affect inflation expectations; as well as any
risks to financial stability.
Responses to sustain resilience
Given these risks, how can we sustain resilience? On the part of the BSP, we will continue
policies that strengthen our macrofundamentals.
First, we will closely track monetary conditions to ensure that our stance of monetary policy is
appropriate. Based on our assessments, inflation remains manageable. Our forecast runs
show that, over our policy horizon, average annual inflation will settle within the government's
target range. Therefore, there continues to be room to keep rates steady. although the room
for keeping stance of policy has narrowed, given the aforementioned global and domestic
risks.
Second, the BSP will continue to closely monitor movements in the exchange rate. Our
assessment shows that the peso will remain fundamentally supported by robust economic
growth and the BOP surplus. Given the moods and swings of the financial markets, we will
continue our flexible exchange rate policy, but at the same time, keep a strategic presence in
the foreign exchange market to limit excessive exchange rate volatilities.
Third, we will remain watchful of potential sources of vulnerability to our banks. Risks that
can directly affect individual banks, and those that co-mingle and can affect the system as a
whole will be given attention. In other words, we will sharpen the financial stability
perspective of our bank surveillance. We will also align our regulations with the international
reform agenda. Banks will be supervised so they stay sound and therefore able to sustain
effective and efficient intermediation of funds to the productive sectors of the economy.
In other words, ladies and gentlemen, the BSP will continue to build resilience that would
lead to stable prices, a relatively competitive exchange rate, and a sound banking system.
The ASEAN Banking Integration Framework could also help us achieve improved resilience.
We believe the Philippines stands to benefit from this regional integration effort. Apart from
seeing a much larger investor base, greater integration could also open up opportunities to
mobilize resources toward a diverse array of productive investments. Greater competition
also promises to help us capitalize on technology and innovation, while pushing our financial
institutions to enhance their efficiency.
But resilience is not enough
But resilience of itself is not enough. What would be ideal is that, while our economy is able
to withstand harsh conditions, we should also be able to move forward and achieve our
objectives of sustained broad-based economic growth in a stable macro environment. This is
the second part of today's theme. Enhancing Resilience to Sustain Inclusive Growth.
"Inclusive Growth" has become such a buzz word - everyone (even the IMF) now talks about
it. I am afraid, if we just keep on speaking about it, without much action, there is a risk that
the buzz will simply drone. We need to make sure that our exhibited resilience, which has
given us this strong macroeconomic base from which to leap, translates to a palpable
improvement in the welfare of more, if not all, Filipinos.
A larger economic pie for more
Resilience helps to enlarge the economic pie. But, it would be more desirable if the larger pie
is shared by more. Ladies and gentlemen, we all need to do more if we would like economic
growth to cast a wider net and cascade through the broader society.
On the part of the BSP, we believe our efforts to intensify financial inclusion would help
ensure that more of the stakeholders are able to enjoy the now larger pie. These initiatives
are in the form of crafting regulations to improve access to financial services, expanding our
economic financial and learning programs, and strengthening our financial consumer
protection efforts.
We are fully aware, however, that BSP and the government cannot do this alone. We need
the strong partnership of the private sector.
We hope that this briefing will provide a venue for meaningful information sharing and
dialogue between the public and the private sectors on the competitive challenges and
opportunities posed by our current operating environment.
But more than this, we hope that this briefing would be a venue for us to confirm our
readiness to meet these challenges and move forward, with the good of the greater majority
in mind. We trust that today's proceedings will encourage all to work together towards the
shared goal of inclusive growth - the only growth that truly matters and the only growth that
transforms.
Thank you and a pleasant day to all.