Amando M Tetangco, Jr: Infrastructure, inclusiveness, institutions -
raising the Philippines to the next level
Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (the central
bank of the Philippines), at the Philippine Economic Briefing, Manila, 30 September 2014.
* * *
Honorable members of the Economic Team, Cabinet members, members of the Diplomatic
Corps, our partners from the private sector and multilateral institutions, colleagues from
government, friends from media and civil society, ladies and gentlemen, good morning and
welcome to the 2014 Mid-year Philippine Economic Briefing.
The theme for today's economic briefing is "Shaping our Future". We have chosen this theme
to help bring to mind that we can proactively define our direction and goal as a country. It is
also a call for us not to merely look back to the past or to leave the future to chance. Our
Investor Relations Office has designed today's briefing so we would all come to appreciate a
future that we can all aspire for - that is, a more open, robust, dynamic and inclusive
economy.
Solid macroeconomic environment
Let me first note that aggregate demand conditions continue to be solid. In the first half of
this year, the Philippines grew at 6 percent. This growth has been fueled by a broader set of
growth drivers and continues the streak of consecutive quarters of positive growth since
1998. Inflation (actual and forecast) remains within target. Although inflation has been
elevated and risks to future inflation have remained tilted to the upside, the outlook continues
to be manageable.
Meanwhile, we have seen strong structural flows, including remittances and receipts from
BPO and tourism. These have allowed us to build up ample international reserves and
support our external sector dynamics. Our banking system remains a vital lynchpin for
growth. It continues to be characterized by sound metrics such as growing deposits and
assets, strong capitalization, ample liquidity, favorable funding profile and solid lending
growth.
Risks that can challenge the ongoing narrative
Even as our fundamentals show strength and we have built buffers against external shocks,
we remain cognizant that there are risks that could challenge this positive narrative. For
instance, there is the uncertainty over the timing and magnitude of the US Fed policy shift
into more normal mode. This headwind could take many forms, among others: financial
stability pressures from repricing of credit; sharp downward adjustments in prices of real and
financial assets; and, capital flow volatility that could re-emerge as global investors react to
news. If these risks are not managed well and result in unwarranted tight financial conditions,
fragilities in EME financial markets could be exposed. In turn, these could negatively
feedback to the real economies of EMEs. On the part of the BSP, although our series of
monetary tightening actions in the past few months have been principally aimed at managing
inflation expectations, these have also been put in place to help guide the domestic financial
market to a smooth transition as monetary policy begins to normalize in the US.
In the case of the domestic economy, the key challenges over the medium term are likely to
relate mainly to addressing potential supply-side bottlenecks, bridging identified gaps in
existing infrastructure, minimizing the impact of natural calamities, and promoting greater
economic inclusion by, among other things, generating more employment.
What can bring PHL to the next level?
Our economy's resilience has been supported by sound macroeconomic policy. Even so, the
reform agenda remains very much a work-in-progress. The challenge now lies in sustaining
our good performance and consolidating our gains, even through difficult times. As I
indicated at the top of my remarks, our main priority is to achieve sustained, stronger,
durable, and more inclusive growth.
This priority could be promoted by three I's - Infrastructure, Inclusiveness and Institutions.
These three will be tackled in greater depth during the panel sessions throughout this
morning. But allow me now to just quickly run through each one.
The need for the first "I" - infrastructure - is straightforward. The Philippines has serious
need for more infrastructures. First, to deliver important services and facilities to the people.
These include well-ordered affordable mobility within the urban areas, efficient
transport/delivery of goods and services between our islands, and the provision of low-cost
and reliable (electric) power to the whole archipelago. Second, to enhance the attractiveness
of the country as an investment destination by improving the local business climate and
reducing the cost of doing business in the country. The Philippines boasts of a highly skilled
workforce. To be able to deploy more of this workforce into well-paying value-added jobs, we
need to bring in more foreign direct investments that will build industry. With the performance
of the fiscal authorities, the National Government has been able to broaden its fiscal space.
This gives it room to elevate public spending on infrastructure and foster public and private
partnership.
It is also imperative that we focus our efforts on Inclusiveness, the second I. We must create
an environment that not only enables more of our countrymen to enjoy prosperity as the
economy grows... but also one where they can actively participate in making the economy
grow. Indeed, durable economic growth is one that is inclusive. It must cast a wider
employment net in a broader set of industries, while remaining entrepreneur-friendly. On the
BSP's part, we continue to strengthen our initiatives to promote greater financial inclusion
through regulations that broaden access to financial services and programs that deepen
financial learning.
Finally, we must foster responsible and responsive political and economic institutions, the
third "I" - Institutions that are anchored on ethical and transparent governance systems.
Institutions that would engender a sound and upright policy framework... that would enforce
the nation's laws and regulations faithfully and consistently that would ensure the smoother
functioning of the economy. The ongoing efforts to establish such institutions should help
promote a stable and dependable business environment where entrepreneurial activity -
particularly of the SME variety - can flourish.
On the part of the BSP, we continue to support the country's macroeconomic fundamentals
by firmly adhering to our mandate of safeguarding price stability and ensuring that the
financial system remains resilient. The BSP will continue to draw upon its policy toolkit to
ensure that liquidity remains adequate to fuel the economy's requirements in an environment
of low and stable prices. We will also continue to maintain a flexible exchange rate policy that
allows the market to essentially determine the exchange rate, but with scope for official
action to ensure against any excessive volatility. The BSP will likewise continue to pursue
banking reforms, in line with the global financial reform agenda, that would help further
strengthen banks, individually, and the system as a whole.
Let me conclude on this note - The positive transformation of the economy that we now
enjoy is the result of critical structural reforms, along with careful macroeconomic
management. While we have amply demonstrated that we are capable of instituting critical
reforms, we at the same time, continue to be mindful that the operating environment is
evolving, and therefore we need to carefully move in step. And this is what we are doing.
Reforms will continue to play a significant role in further propelling economic activity going
forward. As we are well aware, government cannot craft and implement reforms alone. We
need your partnership. We need your support. For it is only if we work together that any
structural reform agenda would be truly transformative towards durable and inclusive
economic growth.
Thank you and a pleasant day to all.