Amando M Tetangco, Jr: Tapping into our strengths - opportunities,
threats and challenges for 2016 and beyond in the Philippines and Asia
Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the
central bank of the Philippines), at the 2016 Presidential Conference on WASH in Schools
hosted by Rotary International, Pasay City, 18 March 2016.
* * *
It is always a pleasure to speak before Rotarians, a group very much involved in key and
critical issues affecting communities, especially children and the youth.
You may wonder why a central bank governor, whose primary mandate is price and financial
stability, would be speaking at a Conference on "water, sanitation and hygiene." I wondered
this at first, when your Conference Chair and Past Governor Sid invited me to speak today.
But as I thought about it, I realized that your goal of providing water, sanitation and hygiene
to schools is not that unrelated to our own goals as a central bank.
Let us consider a fundamental tenet in economics - Scarcity value determines the price of a
resource. Often, scarcity is only perceived. This occurs when the source of supply is not
sufficiently connected to demand. When supply meets demand, there is price equilibrium.
This is the goal. On this premise, I realize we are looking at the same problem but with
different lenses.
In the BSP, we look at the issue primarily from the price stability angle, in your case, the
convergence of supply and demand is the end view. Ultimately, we are both looking at the
scarcity problem with welfare enhancement - improving the quality of people's lives - as our
overarching goal.
Another similarity is that we - Rotarians and the BSP - both embrace the value of
partnership and collaboration. Sid invited me to give an overview of opportunities in 2016. In
my message, I will identify areas where collaboration is possible. I shall also mention how we
can harness the potential of evolving consumer patterns and technology toward our shared
goal of national development.
Eliminating the perception of scarcity
The Philippines has abundant water resources (421 principal rivers, 59 natural lakes, 4 major
groundwater reservoirs, and numerous individual streams1). One would think that making
water readily available to its populace should not be a problem. Theoretically, per capita
water availability is twice as much as the rest of Asia, and about six times above the global
scarcity threshold2. But, over 400 of our municipalities3 remain waterless. 7.5 million Filipinos
do not have access to improved water supply facilities. Inequalities in access are starkest
and most persistent for rural areas. 93% of the richest rural households have access to
improved sanitation, as compared to only 27% among the poorest quintile. 69% of the richest
quintile enjoys piped water house connections, while only 4% of the poorest quintile does4.
There is a disconnect between availability and the quality of, and access to water services.
Moreover, an estimated 55 Filipinos die every day because of waterborne diseases5 - a
tragedy entirely preventable by providing adequate sanitation facilities, education and
promotion of good hygiene habits. I believe this is the essence of the WASH in schools
program.
We face a parallel challenge as central bankers. How do we enable a greater trickle-down
effect so that opportunities and benefits of a healthy and growing economy are cascaded to
the grassroots?
Harnessing opportunties
The motivation to address this compelling need is behind the BSP's push on financial
inclusion. Increasing financial services access is a challenge for an archipelagic country
where nearly 600 municipalities6 remain unbanked.
The BSP has institutionalized financial inclusion following a three-pronged approach, namely:
access and usage, financial literacy and education, and increased financial consumer
protection. To push access and usage, a regulatory environment is being created to
encourage innovation and maximize safe technology use. In particular, an ecosystem is
being created where the unbanked are granted financial services through alternative
providers, without need for brick and mortar bank branches or facilities.
Recognizing, however, that the task of financial inclusion is so great, last year, the BSP
engaged twelve other government agencies to launch the National Strategy for Financial
Inclusion (NSFI). The NSFI aims to unify various initiatives on financial inclusion into a
coherent platform so we can exploit economies of scale and expertise across various
government agencies. Many private sector agents have come to work with us under the
NSFI - including telcos. We also hope to elicit interest from those here in the room. We are
convinced financial inclusion is one of the ways to make economic growth more broad-based
and inclusive.
That said, we also recognize that inclusive growth will only be realized if our countrymen are
given sustainable access - not just to finance- but also to basic human necessities: including
safe and clean water. Here, public-private partnerships are a feasible solution to the low level
of investments in the water supply sector.
ASEAN integration is another area of opportunity. With the passage of Republic Act No.
10641, full entry of foreign banks into the Philippines is now allowed. Qualified ASEAN banks
can enter the local market. We recently signed an agreement with Malaysia under the
ASEAN Banking Integration Framework. The BSP Monetary Board has also approved the
application of six foreign banks to set up Philippine branches. This liberalized regime should
further enhance the quality of competition among our banks. This environment will result in
promising opportunities to encourage innovations that will ultimately benefit the economy and
the general public.
Another source of opportunity is the country's large, young and highly literate population. In
the Philippines, the median age of the population is 247. In Japan, it is 47. In the U.S., it is 38.
We are entering a "demographic window" historically proven to be the most prosperous years
of a country, where millennials comprise a significant consumer segment. As the largest
portion of the workforce, they are identified to play a key role in driving growth and economic
development. It is an exciting time and the future is bright with possibility!
This young generation will also make adoption of cutting-edge technology more likely. This
can lead to opportunities for greater innovation including for the water supply chain industry
in terms of safeguarding water sanitation, waste water management and protecting the
environment.
For the banking industry and suppliers of goods and services, this can be significant. Modern
digital financial services and changes in how we make payments and money transfers will be
provided. Related to this, the BSP is developing a National Retail Payment System (NRPS).
Through the NRPS, we aim to establish a safe, efficient and reliable means to transfer value
built upon an effective and interoperable interface of various electronic payment channels.
This is an integral reform given that of 2.5 billion payment transactions per month, only 1% is
made through electronic means. The NRPS will expand the reach of financial services and
will promote efficiency, transparency and development of business models improving
economic competitiveness.
The backdrop of the economy
I hope I have encouraged you to consider some opportunities to help us achieve our shared
goal of economic development. Let me round off my remarks with views on our operating
macroeconomic environment moving forward. This may help guide you to take advantage of
these prospects.
The Philippines entered 2016 in a position of relative strength. In 2015, average full year
GDP growth was 5.8%. This is among the highest in Asia. The 4th quarter 2015 growth of
6.3% brought the number of consecutive quarters of positive economic growth to an
astounding 68 quarters.
The Philippine banking system continued to expand. Over the past six years, total assets
roughly doubled owing to a steady growth of deposit liabilities. Bank loans also doubled and
nonperforming loans continued on a downward trend. Philippine banks are well-capitalized,
with capital adequacy ratios above national and international standards. Our external liquidity
position is strong. Our end- February GIR of US$81.3B is sufficient to cover 10.4 months of
imports and payments of goods and services.
That said, in 2016, there are still challenges to our positive position. These will come mostly
from the external side. There is divergence in the monetary policies in the advanced
economies. The US Fed is poised to raise rates (albeit now at a slower pace in 2016 than the
Fed first indicated in December 2015), while ECB and BOJ are in negative interest rate
territory.
This may raise near term financial market volatility. But we are hopeful that the policies
adopted would result in a sustainable growth trajectory for these countries and would create
positive ripples to our own trade and growth prospects.
Another cause of concern is the Middle East, where oil prices fell sharply. While oil importers
like the Philippines benefit from the price drop, low oil prices are double-edged. Oil exporters
may cut back on capital expenditures. This may have an adverse effect on the Philippines in
general, and on overseas Filipinos, should oil producers cut costs and trim staff. There is
need to manage the near-term impact on financial market volatilities and the government
should consider more long-term solutions to possible disruptions. Domestic considerations
include intensification of the El Niño phenomenon (a very clear concern we share) and the
persistence of infrastructure gaps. Results of the upcoming national and local elections may
also influence global perception of Philippine growth prospects.
These risks, notwithstanding, we expect to see the country continue on the path of low
inflation, steady growth. Our confidence stems from the buffers we built: a strong
commitment to price stability, a stable banking system, a robust external liquidity position and
a safe, sound and efficient payments and settlements system.
Closing
I began with the issue of the perception of scarcity, owing to the disconnect between supply
and demand of resources. I then shared some opportunities to scale up services and further
improve the quality of people's lives; create and nurture innovative partnerships; recognize
and value our common and significant consumer segment; leverage on technological
innovation and increase our efforts for development of our respective nations. These are
consistent with the Rotary Club's mottoes of "Service Above Self" and "One Profits Most Who
Serves Best."
It is incumbent on us to make the connections, technological, mechanical, and regulatory. As
solutions to a problem: water scarcity and security, access to financial services and
achieving overall inclusive growth are ultimately, solutions for all. May we commit to an even
stronger engagement and partnership as we face challenges and opportunities the unfolding
operating environment offers.
Thank you and good evening.