amando m tetangco, jr : the philippines – creating opportunities through effective governance speech by mr amando m tetangco, jr, governor of bangko sentral ng pilipinas ( the central bank of the philippines ), at the philippine mid - year economic briefing 2010, makati city, metro manila, 18 august 2010. * * * members of the governments ’ economic team, other cabinet members, excellencies of the diplomatic corps, our partners from the private sector and multilateral institutions, our friends from the media, colleagues from government, ladies and gentlemen, good morning. thank you for joining us in this economic briefing. over the next few minutes, allow me to share with you the bsp ’ s legal mandate, the key reforms we have implemented and our assessment of the macroeconomic opportunities that have been created in the process. i would also like to share with you our thoughts on the challenges that lie ahead and the bsp ’ s policy strategies to meet these challenges with a view to creating more opportunities to achieve more durable and inclusive growth for the philippine economy. let me start with a review of the major reforms that the bsp has adopted in pursuit of its mandated responsibilities. first, on monetary policy – the bsp has adopted the inflation targeting framework that has provided us with a disciplined approach to safeguarding price stability. the forward - looking perspective under the framework as well as the associated transparency and accountability practices have helped better anchor the inflation expectations of the markets and the public. this, in turn, has contributed to improved inflation management and to well - contained inflation dynamics. let us look at the numbers. stable food prices have helped temper inflation pressures, despite the occurrence of the el nino phenomenon early this year. from january to july 2010, headline inflation fluctuated between 3. 9 percent and 4. 4 percent, staying within the government ’ s target range of 3. 5 – 5. 5 percent for 2010. the benign inflation environment has given the bsp the flexibility to keep policy rates steady. with stable domestic financial conditions, the bsp also started a measured and paced unwinding of its accommodative monetary policy stance in the first half of the year. second, on external sector policy – the bsp adheres to a flexible exchange rate system and to an appropriately designed foreign exchange regulatory framework. the bsp also has in place an external debt management strategy that helps promote debt sustainability. as a result, we have seen the emergence of

strong external payments dynamics, providing comfortable buffers against external shocks. reflecting these prudent external sector policies, the country ’ s balance of payments ( bop ) position posted a surplus of us $ 3. 2 billion in the first half of the year. the resilience of of remittances and the sharp recovery of exports contributed largely to the country ’ s favorable external payments dynamics. the country ’ s external debt profile continues to improve. six years ago, our external debt - to - gdp ratio was around 70 percent. as of march 2010, this ratio was down to 33 percent. the long - dated maturity structure of our foreign currency debt, helps limit rollover and foreign exchange risks. the country ’ s debt service burden as percent of gdp, which had previously hovered around 10 percent [ 2001 – 2003 ], eased to 6 percent as of march 2010. international reserves have climbed to new highs, providing strong coverage for both imports and short - term external debt. at end - july 2010, the gir stood at us $ 48. 6 billion. at this level, the gir can cover 9 months of imports and is equivalent to 9. 3 times the country ’ s short - term external debt based on original maturity and 5. 1 times based on residual maturity, thus providing a strong cushion against external shocks. as a result of the strong external liquidity position, the philippine peso has remained broadly stable. the trends in the real effective exchange rate ( reer ) show that the peso has generally maintained its international competitiveness over the last ten years. with generally lower inflation rates, the philippine peso has accommodated some appreciation, but without undermining external price competitiveness. third, on financial sector policy – the bsp has put in place critical reforms geared toward maintaining a healthy banking system. the package of reforms includes the disposal of banks ’ bad assets, the promotion of good corporate governance and transparency practices, and the upgrading of risk management standards. as a result, we have today an efficient, sound, and competitive financial system. these critical reforms have been successful in steadily expanding and strengthening the banking system. indicators of the health of the banking system continue to post favorable readings, with asset levels and bank earnings continuing to improve. the capital adequacy ratio remained high at 16 percent and non - performing loans also remained generally low at less than 4 percent of total loans. the favorable performance of the domestic financial markets reflects the upturn in the country ’ s