amando m tetangco, jr : taking the next steps at a time of change speech by mr amando m tetangco, jr, governor of bangko sentral ng pilipinas ( the central bank of the philippines ), at the philippine financial market forum “ the way forward : building opportunities – riding on the wave of emerging market growth ”, makati city, 18 june 2012. * * * distinguished guests, my colleagues in the financial market, friends from media, ladies and gentlemen, good afternoon. i am happy to join you again and have this opportunity to discuss the prospects of our financial market. forums such as this seem to be occurring more frequently these days. to me, this is a strong indicator of interest in the philippines. this interest is not without basis. consider this …. despite the volatility in oil prices and global uncertainties, domestic inflation has remained manageable. interest rates have been at historic lows. this has had the upside of sustaining consumption expenditures which in 2011 accounted for 70. 8 % ( in real terms ) of gdp. government spending has since picked up while the fiscal deficit has remained under tight control. with the balance of payments remaining positive and remittances sustained, we now find gross international reserves at record highs. such an economic environment translated to a 3. 7 % growth in gdp for 2011. building on this, our first quarter gdp growth rate has been reported at 6. 4 % year - on - year. this is the highest in southeast asia thus far and second only to china ’ s 8. 1 percent in all of asia. it is important to point out that these are not one - off gains. the sovereign rating and the accompanying outlook have been upgraded by various rating agencies in the last two years, re - affirming the consistency of our economic gains. we are likewise heartened to read of recent public comments by a number of analysts who see the philippines getting another upgrade this year. i believe we would all be in agreement when i say that, these favorable indicators have come from our collective investments in focused policy reform and implementation, post - 1997. as policy makers kept their eyes on the inflation ball and sustained the will to reduce our dependence on external debt, the private sector also remained engaged in policy development and prudently sought growth opportunities. for certain, this partnership has brought our country to its current position of relative economic strength. you have aptly chosen as your theme “ the way forward

: building opportunities – riding on the wave of emerging market growth ”. data from the bis shows that the growth pattern in the emes has changed since the height of the crisis. overall, exports and industrial production are weakening while household consumption continues to hold up well. in emerging asia, consumption contributed 4. 25 % and investment 2. 75 % to growth last year. the philippine experience certainly reflects this. the shift in focus to stimulating domestic demand has certainly made emerging markets more resilient than advanced economies. this is not to say, however, that we should be complacent. markets can turn quickly and difficulties can be protracted. was it not only 48 months ago that the sale of bear stearns was finalized ( on may 30, 2008 ) to stem the tide of market collapse? yet when lehman brothers announced nine days later that it incurred a usd2. 8 billion loss for its second quarter results, the chain of ensuing global difficulties could not have been rationally foreseen by any model or analysis. in other words, ladies and gentlemen, things can quickly change. if institutions and the sovereign are to be best positioned at a time of change, we need to be cognizant of what ’ s driving the momentum for change … from our perspective, three main themes stand out. bis central bankers ’ speeches first, liquidity. in thinking about the growth agenda, we need to pay particular attention to both the potential capital flows and the movements in domestic liquidity, as these are closely related to maintaining stable monetary conditions. europe is said to be deleveraging. as central europe deleverages away from peripheral europe, it is likely that at least some of the funds would be headed towards asia. however, if core europe deleverages absolutely, then we might see a liquidity squeeze, not only in asia but across the globe as well. capital flows impact exchange rates, interest rates, trading volumes and future demands on currency withdrawals. these are not small concerns, as these can quickly become the stimuli for systemic risk. the bsp is thus always watchful. on the other hand, there is sufficient domestic liquidity. you may have heard me say this on a number of occasions in the past. as i see it therefore, the issue of a liquidity squeeze and contraction of trade credits because of deleveraging in europe is not our primordial concern. the strength of the philippine banking system at the height of the global financial crisis was precisely