rafael buenaventura : deepening domestic financial reforms speech by mr rafael buenaventura, governor of bangko sentral ng pilipinas ( central bank of the philippines ), at the financial executives institute of the philippines ( finex ) forum on “ deepening reforms, strengthening core values ” and induction of finex officers, makati city, 19 january 2005. * * * it is my great honor and pleasure to speak before the finex today, a stalwart partner and moving force, in shaping our domestic financial system. indeed, i am happy to note that your incoming president is one of our own. today, allow me to focus on my presentation mainly on our efforts to strengthen our financial system and develop, in particular, our domestic capital market. it is pleasing to note that 2005 started off with a slew of very good economic data. first of all, 2004 gdp growth is expected to reach more than 6 % on account of increased private consumption and exports ; robust services and agriculture growth despite increased inflationary pressures in the second half of the year. the fiscal accounts are more or less in line with program. this has prompted recent declines in the bell weather 91 - day treasury bill rate. our dollar reserves ended at a very comfortable level us $ 16. 1 billion, at the high end of our target range. the positive news have spilled over to our foreign exchange market, with rates averaging now well below the php56 / us $ mark, and to the stock exchange. year - to - date, the phisix has posted an 8 % growth, easily making our exchange among the top ten performing markets in the world. however, in order to sustain all of these positive developments in the long - run, we must continue our concerted efforts in further strengthening the financial system, particularly, the development of the domestic capital market. without this, the whole package of reforms being shepherded will not be sustainable in the future and we will constantly be in a roller - coaster ride. a more stable and stronger financial sector ensures a more efficient mobilization of capital and resources. these are in turn channelled to the best and most productive investment activities thereby supporting higher economic growth. with a stronger domestic financial system, the economy will become more resilient in coping with negative external shocks and disturbances and less vulnerable to contagion and reduced access to international capital markets. furthermore, monetary policy will be able to operate more efficiently as a wider array of market - based tools become available

##p to resolve problem banks. without these vital amendments, we will be unable to properly enforce the reforms embedded in the regulatory changes. these are very basic arrangements that are widely adopted internationally, precisely to achieve a healthy banking system. the bsp is likewise spearheading the initiative to establish a world - class credit information system. we have recommended a bill to congress creating such a system anchored by central credit information bureau that will have the ability to collect, consolidate, and distribute credit information to credit providers and analysts. world bank studies and other independent studies have established that a good credit information system will significantly increase access to credit especially by small borrowers, lower credit transaction costs, lower cost of borrowing, and improve management of credit risk. these are the two major pieces of legislation that the bsp is prioritizing in its advocacy with congress. we hope that the finex collectively can help us in this effort that is so vital to strengthening the financial system. there are other pieces of vital legislation that we should all be working closely together on to have enacted. one of these is an improved bankruptcy framework through the proposed corporate recovery act. we are in critical need of a modern framework for orderly resolution of failed organizations that even - handledly settles potentially conflicting interests of borrowers and creditors. a bias for the former will lead to a weak financial system while a bias for the latter will sow the seeds of inequity and instability. other important pieces of legislation are oriented to furthering the development of the domestic capital market. these include the proposed rica and pera bills. even more basic is the necessity to re - think the whole approach on the taxation of the various financial instruments to encourage a deep capital market that is able to offer a wide array of investment outlets catering to diverse risk preferences and investment objectives. i understand this is now the subject matter of a comprehensive study in preparation for a specific legislative proposal. the high degree of interconnectedness of our financial system has compelled the bsp to play a more active role in developing the domestic capital market and to collaborate more closely with other financial regulators. let me mention a number of key initiatives. one initiative is to broaden the array of available capital market instruments such as tier 2 paper, ltncds, documented repos, structured debt, collateralized debt obligations, and credit derivatives. we have gone out of our way to overhaul our regulations to allow financial innovation but under appropriate risk management standards. on the demand side, we have initiated a major