amando m tetangco, jr : highlights of economic performance in the philippines over the past year and key challenges ahead keynote address by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the corporate planning society of the philippines'2006 4th general membership meeting and christmas party, manila, 28 november 2006. * * * ladies and gentlemen of the corporate planning society of the philippines, fellow workers in government, special guests. good afternoon and welcome to the bangko sentral ng pilipinas. i am delighted that the bangko sentral is hosting your association's 4th general membership meeting. this provides us the opportunity to directly share with you our insights on vital inputs you need to firm up your plans for the coming years ; after this, we can have a free - wheeling discussion so that we can also hear from you, learn about your concerns, and clarify certain issues. this is our way of supporting the cause of strategic planning in our country, the critical and essential function of creating a road map to achieve institutional goals that …. taken together …. sustain a nation's growth and development. first, i will discuss the highlights of our economic performance over the past year and our expectations, moving forward. i will also touch on the key challenges ahead and how this will influence the policy direction of the bangko sentral. the economy in perspective well, as you are aware, our key economic indicators have been telling us that 2006 is bound to be one of our best years …. as positive results have been broad - based. in fact, analysts have been describing 2006 as a defining moment for our economy, as it has turned around negative perceptions …. and raised investor confidence in our country. overall, our economy continues to grow, buoyed by the vibrant performance of key sectors notably manufacturing, trade and finance as well as the resurgence of agriculture, fishery and forestry. in fact, real gross domestic product ( gdp ) accelerated to 5. 5 percent during the first half of 2006 from 4. 8 percent in the previous year. significantly, we were able to keep inflation at single - digit levels …. even as our economy grew and absorbed record high domestic oil prices. in fact, we have been seeing a steady decline in inflation from a high of 7. 6 % in march this year to 5. 4 % last october, the lowest level since june 2004. please note that this is

the “ subservient role ” they are supposed to play. such fears apply, for one thing, to the relations of the global financial markets with national monetary, economic and fiscal policy. anonymous market forces constrict policy makers ’ national room for manoeuvre. this may lead to tensions because domestic policy - making normally claims to be sovereign. but, at least insofar as the financial markets thereby lessen the scope for a monetary policy that is detrimental to stability and a fiscal policy that inflates debt, the economist will not deplore that fact unduly. for a policy that fosters inflation and exacerbates national debt widens scope, at the most, for a temporary period ; in the longer run, any such scope is narrowed. but there is a second dimension to the misgivings that the financial markets are no longer duly performing their subservient function. that relates to the relations with the real economy. in itself, a high volatility of financial market prices may affect real economic decisions. for example, enterprises may increasingly switch to hedging against the risk of sharply fluctuating exchange rates not only by means of financial contracts such as currency futures, but also by diversifying the locations, in terms of different currency areas. prolonged distortions, such as misalignments of exchange rates or bubbles in asset prices, are all the more problematic. it is not only that the financial markets distort real relationships. the relevant adjustments are often sudden and violent, as in the case of the european monetary system early in the nineties, or of mexico. it is precisely such crisis - like upheavals that prompt the question of whether and, if so, to what extent today ’ s financial markets have become more unstable, and whether systemic risk has increased? some people fear that the advance of professionalism among fund managers and institutional investors, in particular, might increase the incidence of such dangers. their thinking is determined primarily by the short - term performance of their portfolio. in certain situations, that may intensify the “ herd instinct ”, triggering a “ rush to the exit ”. at the same time, new financial instruments make it easier for them to incur higher risk positions. swings in sentiment may then lead all the more easily to precarious situations. on the other hand, the greater international diversification of investments makes the markets fundamentally more resilient today. furthermore, owing to the