amando m tetangco, jr : a responsive capital market – a step on the road beyond investment grade speech by mr amando m tetangco, jr, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the philippines investment forum, organised by euromoney, manila, 18 february 2014. * * * i am pleased to join you for this philippines investment forum. events such as this organized by euromoney bring together the main stakeholders of our economy. through the various panel sessions, we are able to hear and exchange views, giving us a good sense of where the market pulse lies. it was certainly a privilege for all of us to have listened to no less than the president deliver the official keynote address. this shows you how serious the country ’ s policy makers are in reaching out to you who are among our economy ’ s main stakeholders. your work is central in enabling the public sector to effect true, broad - based and lasting change that supports the country ’ s continued development. the president ’ s address and the session before this one laid the groundwork for us to set our sights “ beyond investment grade ”. investment grade – how did we get here? indeed, we have seen that the road to investment grade was not easy... it was long and marked by reforms. reforms which include, first, a critical diversification of our growth sources and drivers to exploit and take advantage of our favourable demographics... second, a purposeful shoring up of our external position and strengthening of our banking system … knowing that a robust external position and strong bank balance sheets would allow us to ride out the turbulence from external financial shocks... and third, a resolute management of our fiscal house by steadily reducing our external debt, maintaining a healthy government debt profile, and firmly committing to reforms that would allow us to meet our intergenerational needs. investment grade – the near - term challenges our current operating environment continues to be very sensitive to global developments. of late, we have witnessed what some analysts called the “ rout ” in emerging markets, following uncertainty in the next steps of the fed. since the beginning of the year, investors have indiscriminately sold em debt, and the philippines was not spared. we saw the peso decline, the stock market index drop and government securities yields rise in the secondary market. alongside the fear of contagion from em sell -

offs, some analysts are also beginning to wonder if the philippines isn ’ t already overheating. let me address the overheating concern first. looking behind the numbers, current trends in liquidity and credit growth do not appear to be worrisome. the strong growth in domestic liquidity has been due mainly to the operational adjustments in the bsp ’ s special deposit account ( sda ) facility which were completed in november 2013. this rapid growth is therefore seen as only temporary and is not expected to translate into significant inflationary pressures or asset price misalignments. the growth in bank credit, on the other hand, continues to be channelled to the productive sectors of the economy. the higher bank lending growth rates are reflective of the economy ’ s higher growth trajectory and increased financial deepening. in addition, there is fundamental support for the growth in the real estate sector with real demand from end - users including from the growing young professionals and bis central bankers ’ speeches the bpo sector. finally, data from colliers international philippines research ( colliers ) as of q4 2013 show that property prices are not significantly out of line with their long - term trends. as for the rout in the financial markets, i would say, some calm has returned with the market ’ s better appreciation of the forward guidance from the fed. our view has always been that after the initial nervousness, markets would regain their bearing and distinguish between economies with good fundamentals ( such as the philippines ) and those with more structural concerns. in the case of the philippines, we have actually observed some funds returning to our financial markets. at the beginning of each new calendar year or each chinese new year, i am often asked for my “ fearless ” economic forecasts. there are those who ask me with such earnestness that i sometimes feel they think i have an infallible crystal ball! friends, i don ’ t have one. and neither am i one to pursue luck. although before this forum, someone told me that in the year of the chinese wooden horse, the numbers 2, 3 and 7 are considered lucky … interestingly, today is the 2nd day of the 3rd week of the year of the horse and 7th full week of the year 2014! what a coincidence, right? thankfully, we don ’ t have to leave things to coincidences. we can instead have the confidence to weather hiccups in market sentiment by planning judiciously and working earnestly. more specifically, the