rafael buenaventura : laying the foundation for a progressive financial system speech by mr rafael buenaventura, governor of bangko sentral ng pilipinas ( central bank of the philippines ), at the asset forum, asean capital markets forum series, makati city, 20 october 2004. * * * ladies and gentlemen, good morning. introduction we are indebted to the asset magazine, headed by its dynamic editor - in - chief, mr.. danny yu, for organizing this forum on philippine capital markets. this is an issue that should be high in our agenda for reform. clearly it is critical for the government to immediately deal with a looming fiscal crisis but that should not distract us from the equally important task of accelerating the development of the domestic capital market. indeed, these two reforms are closely linked. fiscal stability is an important precondition to financial system stability. a well developed capital market enhances flexibility in fiscal management. bsp agenda the bsp, as the monetary authority and supervisor of the banking system, is firmly committed to the prioritization of domestic capital market development. first, well - functioning financial markets support the more effective conduct of monetary policy that is key to achievement of price stability. second, a robust domestic capital market complements the banking system in financial intermediation and can even relieve pressure especially during times of crises by providing alternative means of financing to the economy. third, the banking system has greater flexibility in managing and re - distributing its risks via the capital market particularly through securitization and hedging. an even more basic reason is the need to improve on the current low domestic saving rate. according to comparative data from adb as of 2003, the gross domestic saving rate in the philippines was only 20. 1 % of gdp compared with hong kong ( 31. 6 % ), thailand ( 33. 1 % ), malaysia ( 42. 9 % ) and singapore ( 46. 7 % ). even indonesia is slightly higher at 21. 5 %. a low domestic saving rate is a basic constraint to achieving higher levels of investment needed to support a faster pace of economic growth. to promote savings, the philippine financial market needs to offer a broader array of financial instruments beyond bank deposits and equity. we are particularly keen on seeing the faster development of the domestic debt market. as of 2003, total outstanding domestic bonds accounted for just around 40 percent of gdp, compared with 85 percent for bank assets and 69 percent for equity. most of these

stronger capital positions. we all know, the path toward these goals will be complex ; but if our rural banks remain committed in serving their role as catalyst and enabler of productive activities in the countryside, i am confident that the rural banking sector will contribute a lot toward ensuring balanced and sustainable economic growth in our country. this calls to mind how the great artist michelangelo responded to comments about this genius in completing his sistine chapel masterpiece. he said : “ if you knew how much work went into it, you would not call it genius. ” ladies and gentlemen. a lot of work is clearly ahead of us. but if we are committed and focused, it will be a matter of time before our coordinated efforts create a strong and lasting foundation for a healthy, resilient and vibrant rural banking sector. together, let us continue to walk the path of sustained reforms. again, my congratulations and best wishes to the leadership of rbap. mabuhay ang ating rural banks! mabuhay ang pilipinas! thank you all and good evening.