For a better BSP – Manila Standard


By the end of his 12-year term on July 2 this year, Bangko Sentral Governor  Amando Tetangco Jr. would have been enshrined as one of the greatest central bank chiefs of the Philippines. Or probably the greatest. Tetangco is recipient of no less than eight Best Governor (of the world) awards.

It is not difficult to see why.  A man of incredible integrity and awesome talent, Say Tetangco controlled inflation.  By controlling inflation, he brought down interest rates.  By lowering interest rates, there was cheap capital for business. 

The economy grew at an unprecedented pace over an unprecedentedly long period—73 quarters or 18 years and three months.   The economy also managed to overcome two of the most severe recessions the world has known.

With inflation and interest rates stable and the economy strong, the Philippines got a total of 24 credit rating upgrades since 2010 leading to investment grade by 2013.  Philippine debts or IOUs are no longer junk.  They are investment grade, meaning you can bet you won’t lose shirt if you buy them or trade in them.  

“We changed the status quo!” said Governor Tetangco in his valedictory speech before the country’s leading business groups—Financial Executives of the Philippines, the Management Association of the Philippines, the Makati Business Club, the Philippine Chamber of Commerce and Industry, the American Chamber of Commerce of the Philippines, the European Chamber of Commerce of the Philippines and CIBI Foundation—at the New World Hotel, Makati on May 24, 2017.

There is something I am not comfortable about in this narrative, however.  

First, you cannot attribute solely to the BSP the robust growth of the economy since 1998.  If it were so, 20 years ago, we should have abolished the cabinet and even Congress and kept instead the BSP’s policy-making body, the Monetary Board, and let it manage the economy.

Second, the Philippines has never been short of capital.  The economy has plenty of capital or money. 

Proof:  The savings rate in the last ten years has hovered at 30 to 34 percent of the value of the national economic output or GDP (Gross Domestic Product).  GDP is about P15 trillion (15,000 billion pesos).  Get 30 percent of that, you have P4.5 trillion (4,500 billion pesos).    With that kind of money and assuming every P2 million could create one job, we could solve the country’s unemployment problem overnight.

So why do we have the highest unemployment rate in the Asean Five?   We have easily 2.4 million unemployed and another 12 million underemployed.   Reason: Our P4.5 trillion savings are not being invested.

Another huge money not being invested properly are the remittances of our 12 million Filipino expats or overseas workers. The money is at least $26 billion or another P1.3 trillion every year. The huge chunk of capital is simply funneled into unbridled consumption of consumer goods like cellphones, appliances, cars, furniture and houses.   SM used to build only one mall a year.  Now, SM builds five malls a year.  Manny Villar is going into malls.  Injap Sia is going into malls.   SM, Robinsons, the Ayalas, the Gaisanos keep expanding their mall business.   Why?

There is so much excess money in the system.  Money that should have been shepherded by the Bangko Sentral for productive purposes like food (our agriculture is the worst performing in Asean; we are short of rice by two million tons a year), factories (our manufacturing is one of the most uncompetitive in Asean), infrastructure (our infra is the most primitive in Asean), or even financial inclusion (we have the highest poverty incidence in Asean and the most number of poor people, 25 million).  We have also one of the worst income inequality ratios in the world. 

No wonder, we have the world’s longest-running communist insurgency, the world’s longest-running Muslim separatist movement, and now, we have been chosen as the Asean base of an extremist Islamic caliphate, the ISIS.

For all his expertise in banking, my good friend Governor Tetangco and his Bangko Sentral have not been of much help with these gnawing problems.

Until now, 60 million Filipinos do not have a bank account and 500 towns do not have a single bank.    People who have bank accounts are given miserly interest earnings (0.2 percent per year) and 60 percent of the time their deposits earn zero.  And despite nearly a 20-year regime of low interest rates (the going rate is 5 percent per year), banks charge borrowers as high as 18 percent interest per annum.   Congress abolished the Usury Law (which pegged interest rate at 12 percent).  So everybody now operates like the Indians.

Credit cards of banks are singularly rapacious.  They charge you a minimum of 8.5 percent per month or 102 percent per year.  You miss paying your card bill by one day, you are charged 5 percent, not only for the amount that was due but also for the amount of goods you just bought today.  They call the system average daily balance.  Now, 5 percent per day, that’s an interest of 1,825 percent per year.  What has the BSP done about these credit cards—issued by among the largest banks in the country?

No wonder, eight of the country’s ten richest billionaires own a bank.  The top six banks regularly earn P1 billion a month in profits.  

You know how much our banks have parked in the central bank in deposits that they refuse to lend as loans to our small and struggling businessmen? P3 trillion—money that could solve unemployment almost overnight and modernize the country with modern infra, in just 18 months. The central bank tolerates the parking of such idle deposits because it fears runaway inflation.  And you know, BSP’s main job now is controlling inflation.  It is called price and monetary stability.

When the original central bank was chartered in 1948, its main job was “to promote a rising level of production, employment and real income.”

Thanks to our Congress, that basic function of central banking has now been abandoned, since 1993.      

As I asked in a previous article: What has been the effect of BSP’s conservatism?  The economy grew but it made the rich richer and the poor poorer.    Growth did not trickle down to the poor.  That is probably why in the last 30 years, poverty, instead of being reduced, has remained stagnant at 25 percent of the population. 

To the incoming BSP Governor Nestor Espenilla, the greatest threat to banking and central banking is not cybersecurity.  It is poverty.


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