AS you read this, I am on a jet with my Pineider alligator briefcase filled with gold coins and brightly colored trinkets, and headed to an exotic island, where its inhabitants have never heard of the global financial crisis.
Actually, I am not. But it would not be a bad idea if this were any place but the Philippines.
While the Executive and Legislative branches have one eye on the 2016 elections and the other on immediate problems that they are sort of trying to deal with, it’s the Bangko Sentral ng Pilipinas (BSP) that will get the country through the next six months.
A nation’s central bank is one of the least understood and, yet, most critical institutions in the government. Because most central banks, like the one here in the Philippines, are part of the government, they must walk a thin line between doing what they think is best for the economy and also supporting politically inspired economic policy.
When Japanese Prime Minister Shinzo Abe came to power, one of his first acts was to push the Bank of Japan to make decisions that would help implement his policy decisions. Here in the Philippines, the BSP has been able to maintain a great degree of autonomy from Malacañang.
The primary tool that the BSP has in influencing the economy is managing the country’s money supply through bank-reserve requirements and setting basic interest rates. While this seems simple to most people, it is about the same as deciding to remodel your house and tearing out a few walls. Once you make that decision, you cannot immediately change your mind, and the good or bad results will not be known for a relatively long time.
Along with that power over the money supply is the responsibility to regulate banks.
I have been critical of BSP actions and inactions in the past. However, BSP Governor Amando M. Tetangco Jr. and his team have a superb general-performance record in dealing with the global situation and in protecting the Philippines.
The last two months have seen the global financial markets starting to run headlong into the wall of reality. Have you ever been to a party where there was that one drunk person being obnoxious? For the first couple of hours, everyone tries to ignore him or her, but then, eventually, everybody has to accept that this person is a problem and must be dealt with. The BSP has been handling “drunken” economic conditions since the beginning.
Equally difficult and equally important is the function of the BSP to regulate banks. We have seen what happens when banks control the central bank and not the other way around, like what has happened in the West. But it is not a simple job.
BSP banking-sector regulation is not like some traffic enforcer who issues parking tickets. The BSP makes the rules, must coordinate closely with the banking community and must have that sector’s trust. Regulation must keep both banks and the economy healthy, and doing both is not always easy or compatible.
While the banks themselves want to be financially stable and strong, each one also has to compete for the lending business, which is also a balancing act. The BSP’s monitoring of lending and borrowing practices is critical for both a strong banking industry and a growing economy. While the “bubble-blowers” are constantly looking for ways to criticize the Philippines, most of their comments do not have any basis in reality.
As the BSP just reported, Philippine banks’ consumer loans are only 16.5 percent of all loans, in comparison to Malaysia (62.2 percent), Indonesia (28.4 percent), Thailand (27.5 percent) and Singapore (25.5 percent). You can give large credit to the BSP for the country’s favorable PHL numbers.
But the next six months are, perhaps, going to be the most difficult for the BSP to face, as far as the last five years are concerned. Current monetary and fiscal policy in the West is not working, and major changes must be made. What those changes will be are still unknown. But the BSP cannot afford to relax at all.
The country’s investment slogan should be this: “The Central Bank: It’s Better in the Philippines.”
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E-mail me at mangun@gmail.com. Visit my website at www.mangunonmarkets.com. Follow me on Twitter at @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.