This year will be critical for the Philippines as it faces a bleaker global financial market as well as recession and volatility in prices, particularly oil.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco raised the scenario yesterday at the Tuesday Club forum at the EDSA Shangri-La.
“This year could define how we will perform when the markets turn around,” Tetangco said.
He explained that most analyses of the economic developments in the US and other rich countries indicated that the current recession could drag on for about 18 months, or until 2010.
“But no one can say for certain how deep and how long the global downtrend would be, or how far the markets would retreat,” Tetangco said. “Therefore it is incumbent upon us to brace for more uncertainties.”
He said the country should also expect recessions in less-developed economies and for these to affect the Philippines and its trading relationships with the rest of the world.
The BSP’s response, Tetangco said, would remain anchored on its inflation-targeting strategy, adding that this tack has allowed the central bank to focus more on its mandate to keep prices stable.
“More specifically, as inflation risks moderate, the BSP will carefully consider opportunities to ensure appropriate levels of market liquidity to maintain confidence,” Tetangco said.
Tetangco stressed the BSP would keep inflation at manageable levels to protect real incomes and purchasing power. He said this would create an environment for sustainable long-term growth.
“Specifically, we will beef up reserves for insurance, maintain a market-determined exchange rate and continuously review of our foreign exchange regulatory policies,” he said, referring to BSP’s policy on the external sector.
He said that overall, the country ended 2008 on a much better footing than its neighbors and that it has not been affected by the global financial turmoil except in terms of risk-aversion on the part of short-term investors.
“But 2009 would be critical in crafting policy that would allow us to be ready and take advantage of the upturns in the global slowdown when they do materialize,” he said.
Tetangco said earlier the full impact of the US economic troubles would be felt in 2009 and that there was risk that the credit crunch in the US could worsen if the proposed bailout packages flounder.
An unsuccessful bailout, he said, could further hurt confidence and eventually US consumption.
Tetangco said the Philippines faces the same risks since the government is reacting basically in the same manner to the crisis.
The Arroyo administration plans to increase spending this year to prime the economy.
However, budget and finance officials have not clearly shown whether there would be new money coming into the budget. This has shaken market confidence in the feasibility of a pump-priming program.
But Tetangco is optimistic about the success of a stimulus program.
“Fortunately, the domestic banks’ exposure to toxic assets is minimal and domestic consumption fueled by OFW remittances is intact,” Tetangco said.
Tetangco said he expects the country’s macroeconomic prudence to pay off this year considering the buffers built “during good times (were meant) to provide resilience in bad times.”
“The pursuit in the past of credible monetary and exchange rate policies, responsible fiscal management, and strengthened financial supervision and regulation has afforded the Philippines some cushion from the ongoing turmoil in the global economy,” Tetangco said.
Tetangco said he is optimistic that government actions have been quick and decisive enough to prevent the situation from getting worse.
Tetangco also cited the importance of effective and timely communication and transparency to help shore up market confidence.
“This is manifested most profoundly in terms of better disclosure of bank exposures to troubled financial institutions, banks’ institutional arrangements for risk management, and information on the range of underlying assets of structured financial products,” he pointed out.
Tetangco said the timely communication to the public of recent developments, policy changes and emerging risks as well as their economic implications would also help reinforce credibility at a time when the market is already in panic mode. — Des Ferriols, Philippine Star
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