Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
WorldMarch 1 2013

Philippines central bank governor calls for more of the same

The healthy state of the Philippines economy is down to a combination of factors, according to the country's central bank governor, Amando Tetangco. He tells The Banker how he is working to emulate 2012's success in 2013 and beyond.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Philippines central bank governor calls for more of the same

Economic growth in the Philippines over the past year has seen the country be described as the new bright spot of south-east Asia. In the fourth quarter of 2012, its gross domestic product growth was 6.8%, which paved the way for the country to reach its full-year estimate of 6.6%. Such strong performance, in the midst of an uncertain global economy, means that the Philippines is increasingly gaining attention from the international community. 

“All the ingredients are there: solid growth, improved governance, prudent fiscal policy, macroeconomic stability, and a strong external position,” says Amando Tetangco, governor of Bangko Sentral Ng Pilipinas, the country’s central bank. 

“In 2012 we achieved the alignment of the star of strong growth, and the star of low inflation. It is a good constellation of high growth and low inflation, with the small stars of a strong external payments position and high international reserves, and the sun of a stable banking system.”

Sound system  

“The banking system has remained sound,” says Mr Tetangco. And one of the major projects for this year is the implementation of Basel III, and the Philippine banks have been asked to meet the capital requirements by the start of 2014. “This is because banks in the Philippines are prepared and ready to adopt [Basel III],” says Mr Tetangco.

Although there have been complaints from some banking executives that this early adoption could put them at a disadvantage because other jurisdictions are taking more time, and it could impact their return on equity in the near term, Mr Tetangco says: “The history of the timing of Basel III has been influenced by what was happening in the US and Europe. Those banks were trying to recover from the impact of the crisis so they would need more time to comply with the new requirements. But with the Philippines, that is not the case because the banks have been sound and highly capitalised.

"We would not want to engender regulatory uncertainty and the banks are ready to implement the Basel III capital requirements. Other countries in the region are generally on the same timetable and some are beginning to implement Basel III this year. We have been comparing notes with our counterparts – we are more or less in the same boat.”  

The healthy state of the banking sector has contributed to the positive story of the Philippines. The country’s strengths have recently been recognised by credit rating agencies and now the Philippines is only one notch away from investment grade, which its neighbour Indonesia has already achieved. “We hope to get investment grade this year, possibly in the first half,” says Mr Tetangco. “But if we get it in the second half, that is fine!” 

Repeat trick

When the governor was asked if there is one thing he would like to achieve in 2013, he replies: “To achieve more of what we did in 2012.” The challenge for the Philippines, he notes, is to sustain the progress that was achieved last year. “We need to make sure we keep inflation in the target range and be able to support sustained economic growth,” he says. 

One of the main challenges for the Philippines is related to hot money. “Because of their better performance, emerging markets face challenges from strong capital inflows,” says Mr Tetangco. “Before, the standard response in the face of excess liquidity was to tighten monetary policy by raising interest rates. That is no longer the case – more capital will flow in with higher domestic interest rates and so we have to expand our toolkit to address this issue. 

“The question in emerging markets is when the capital inflows are likely going to turn. We have to be mindful of strong capital inflows since these can reverse. When that happens, the system has got to be equipped to withstand such a withdrawal. Thus, when we design policies, we also have to bear this in mind.”  

These challenges are similar to those in other emerging market economies, although Mr Tetangco says: “No two central banks are alike.” He refers to the frequent meetings with other central bank governors in the region. “The exchange of views and experiences in these meetings is very useful – you get to know what the other central banks are facing and doing to address relevant issues and you can benchmark and validate your own actions,” he says.

Was this article helpful?

Thank you for your feedback!

Read more about:  Asia-Pacific , Asia-Pacific , Philippines