The importance of the Monetary Board

IGNACIO BUNYE, the erstwhile Press Secretary and spokesman of Gloria Arroyo, has resigned from the Monetary Board of the Bangko Sentral ng Pilipinas (BSP). The appointment of a new member of the Monetary Board (MB) is an opportunity to further strengthen the BSP’s leadership.
The forthcoming appointment deserves public scrutiny. The BSP, especially its Governor and MB, plays a decisive role not only in sustaining the current growth but in solid state building as well.

Here is the context. The economic and political reforms undertaken by the Benigno “Noy” Aquino III administration augur well for the Philippine nation. The unrelenting drive against corruption, the pursuit of open government, the big boost in revenue collection through the passage of the historic sin tax reforms and the tough tax administration reforms of Internal Revenue Commissioner Kim Henares, and the serious attention given to human development as expressed in the doubled spending for universal health care give us hope and optimism that these reforms can lead to social and economic transformation.

Similarly, the BSP deserves credit for its significant contribution to the country’s recent economic successes. Prices are stable or inflation is low, giving BSP the space to ease money supply, which in turn is conducive to investments.

Furthermore, in spite of the pressure for the currency to strengthen, threatening the competitiveness of our industries, the BSP has managed to slow down the appreciation. The BSP’s stance to relax monetary policy and curb the peso appreciation (aided fortuitously by external factors like the nascent recovery in the US) has given breathing space to the economy. Exporters, producers for the domestic market, and the families of overseas Filipino workers have benefited from the BSP policy bias.

Yet we still face great challenges. Create quality jobs for Filipinos. Drastically reduce poverty. Build a large and robust middle class. Raise the living standards of the whole country. It will take years of sustained reforms to achieve these goals.

Again, the BSP is going to be instrumental for the country to achieve long-term prosperity. A valuable lesson from the so-called East Asian miracles, including China’s success story, is that monetary and exchange-rate policies have to be oriented towards investments and competitiveness, while keeping inflation moderate. Another lesson learned from recent global crises is that sound banking and finance regulation and supervision are absolutely necessary.

The tasks ahead for the BSP are tough. The BSP has to delicately manage different goals, namely enabling growth and productive investments and keeping prices stable. And amid global uncertainty and volatility plus the ASEAN integration, the role of prudential regulation has become even more pronounced.

To address the big challenges ahead, the BSP’s Charter needs amendments. For one thing, for BSP to be more responsive to growth and employment objectives, its mandate must clearly spell out such, without of course sacrificing the essential goal of maintaining price stability.

For another thing, the BSP faces legal constraints in exercising its supervisory powers. Lawsuits threaten honest and competent supervisors who perform their duties. The rigid bank secrecy law prevents the BSP from obtaining information that is necessary to do good monitoring and supervision.

The introduction and execution of reforms in conjunction with sound macroeconomic management and prudential regulation will go beyond the term of this administration and the current BSP governorship.

The MB is responsible for ensuring policy continuity and upholding institutional integrity. At no other time in contemporary history has the MB been subject to critical examination.

As a result, the current leadership has avoided the bad practices in the past. No longer is the MB seen, as it was in previous political administrations, as a sinecure for political partisans or friends of those in power. Ms. Arroyo’s appointment of Mr. Bunye to the MB, for example, was a political act.

The MB thus has to be composed of men and women who have the expertise, capability and professionalism to lead an economic, financial and development institution; who are equipped with the wide range of tools for macroeconomic management and prudential regulation; but at the same time who have the integrity and passion to serve the country and the people. To be sure, many are qualified for the post.

Nevertheless, all these attributes we find in Raul Fabella, full professor and former dean at the University of the Philippines School of Economics, National Scientist, academician of international renown whose expertise includes finance, trade and banking, and, above all, an active citizen who has been a consistent champion of economic and political reforms.

(The author is the coordinator of Action for Economic Reforms [www.aer.ph].)

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