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‘Fundamentally Positioned for Resilience’


Benjamin Diokno and the Central Bank’s role share its radical plans to keep the economy afloat



Be bold, swift, and decisive.

     These were what Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno asked of his team—and himself—when the COVID-19 first tore through the Philippines in 2020. “We had to revisit our processes, and challenge our conventions to adapt to the changes the pandemic had brought upon us,” he says. “These are essential in carrying out various measures to keep the economy afloat.” The unabated spread of the coronavirus continues to test the governance fundamentals of all states, particularly the capacity of public health systems, effectiveness of local government units, and the resilience of economies.

     The good news is that the Philippines was already pillared on a sound economy even before the pandemic. “The Philippines entered the crisis in a position of strength,” explains Diokno, who was appointed by President Rodrigo Duterte last March 2019. “In the years leading to the pandemic, the Philippines has been widely recognized as among the most resilient economies in the Asia-Pacific region. Learning from the Asian Financial Crisis, structural reforms were pursued and implemented in the past 20 years to strengthen our economic foundation and expand growth potential.” The governor attributes the country’s sustained rapid growth to prudent macroeconomic policy management and implementation of structural reforms. These have enabled social gains, he says, such as reduced poverty incidence and unemployment rate.


     The country-wide lockdown to curb the spread of the virus forced the temporary closure of businesses and resulted in the loss of jobs for many.

     The Philippines’ gross domestic product (GDP or the total monetary value of finished goods and services within its borders within a specific time period) contracted to 9.6% in 2020. But this state is momentary, according to the BSP Chief, who served as Secretary of the Department of Budget and Management (DBM) from 2016 to 2019, also under President Duterte. “Credit rating agencies have opined that the impact of the pandemic on the Philippines is temporary (i.e., cyclical and not structural) in view of our strong fundamentals going into the crisis.

     The government has set a GDP growth target of 6.5% to 7.5% for 2021 and 8% to 10% for 2022.” Diokno had also led the DBM during the administration of President Joseph Estrada from 1998 to 2011, and previously also served as a Department Undersecretary for Budget Operations when President Corazon Aquino was in office from 1986 to 1991. Some of the major reforms he was involved with include the 1986 Tax Reform Program to simplify income tax collection and introduced the 1991 Local Government Code of the Philippines, as well as the value-added tax (VAT). Diokno knew early on that the current crisis was an “opportunity to think out of the box as they work to protect the interest of the people.” His perspective was key as he led the pivoting of the BSP in response to the COVID-19 pandemic. “The BSP immediately communicated to its stakeholders that the Central Bank continues to look after the welfare of its personnel, while providing the needs of the financial system and the broader economy,” Diokno shares. “For instance, the BSP assured the public that the banking industry shall continue providing essential services to clients.

     We explained that as part of global risk management standards, banks have in place and have activated business continuity plans that aim to ensure deposit taking, ATM withdrawals, check clearing, and other banking activities. In rendering said services, we urged all banking personnel, especially frontliners, to carry out necessary protocols against COVID-19. These initiatives are part of the BSP’s efforts to support [nationwide] initiatives against the pandemic.” The institution has also encouraged the use of e-banking and digital payment services to enable the public to carry out needed financial transactions safely amid the pandemic. These measures are aligned to Diokno’s other goal: having a cash-light economy through digitization.

     The BSP Governor, who has also served as professor emeritus at the University of the Philippines (UP) Diliman for over four decades, says the transition will bring substantial benefits to the country. It will result in “increased economic activities through faster and more efficient payment systems, expand the market through the inclusion of the unbanked and underserved, and enhance risk management with improved transparency and audit trails.” Aligned with its mandate to promote “price stability, financial stability, and safe and efficient payment and settlement systems,” is its goal to continue “to foster financial inclusion especially through digitization,” adds Diokno, who also served as fiscal adviser to the Philippine Senate.

     According to him, “the enactment of Republic Act No. 11211, which amends the BSP Charter [and sees to] the promotion of financial stability, in close coordination with the national government, is explicitly included in the BSP’s mandate. In addition, the BSP is expressly mandated to oversee the payments and settlement systems in the Philippines.” This latter function, alongside the provisions of The National Payment Systems Act (Republic Act No. 11127), allows the central bank to promote cashless payments, which is considered of utmost importance in the country’s fight against COVID-19, explains Diokno. “The new BSP Charter also provides the Central Bank with an enhanced legal and regulatory framework in providing a steadying hand to the financial system, including during the time of the COVID-19 pandemic.”


     The BSP Charter allows the granting of provisional advances to assist the national government through up to 20% of its average annual income in the last three years. It was able to do so during the onset of the current public health crisis the country faces. Through the Bayanihan to Recover as One Act (Republic Act No. 11494), the BSP is allowed to also to grant additional provisional advances to the national government in an amount not exceeding 10% of its average annual income for the years 2017 to 2019.

     The Charter also allowed the Bank to “purchase of government securities in the secondary market, which helped boost market liquidity in the early part of 2020,” avers Diokno, who also previously served as Chairman of the Local Water Utilities Administration and Chairman and CEO of the Philippine National Oil Company (PNOC). To encourage lending to the public and provide more liquidity to the financial system during the pandemic, a series of reductions in deposit reserve requirements was also allowed through the Charter and was approved by the Monetary Board. As a result, policy rates were reduced, along with the credit risk weight of certain micro, small, and medium enterprise (MSME) assets. Further, loans to MSMEs were allowed to become alternative compliance with reserve requirements, and regulations were eased on qualified credits for BSP discounting. Regulatory reliefs were also granted among BSPSupervised Financial Institutions. “(We) deferred the implementation of the revised risk-based capital framework applicable to stand-alone thrift banks (TBs), rural banks and cooperative banks (RCBs), and reduced the minimum liquidity ratio of stand-alone TBs and RCBs from 20% to 16% until end-December 2021,” explains Diokno. “These actions are intended to help their operations during the pandemic that may ensure continuous effective financial services to the public.

     ”STRONG POINTS “The Philippines stood out in 2020,” the BSP governor declares, and proffers proof of this in “three major internal crediting agencies (CRAs) that affirmed their credit ratings on the country amid a sea of downgrades globally.” American CRA Standard & Poor (S&P) provided the Philippines a BBB+/Stable rating and outlook. A BBB+ rating is given to an obligor who has adequate capacity to meet its financial commitments and whose capacity can be weakened to meet these due to adverse economic conditions or changing circumstances. Second is Moody’s Investors Service’s Baa2/Stable rating that is based on the country’s strong fiscal position in previous years and limited vulnerability to external shocks. Fitch assigned a BBB/ Stable rating and outlook for the country. Aside from good credit quality, this means “expectations of default risk are currently low,” and “the capacity for payment of financial commitments is considered adequate,” according to the group’s website.

    The BSP governor enumerates three key contributors to the favorable assessments for the country: strong pre-crisis fundamentals, robust medium-term growth prospects, and the firm commitment of fiscal authorities to return to a fiscal consolidation path post-COVID 19. “While the full recovery of the economy largely depends on the success of the vaccination rollout and the effective control of the spread of the virus, several measures have been implemented by the government to bring back jobs and income sources while continuing to manage the risks related to the virus,” says Diokno, who has also worked on advisory and consulting capacities for agencies like the Asian Development Bank (ADB), World Bank, the European Commission, and the United States Agency for Internal Development (USAID).

Even before the vaccine rollout, the governor says “green shoots (had) begun to emerge in the second half of 2020. From a contraction of 16.9% in Q2 2020 at the height of the lockdown, the economy continued to improve in the third and fourth quarters. The rollout of the national vaccination plan is expected to accelerate the country’s return to pre-COVID economic growth levels. “The country’s macroeconomic fundamentals have remained broadly intact, even at the pandemic’s peak. These indicators include improving quarterly economic outturn, better business and consumer outlook, ample liquidity in the system, a sound and stable banking system, robust external payments position, and a manageable fiscal deficit,” he adds. He says that the 6.5% to 7.5% economic growth target for 2021 will be supported by spending for the implementation of recovery programs under Bayanihan 2, the 2021 national budget, and investments in shovel-ready projects under the “Build, Build, Build” program, such as health-related facilities, and digital infrastructure, among others.

     ON HIS WATCH Verily, it can be said that Diokno has witnessed the many shifts and challenges of the Philippine economy and its government through his years of public service. His interest in finance sparked early in life, and this was further bolstered when he took up Public Administration at UP Diliman and his master’s in both Public Administration and Economics from the same institution. “I think my early leanings to serve the people via this field of endeavor led me to the path of professorship in economics at the State University, and later on as a civil servant tasked to craft fiscal policy, and currently, monetary policy.” Diokno also holds a Master of Arts in Political Economy degree from the John Hopkins University in Maryland, United States and a doctorate in economics from the Maxwell School of Citizenship and Public Affairs in Syracuse, New York. Diokno has taught various courses in the state university, including microeconomics, public sector economics, and development economics, along with an assortment of special topics on finance, public service reforms, and the like. His experience to date has armed him with holistic acumen and competence for his current role. “Serving from the fiscal side as Budget Secretary and from the monetary policy side as BSP Governor, there are indeed clear complementarities as both are aimed at enhancing the economic wellbeing of Filipinos,” he shares. “Working as a public servant in both capacities is especially helpful amid whole-of-nation efforts to address the adverse economic impact of the pandemic, as these require coordinated action between monetary policy and fiscal authorities.” When LEAGUE asked about his plans when his term ends in 2023 and if there was a possibility of him running for an elective post, he said the year “is still a bit far off” and that he has “never run for office or even applied for any position” throughout his career as a public servant. For now, Diokno reveals that he is focused on leading and building BSP to be a more agile institution. “Under our Digital Payments Transformation Roadmap 2020 to 2023, we are strengthening customer preference for digital payments by converting 50% of the total volume of retail payments into digital form and expanding the number of the financially included to 70% of Filipino adults. “These initiatives dovetail with the third, which is ‘Bringing the BSP Closer to People.’ It is important that BSP stakeholders understand what we are mandated to do. It is crucial that our stakeholders trust our integrity and our capability to carry out our mandate,” he ends.

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