Fundamentally Positioned for Resilience
“THE PHILIPPINES ENTERED THE CRISIS IN A POSITION OF STRENGTH. IN THE YEARS LEADING TO THE PANDEMIC, THE PHILIPPINES HAS BEEN WIDELY RECOGNIZED AS AMONG THE MOST RESILIENT ECONOMIES IN THE ASIA-PACIFIC REGION.”
BY JOYCE REYES-AGUILA
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.”