Interview: Amando Tetangco Jr
What efforts have been made to minimise speculation and shifts in capital flows?
AMANDO TETANGCO: Over the last few years, inflows to the Philippines have been driven by both pull and push factors. Pull factors refer to the relatively good economic growth prospects in the Philippines, and push factors include the accommodative monetary policies in advanced economies. After the Philippines received its first investment-grade sovereign credit rating in March 2013 from Fitch, we saw further increases in inflows. With the US Federal Reserve’s pronouncements and its subsequent actions in May and June 2013, however, we witnessed some pullback from emerging market economies in general, including the Philippines.
Over the years, our approach to dealing with capital flows has been pragmatic. In addition to the policy interest rate, we carefully employ policy tools, calibrating them to distinguish between structural flows, such as remittances, which are more permanent, and “footloose” capital, which tends to be flighty. For instance, we have allowed some appreciation of the currency for structural flows. To help stem speculative flows, we have adopted targeted macroprudential measures, including refinements to the conduct of our Special Deposit Account and additional capital charges on non-deliverable forward transactions.
The BSP has also broadened the coverage of real estate exposures that banks are required to report to us. In tandem, we have continued to closely survey the lending practices of banks. Based on our assessments, the lending practices have not been sacrificed even as lending to the real estate sector has increased. Overall, bank balance sheets have remained sound. The BSP will continue to proactively adjust our policies to ensure that price and financial stability are conducive to growth.
How have you expanded credit access for micro, small and medium-sized enterprises (MSMEs)?
TETANGCO: The BSP strongly advocates financial inclusion. Our approach is three-pronged. We aim to: 1) increase access to credit; 2) improve financial education; and 3) enhance financial consumer protection. We have programmes in place to push our financial inclusion agenda on all three fronts. On access to credit, we have approved regulations that will encourage banks to offer a variety of financial products to suit the needs of the MSME sector. We have also put together regulations on e-banking and e-money that will leverage on technology. We have also established credit surety funds throughout the country to help members of credit cooperatives avail themselves of loans without collateral. Regarding financial education, we have year-round financial literacy programmes that cater to various segments of the economy, including the youth, the underbanked, and the families of Overseas Filipinos (OFs). On consumer protection, we have institutionalised in the BSP a redress mechanism for complaints.
The BSP will continue to craft policies to help ensure that as the economy grows, no one is left behind. The bank will also continue to actively engage all levels of society in its financial inclusion programmes.
In what ways have OFs’ remittances strengthened the domestic economy?
TETANGCO: The resilience of overseas remittances continues to underpin the strength of domestic demand. From January to September of 2013, personal remittances grew by 6.6% to $18.2bn, and we expect stable growth in years to come. Sustained robust OF remittances inflows have also enabled the Philippines to post current account surpluses in the past 10 years and to accumulate international reserves. As of end-October 2013, our gross international reserves reached $83.6bn, which provides strong buffers against external shocks. We are mindful that the remittances could help improve economic growth even more when these are channelled to uses that include education, seed capital for small business, and investment in stocks and property. This is why the BSP is committed to improving financial literacy among OFs and their beneficiaries.
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