Tetangco says reforms best buffer vs. shocks

By Jun Vallecera

Reporter

RESPONDING to an International Monetary Fund warning, Bangko Sentral ng Pilipinas governor Amando Tetangco Jr. said he will make openness and continuing reform the main defense against any more economic shocks, domestic or external. He added the IMF warning on certain “pockets of vulnerabilities”, cited in its most recent World Economic Outlook report, in emerging markets like the Philippines may be valid on certain economies but that the bank’s strong commitment to reform could mitigate or even negate these vulnerabilities as reforms put in place the past few years have done. “On the BSP side, we have maintained a flexible exchange rate policy, allowing market forces to essentially determine the exchange rate with occasional scope for BSP presence in the market only to smoothen excessive volatility. We continue to build up foreign currency reserves and have prepaid our foreign debt to reduce our vulnerability to external or exogenous shocks.” He added, “We have also recently liberalized foreign exchange regulations particularly those aimed at facilitating current and capital account transactions. These will help ensure that capital can freely flow to its most efficient uses. The latest foreign exchange liberalization makes the regulatory environment more responsive to the needs of an expanding, more dynamic economy that has become increasingly integrated with global markets.” The strong influx of overseas remittances and foreign investments has allowed the central bank to double the allowable forex purchases without need for documentary support—to $10,000—and removed the antisplitting rule that banks have used since 1997 to circumvent previously strict dollar transaction guidelines. The BSP also doubled the allowable dollar remittance cap sent overseas without prior BSP approval to $12 million, even as countries like Thailand tightened their forex rules as a defensive monetary measure. Tetangco said these and many more reforms in the financial sector will ensure a healthy financial system. “A sound financial system is a critical pillar of an efficient economy [because] it aids in financial intermediation, investor protection, and overall confidence building. A stronger financial system also enhances the ability of the BSP to use the various instruments at its disposal to influence monetary policy.”

 

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