Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
At the third anniversary celebration of the Bangko Sentral ng Pilipinas

[Delivered at the Bangko Sentral ng Pilipinas (BSP) Complex, Manila, July 5, 1996]

The Bangko Sentral
and the nation’s growth

LOOKING BACK on the past three years, even die-hard critics of the Government will admit that the Bangko Sentral ng Pilipinas has made a great difference in the life of our country. In three years of operation, it has been the spearhead of reform in our financial system. It has proven its capability in monetary management, and it has helped strengthen the economy for global competition.

The improvement all around of the economy is the mirror of achievement for the BSP. Today, economic growth is accelerating, our reserves are at unprecedented levels. Inflation is declining, the exchange rate is stable. Investor confidence is high—and rising higher.

Boom-and-bust cycle is over

In the vital task of putting in place structural reforms for steady growth, we have also shown that we can surmount age-old barriers. Together we have opened up and liberalized our economy in a way that starkly contrasts with policies of the previous 50 years.

By correcting costly distortions and subsidies, by dismantling monopolies and cartels, and by promoting efficiency through genuine competition, we can truly say today that the boom-and-bust cycle in the economy is over. Real development is now with us. We can compete with the world’s best. Kaya natin sila! Kaya ito ng Pinoy!

It is significant that this celebration of the BSP’s anniversary coincides with the national observance of Savings Consciousness Week. For this highlights an indispensable role of the BSP. Domestic savings mobilization—as we have often been told, but only half-heartedly followed in the past—is crucial to the quest for sustained growth, more employment and the reduction of poverty. Now at last, we are taking to heart the lessons that have worked for our vigorous neighbors.

We need to maximize both private and public savings to finance our own growth without depending overly on the savings of others. To promote private savings, the BSP’s most important contribution is to guarantee a climate of price stability. This is the key to the preservation of the value of hard-earned financial savings. Inflation must be checked—for inflation is the acid that erodes public confidence and family incomes.

Antidote to the culture of influence peddling

Financial stability is also the antidote to a culture of influence peddling and power brokering that discourages honest hard work and encourages graft, corruption and extravagance.

The Government, of course, must also do its share in generating domestic savings. In line with this, we are pushing the passage of a comprehensive tax reform package to sustain the healthy fiscal position of the National Government, which enables us to finance much-needed infrastructure upgrading to ensure economic growth, and to provide social services.

Together we should all be able to raise the domestic savings rate in our country from 21 percent of GNP in 1995 and move closer to the ASEAN average of savings performance of more than 33 percent of national income. Besides promoting price stability, the BSP can also significantly promote savings in its other role as regulator of the financial system. An efficient, effective, safe and credible financial system provides the essential avenue for savings.

I am therefore gratified by the BSP’s initiatives to mold the financial system to world-class status. It has required the buildup of the local banks’ capital base. It has upgraded its supervision capability, including the use of computer-based technology to more effectively and comprehensively monitor individual banks off-site.

The ultimate objective is to make the financial system more responsive to our rapidly growing demands for credit and capital. And the BSP must enhance its capability to participate fully and safely in global financial markets and avail itself of the unlimited opportunities for fast-tracking our growth.

Winning the fight against poverty

At this juncture, let us deliberate and decide on how we can press on and gain more victories. I have said it before, and I say it again—GNP growth means little if it is not translated into real changes in the quality of life of the majority of our people, especially the poor.

Of course, high and sustained economic growth is an indispensable ingredient in the war against poverty. We need to enlarge the economic pie or “bibingka”—to produce a surplus—beyond that needed for normal consumption—for financing further development. But growth also must result in greater benefits for the people.

Economic growth must be accompanied by capability building and social reform. These will give our poor the skills and the assets to take part—to compete even—in the free market. Left to fend for themselves, there is no way they can survive the relentless force of the open market.

If we want our free-market economy to prosper in the long term, our economic managers and private business sector must be willing to place considerations of social reform ahead of purely economic objectives.

Instant prosperity may grow for a while—for a few. But eventually it will collapse under the weight of poverty. Long-term and even medium-term growth can only be achieved with the proper balance of the market economy and social equity. Only then can the poor become participants and beneficiaries—and not victims—of growth.

This is the obligation imposed on Government—to ensure coherence, convergence and consistency between economic and social policy. Its job is to equalize opportunities and capacities—to enable the poor to compete in the market. But to properly equip the poor, Government must deliver basic services to them—effectively.

We must invest in people if we are to achieve higher growth in productivity and incomes. We must put in place the mechanisms for raising levels of education, health, nutrition, housing, employment, welfare, community development and participation in decision-making.

Poverty has a human face

Effective poverty alleviation requires all of us in Government and the affluent in society—in banking especially—to understand that poverty has a human face. That poverty is the human condition of specific sectors of our population; of farmers and landless rural workers; of fisherfolk; of our indigenous peoples; of workers, especially in the informal sector; of urban squatters and slum dwellers; and of members of various disadvantaged groups—among them women, children, the elderly and the victims of disasters—this you and I know.

Two-thirds of the Filipino poor live in our rural areas—the overwhelming majority of them engaged in agriculture.

Here the message for Government is clear. If it is to begin solving Philippine poverty, Government must focus on where poverty is most prevalent—in our countryside.

It is in this context that I ask all of you, the executives of Government, and you, the chairmen/CEOS in the private sector, to carry out a social reform agenda for your areas of influence and constituencies. Your plans should include identification of doable poverty-alleviating projects with a specific time frame for their completion. Toward the end of the process, all these activities should contribute to the substantial reduction of poverty in such areas and sectors. I have also challenged Local Government executives—governors and mayors—to work as advocates of the poor.

In my experience, a program becomes more realistic and responsive to the needs of the target beneficiaries if the latter are involved in their formulation. The national social reform agenda council will aid me in monitoring the accomplishments of our Local Government officials in their fight against poverty—which is the foremost concern of our Government and society itself.

Moving with the pace of change

The pace of change—particularly technological innovation—has never been faster. The development of various electronic money alternatives such as credit cards and electronic checks, combined with expanding communications facilities, has forged linkages among institutions and generated a global marketplace for financial services.

It is therefore noteworthy that the BSP is now putting in place the BSP-Net, which will become our own national financial information highway. This will take us a quantum leap forward to full development.

We are fully committed to opening up the economy and being an active player in the new world financial order. This vital reform is moving on schedule, with foreign participants taking more active position with every passing day.

As we move to globalize the Philippine financial system and market, and as our financial institutions become more sophisticated, however, it is vital that the BSP remain vigilant in protecting the general public and in managing potential risks. The public trust is a priceless commodity that must be preserved at all costs.

To minimize exposure to risk on derivative products—which as we all know has produced some monumental bankruptcies—the BSP has responded with the issuance of guidelines which clearly define regulations on financial derivatives based on current best international practices.

A globally competitive financial system

It is also timely that the BSP is spearheading the review of laws affecting the financial sector to make them more relevant to the new demands and practices.

We are all aware of the opportunities as well as the threats of the growing interdependence of world financial markets. And our response to increased cross-border banking and flows of securities or capital should be one of adjustment and of meeting changes with confidence. This includes developing a clearer understanding of these developments and how they impact on key financial and economic variables.

In the pursuit of a Philippine financial system that is globally competitive, the BSP must fully develop its ability to react and manage the inevitable shocks arising from liberalization and globalization of financial services but without stifling the forces of innovation and creativity in the producing sectors.

Of the many things that have been said about the role of a central bank, perhaps the one we must always remember is that it must serve as “the bedrock of a nation’s progress.”

As the economy churns with the creativity and dynamism of private enterprise, we must have this foundation to keep the economy from overheating, or inflation from eroding gains. In the final analysis, a central bank is the guarantor of financial stability for a nation.

We do well to remember this as we feel today the vital signs of a growing and expanding economy in our country. In three years the BSP has already accomplished much at the helm of our monetary and financial system. This is recognized by the business community as evidenced by its successive top marks in opinion surveys. This is also evident in the selection of Governor Singson by Asiamoney as the Central Bank Governor of the Year. All these speak of the new capabilities of the whole BSP organization.

But as you accept these well-deserved commendations, let me also remind you that the work goes on. The vigil never stops. The mission of the BSP remains one of the most crucial in the entire spectrum of Government administration. Put simply, it is the task of sustaining the noninflationary growth of the economy. And this you must continue to perform with the highest efficiency, creativity, enthusiasm and dedication.