Is BSP still independent?
Watching the Senate hearing on the Maharlika Fund last week, I wondered if the BSP is still independent. Under questioning by Sen. Win Gatchalian, BSP Deputy Governor Francisco Dakila could not adequately explain why the BSP is willing to delay its capitalization needs in favor of contributing to the Maharlika Fund.
Not satisfied with Dakila’s answers, Sen. Win read portions of transcripts of Senate hearings when BSP sought the capitalization increase some years ago. At that time, BSP said the need was urgent. “Are you now saying,” the Senator asked Dakila, “that the urgency is no longer there?”
Of course, Deputy Governor Dakila could only say that the urgency remains. Dakila went on to murmur something about their readiness to comply with a mandate, referring to Maharlika. But as Sen. Gatchalian pointed out, the BSP already has an existing legal mandate to grow its capitalization from the current P60 billion to P200 billion.
It bothered me that the BSP seems to have lost its independence and is now allowing the political leadership to dictate to them against their better judgment. It starts here, where will it end? Will we end up like Turkey where their inflation rate is now at 64.30 percent, compared to 84.40 percent last month and 36.10 percent last year? That is because the Turkish President believes in low interest rates and their central bank was coerced to play along with him.
The extremely competent and extremely well paid BSP officials know they need to beef up the central bank’s capitalization as quickly as possible. Currently at P60 billion, that is only a little over a billion US dollars. That’s nothing. In a galloping international crisis, a quick and credible response from the BSP could cost more than a billion dollars.
And don’t be like Finance Secretary Ben Diokno who said we can use our gross international reserves to fund Maharlika. The reported $100 billion is misleading. It is not all ours to spend or invest. A good part of that is proceeds from forex debts incurred by the Treasury to fund the budget.
As explained by the BSP itself, the GIR level reflected mainly the national government’s (NG) net foreign currency deposits with the BSP, which include proceeds from its issuance of ROP global bonds, the upward valuation adjustments in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market, and net income from the BSP’s investments abroad.
Tarrin Nimmanahaeminda, who became Thailand’s finance minister four months after the Asian Financial crisis hit, told the Nikkei Asian Review: “We lost reserves worth $40 billion… By mid-1997, when all the facts and figures were known publicly... there was a huge loss of confidence in our economy.”
Just recently, the BSP had to defend the peso and it must have cost them a pretty penny too. Sometimes, the BSP has to issue high interest paying instruments like the Jobo bills, to stem the tide of fleeing capital, or sometimes, to mop up excess liquidity. That’s why there were years when the so-called BSP profits were lower than usual. The BSP needs adequate loss allowance and reserve buffers.
It is worrisome, as economist Toti Chikiamco pointed out in the Senate hearing, that BSP’s balance sheet has been deteriorating, with its net worth declining from P145 billion in Dec 2019 to P85 billion in October 2022 due to mark to market losses. Also, at a time of geopolitical uncertainty, we need a stronger BSP.
Indeed, Dakila should have said the P200 billion capitalization target is even too small given the fast growth of our economy, the number of financial institutions the BSP supervises, and the complexity of the financial system they are dealing with now.
When the increased BSP capitalization was discussed in the Senate, the initial proposal was P400 billion. BSP’s capitalization has remained at P50 billion in the last 30 years.
Given the current P60 billion BSP capitalization, it will take the BSP at least seven years to reach P200 billion at an average P20 billion a year, the amount it normally declares as dividend to the Treasury. With the Maharlika contribution, that will be delayed significantly.
How will BSP face a financial crisis? Bahala na! Or blame those stupid congressmen and senators who should have known better than to mandate that BSP contribution to Maharlika.
We seem to be running the BSP (and the GFIs for that matter) like sari sari stores… allocating use of their funds whimsically. The BSP has some of the country’s best technocrats, and I am sure their professional pride is hurting as they see what is being done to the institution. It is as if we have not learned from the past when our central bank was bankrupted, had to be liquidated, and a new one, the BSP, created to replace it.
In a sense, it starts with Gov Philip. Presumably, the last thing he wants is to follow in the footsteps of former CB Gov Jimmy Laya. Recall that Laya had to be replaced by veteran banker Jobo Fernandez who had to clean up the mess caused by the then CB’s subservience to the Palace. Jimmy is a good man and a competent technocrat, but his mistake was to simply be obedient and stay quiet even when he must have known something was wrong. Is this being replayed?
When Gov Philip gave his very brief opening remarks at an earlier Senate hearing on Maharlika, he said pretty much what Dakila said last week. It was obvious Philip was not happy, but he agreed anyway to fund Maharlika, an idea that’s not even half baked.
Understandable for Philip to toe the line. He needs to be reappointed soon. Then again, he could have made a bold stand because no high position (and its high salary and perks) should be worth tarnishing his legacy. Philip has been known all these years for his professional integrity. Sayang naman.
BSP, under its charter, is supposed to be scrupulously independent. If the current BSP officials choose to act like ordinary bureaucrats beholden to politicians, why do we have to pay them so much?
Boo Chanco’s email address is bchanco@gmail.com. Follow him on Twitter @boochanco