Price stability
As inflationary pressures build up caused by the uptick in increased excise taxes for essential commodities and higher prices for basic commodities like rice due to the imperfect trading structure, one looks at the Bangko Sentral ng Pilipinas (BSP) to mitigate the consequences on the public. The continuing depreciation of the peso while favorable for Philippine exports will mean still higher inflation as imports prices in peso values go up. Again, the BSP is seen as the enabler to keep inflation at manageable levels.
It is in these times that I recall the views expressed by the first governor of the BSP and chairman of the Monetary Board, Atty. Gabriel “Gabby” C. Singson who steered BSP in its early years and set the foundations for the credibility and respect that this institution has today. I was fortunate to have sat in the Monetary Board of the Central Bank of the Philippines with Jose Fernandez as the CBP Governor and MB Chairman when Trade and Industry Secretary Jose Concepcion and Undersecretary Tomas Alcantara could not make it. Later I would represent Secretary Rizalino “Roy” Navarro and later Secretary Jose “Titoy” Pardo in the Monetary Board chaired by Gov. Gabby Singson with the added advantage of sitting beside him and in between discussions get lessons and insights from the Central Banker who joined the bank in 1955, rising through the ranks to become Deputy Governor in 1975 and Senior Deputy Governor in 1980. When I was appointed as member of the Monetary Board in 1999 under Gov. Rafael “Paeng” Buenaventura, I was well prepared for the job with a ready resource in the person of Gov. Gabby over a game of golf in Wack Wack.
It was during Gov. Gabby’s term that the BSP looked at inflation targeting. In his book, Price Stability: The First Three Years, he stressed that as spelled out in the law, “the BSP’s primary objective is to maintain price stability conducive to a balanced and sustainable growth in the economy. It shall also promote and maintain the monetary stability and convertibility of the peso.” In another occasion, he declared that “the Bangko Sentral is firmly committed to use all its available policy tools to achieve a low and stable inflation as cornerstone to a competitive and credible currency.”
The efforts of Gov. Gabby’s BSP in maintaining price stability can be seen on the decreasing trend of the inflation rate. With a high 60% in October of 1984, the average inflation figure in 1994 was 9.8% in August and brought down to 8.5% by year-end. He expressed that “the medium-term objective is really to bring down inflation to around 4% by 1996 to strengthen the economy’s competitive footing.”
The present situation can benefit from Gov. Gabby’s analysis of the factors behind the first quarter of 1996’s uptick in the consumer price indicator. His take – “Agricultural setbacks especially in rice production were clearly a major factor behind recent unfavorable price trends. Adverse weather conditions can be blamed but the problem was compounded by flawed supply management.
Another set of factors is the implementation of corrective fiscal measures – the Expended Value-Added Tax and the fuel price adjustment. in the short run, there will indeed be an inflationary impact as basic costs realign. One also has to (must) accept that an element of trader opportunism will come into play. But in principle, the price adjustments are only one-time in nature. And in practice, competition and strategic price monitoring will also curb any excesses. More fundamentally, to the extent that implementation of the EVAT and realistic fuel pricing ensure a sound fiscal position, these will actually promote long-term price stability.”
As an old hand in government, indulging in some personal concerns, Gov. Gabby said, “…I have spent nearly four decades in central banking… I have seen central banks… performed brilliantly… many have fallen by the wayside… their common nemesis was inflation… As BSP governor, I want it said at the end of my term after a lifetime of central banking that the Bangko Sentral did discharge supremely well its mandated primary responsibility of maintaining price stability conducive to orderly and sustainable economic growth.
And in achieving this goal, I’ll be guided by this reality. There is no sure formula for success, but there is a sure formula for failure, and that is when you try to please everybody at the same time.”
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