Then and now

THE Covid-19 pandemic will cause us to hit a rough patch, with the likely possibility of a recession, both domestically and globally. Already, the pandemic has closed businesses, albeit temporarily, caused widespread unemployment, restricted foreign investments, trade, tourism, disrupted the supply chain and reduced overseas Filipino (OF) remittances.

The consensus among our economic managers is that our recovery will be a Long U, or a W, rather than a V. The Bangko Sentral ng Pilipinas expects a U-shaped recovery with growth accelerating once the necessary measures intended to stem the spread of the virus are fully implemented. Romy Bernardo, a fellow BPI director, shares that Global Source Partners estimates that "GDP growth this year is south of government's downwardly revised lowend target of -3.4%, i.e. -5 to -7 percent."

On a bright note, Bernardo opines that "... the Philippines is better situated than many emerging countries to cope with the crisis given the Philippines stronger macroeconomic fundamentals, robust external balance sheet, healthy public finances - a product of building on past reforms across a wide front." Bernardo adds that "our monetary and fiscal authorities are working fast and we believe, in the right direction, in order to help the country come out of this slump sooner."

Today somewhat recalls a period when I joined the BSP more than a decade ago. As a member of the Monetary Board, I served as a member of the Board Risk Oversight Committee and I also served as Advisor to the Currency Management Committee and the Numismatic Committee. At that time, the country faced a global financial crisis, although not as bad as today's. In 2008, inflation in the Philippines, fueled by huge oil price spikes, was at a high single digit. In 2007, a year before I joined the Monetary Board, the sub-prime mortgage crisis in the United States began to unfold. And on September 2008, the Lehman bankruptcy, the largest in US history, became the principal trigger of the Global Financial Crisis (GFC).The subsequent Eurozone crisis in 2009 provided the additional after-shocks.

How the Bangko Sentral skillfully performed its mandate of bringing down inflation to its present low, how it helped keep Philippine financial institutions stable and resilient in the face of the adverse external environment, how it relentlessly pushed its advocacy of financial inclusion, are a testament to the patriotism, integrity, dynamism, excellence and solidarity of BSP's leaders (headed by then Governor Amando M. Tetangco Jr.), its management and staff.

Now we are facing a worse scenario -- global pandemic triggering a global economic crisis. According to BSP Governor Benjamin Diokno, "The challenge is to provide tangible boost to the economy through the appropriate combination of fiscal response and monetary measures." In response to the crisis, the BSP aims "to stimulate growth by ensuring adequate domestic liquidity and credit in the financial system, as well as by lowering the borrowing costs for affected firms, especially MSMEs, and households." To lower borrowing cost, the BSP has reduced key policy rates by 75 basis points and has indicated that it is prepared to further do whatever it takes. To inject more liquidity and available credit, the BSP has -- even prior to Covid-19 -- reduced the universal and commercial banks' reserve requirement ratio by 200 basis points.

Taking the cue from the Bayanihan Act, the BSP has authorized the extension of the repayment of consumer loans, first for 30 days and then another 30 days. To help people easily open bank accounts or similar accounts from other financial institutions -- vis-à-vis the government's financial aid program for poor households affected by the pandemic -- the Bangko Sentral has also eased the know-your-customer or KYC rules. It has likewise issued operational relief measures for foreign exchange transactions.

To boost the funds for Covid-19 response, the Monetary Board has authorized the BSP to buy up to P300 billion worth of government securities with a maximum redemption period of six months. To date, BSP has purchased a total of P62 billion worth of GS from the secondary market. The move has boosted domestic liquidity as shown by oversubscriptions in the latest T-bill, T-bond and Term Deposit Facility auctions. The infusion of funds has also resulted in lower weighted average interest rates (WAIR) in the interbank market. Moreover, GS purchases by the BSP in the secondary market helped improve GS market activity.

Governor Diokno acknowledges that "the outbreak of Covid-19 has potential significant impact on the operations of banks and other financial institutions in terms of risks related to exposures to borrowers and/ or industries or businesses severely disrupted or affected by Covid-19." To encourage lending, especially to the MSMEs, the Monetary Board has already approved the granting of temporary regulatory and rediscounting relief measures to BSP-Supervised Financial Institutions (BSFIs). Loans granted to MSMEs shall be counted as part of banks' compliance with reserve requirements.

The Bangko Sentral, led by Governor Diokno has, indeed, moved fast -and in the right direction -- in order to get us back up again on our feet.

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