OF SUBSTANCE AND SPIRIT
By DIWA C. GUINIGUNDO
This is my inaugural column. I thank the Manila Bulletin management for inviting me to be part of its distinguished opinion makers. I hope to share my over 41 years of experience as a public servant at the Bangko Sentral ng Pilipinas. I had the opportunity to witness and participate in addressing many issues and challenges we faced and continue to face as an economy and as a people. As such, I believe I can share both the substance of these issues and challenges because we did the complete staff work as well as the spirit that guided the direction of policy.
I can say that in the last 20 years, critical milestones were achieved by the Philippines that have led to the significant turnaround of the economy and the trajectory of things to expect and things to come.
Unfortunately, many of our people have not come to grips with the reality that despite all the squabbles in politics and partisanship, things are moving in the right direction. This claim by no means dismisses social and political issues begging to be resolved.
So this inaugural piece is about reading the signs of the Philippine times.
Nearly eight years ago in 2011, the Asian Development Bank published a study “Asia 2050: Realizing the Asian Century,” in an attempt to look into the future of this region. Dr. Bernie Villegas drew two important conclusions from the study.
One, Asia does not have an absolute claim to the 21st century because both leaders and society could still “make terrible mistakes in political and economic strategies and fall into what is called the ‘middle-income’ trap.” And two, the Philippinesis among those countries most likely to fall into the trap having been there “in the last 30 years.”
While it is difficult to argue against the first conclusion, one should be reminded of what makes Asia continue to be more economically important than the restof the other regions. The last ten years should quickly prove this point. Asia is rediscovering the need to modernize and expand and deepen their soft and hard infrastructures. The Fourth Industrial Revolution (FIRE) is very much entrenched in Asia. The English translation is quite straightforward. FIRE strengthens the basis for greater productivity and efficiency. Economic strategies of key economies in Asia are being modified to leverage on their large and for some, also young population that helps drive stronger domestic demand. In fact, Dr Villegas in his article eight years ago acknowledged what South Korea opted and this was to train and send abroad its young students to become engineers and scientists.
Today, eight years later, multilateral institutions are one in saying that Asia remains the driver of global economic growth through the crisis and after the crisis of 2008-2009. Wealth continues to be created in this region in a big way.
It is also very easy to dismiss the odds in favor of the Philippines. The record of this country is not exactly sterling but definitely very promising in the last 20 years. This is very challenging to make because we had bad record here. We had bad record abroad. Then and possibly now.
But what are the numbers?
The Philippines managed to grow by an average of only 2.0 percent in 1980-89, the period of external debt and balance of payments crises here and abroad; 2.8 percent in 1990-1999, the Asian Financial Crisis and the period of the country’s recovery from major natural calamities of earthquake and volcanic eruptions punctuated by super typhoons and deadly floods; 4.5 percent in 2000-2009, the Global Financial Crisis and the Philippines’ fiscal crisis; and by an impressive 6.3 percent from 2010 to the first quarter of 2019. In words, the path is clearly a strong uptrend with greater resiliency and stability in the last 30 years.
It is no wonder that even the ADB itself recently admits that the Philippines will continue to be one of the fastest growing economies in Asia. This is something that both the IMF and the World Bank, not exactly strong admirers of the Philippines in times past, share in their global economic assessments.
Where else do we get corroboration?
From the market, we see the major international credit rating agencies taking notice. It’s interesting that at exactly the same year that the ADB published its assessment in 2011, these CRAs started to recognize the key initiatives and achievements of the Philippine economy. Upgrades after upgrades brought the Philippines’ credit rating from junk status to investment grade that it is today.
Fitch rates the Philippines at BBB; Standard and Poor’s at BBB+; Moody’s at Baa2; Rating and Investment Information at BBB; and Japan Credit Rating Agency at BBB+, all investment grades with stable outlook. It’s big deal that the highest rating of BBB+ by S and P and JCRA is just a notch below A- where the likes of Malaysia and Israel are categorized. At its current ratings, the Philippines is comparable to Thailand and Mexico but generally higher than Indonesia, India, Russia, South Africa, and Turkey. Hard to believe, but fortunately it is true.
I am quite certain that many would be surprised to know that in the external debt markets, the republic enjoys tight spreads including those in the credit default swaps comparable to other jurisdictions with higher credit ratings than the Philippines itself. One can therefore argue that the market is way ahead of the credit rating agencies in recognizing and affirming the country’s standing as worthy of at least an A-.
In our recent Panda bond issue in China, the spread was so tight the Philippine Panda bond was accorded a virtual triple A reception.
This is where the national government and the Bangko Sentral ng Pilipinas are coming from when they launched recently the Road to A campaign. This intra-government effort will be focused on the remaining challenges in the agenda for the Philippines. Better governance, streamlining of operations and procedures, legislative actions to institutionalize fiscal refoms, addressing the issue on secrecy of bank deposits, capital market development and deepening are some of the key remaining must do’s in order to further galvanize the robustness and resiliency of the Philippine economy against domestic and external shocks. Incidentally, the same challenges and issues are the bottlenecks that prevent the country from getting the A rating.
The challenge is for the various government agencies to list down all remaining issues and do something about them: get Congress to change the policy, internal policies can be modified accordingly, processes can be reengineered, more automation and digitization can be introduced to facilitate the migration to innovation and productivity as mantra of public policy management. There is a greater call to good management. Politics can be set aside for the next election for the sake of this country and the people.
But can one eat an A?
No, no one can eat investment grade ratings. But definitely, when the Philippines continues to grow with more soft and hard infrastructures in place, and the present government is doing this, digital innovations spreading out to both consumers and industries and financial inclusion brings more and more into the mainstream of society and credit rating agencies recognize such achievements and rate us accordingly, more and more investments tend to be made in our country. New industries will be found. When the sovereign and corporates borrow from abroad, they would be enjoying lower interest rates. As a result, Government can do more infrastructure and social protection projects. Corporates can expand their operations. More people will have more jobs and income. There will be more food on the table and we can send our children to school. Social ills can be minimized even as direct public intervention remains as relevant as before.
A virtuous cycle of prosperity and greater productivity and efficiency will bring us higher and higher in the income bracket and eventually liberate us out of the middle income trap.And the mindset that is trapped in it.
(next column: Why be confident of the Philippines’ economic future?)