In a move to calm markets and boost confidence in the financial system, two economists from the University of the Philippines will serve as finance secretary and central bank governor under the incoming Marcos government.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno on Thursday, May 26, said that he has accepted his new position as incoming Secretary of the Department of Finance (DOF) under President-elect Ferdinand Marcos Jr.’s administration which starts on June 30.
Diokno, who is BSP’s fifth governor, said as DOF secretary, he will “strive to continue prudently and carefully balancing the need to support economic growth, on one hand, and to maintain fiscal discipline, on the other.”
Meantime, the incoming sixth BSP governor is Monetary Board member, Felipe M. Medalla. He will serve the remaining 12 months left in Diokno’s term or until July 3, 2023.
Diokno was the Duterte government’s budget chief before he was appointed as BSP governor in March 2019. By accepting the DOF position, Diokno has cut short his term. A central bank chief has a fixed six-year term. Diokno took over the late Nestor A. Espenilla Jr.’s remaining four years in 2019. Espenilla passed away on Feb. 23, 2019 due to cancer. Technically, there will now be three governors including Espenilla, which will complete a six-year period which started in July 2017.
Market-friendly incoming DOF chief
Diokno said that he is “grateful and humbled” that Marcos has given him “trust” to manage the country’s fiscal affairs, stressing on “the importance of policy continuity.”
The 2022 “Global Central Banker of the Year” named by London-based publication The Banker, said he will focus on restocking the state’s eroded revenue coffers and to reduce the higher debt- and deficit-to-GDP ratios incurred by the Duterte government because of the pandemic.
“We need a lot of money to continue our growth momentum and to service our higher level of public debt,” Diokno told reporters in a virtual press briefing on Thursday.
Diokno, who was also a former budget chief in two past administrations, said he expects challenges and obstacles as DOF secretary but he remains confident that the tax system left by the Duterte administration is better than the previous, and that he will seriously consider the proposed fiscal consolidation plan left by outgoing DOF chief, Carlos Dominguez III, which includes a resource mobilization plan.
The country’s debt-to-GDP level is higher at 63.5 percent, exceeding the internationally prescribed best practice of 60 percent of GDP. The DOF said an additional P3.2 trillion debt will have to be dealt with by the end of 2022.
Diokno said the first item on the agenda will be the sustainability of the country’s public debt. “My position at the moment is our debt to GDP ratio is slightly above 60 percent limit. I don’t think that is really cause for concern because as long as we continue to grow at around six to seven percent, on a sustainable basis, we can easily outgrow our debt. That said, it is also important that I should look at the sustainability of the debt,” he said. “This is to assure everybody — the domestic audience and international credit watchers – that we are serious about consolidating fiscal resources so that we are able to reduce our debt and deficit to GDP ratio over time,” he added.
Diokno reiterated that that the Philippine tax system now is “much, much better” than the tax system the Duterte government inherited from the Aquino administration. “This government has done a lot of reforms. I’m not saying it’s perfect, there are some areas that we can improve upon but to me, the focus should really be on tax administration,” said Diokno.
As for raising or lowering taxes, Diokno said it is too early for him to know or to make comments on.
“Too early for me at this point to make any position on whether or not to increase taxes (but) the tax system that we are leaving to the next government which I’m going to receive for the incoming government, are much, much better than the tax system that we inherited from the previous administration,” said Diokno.
Diokno has always said that the government’s GDP targets of seven to nine percent, which was recently lowered to seven to eight percent for 2022, is doable, given the momentum of economic growth.
“I think it’s important to raise the growth momentum of the economy because a strong economy means strong tax (and) government resources. The tax system is — in the economic language — elastic. So, the higher the growth of the economy, the more revenues we will collect,” he said.
Meantime, Diokno said he will retain most of the current undersecretaries in the DOF, and in particular, the National Treasurer, Rosalia V. De Leon. He does not plan to make any major changes, at this point.
“The post of finance secretary is equally challenging as being governor of the central bank. We’re shooting for the same objective for the country to make the Philippines an upper middle income economy soon. I think we are almost there but because of the pandemic, that goal was disrupted,” said Diokno.
Besides tax generation and controlling the high level of public debt, the incoming DOF secretary said he will also focuse on making sure that the level of poverty in the Philippines will be “much, much lower than when we came in.”
“That will continue to be the objective of both fiscal and monetary side. And of course on the monetary side, they will be controlling inflation. They keep saying that it’s their role because it’s mostly the responsibility of the fiscal side. So, now I’ll be responsible for that part of some actions that are needed to control inflation,” he also said. The BSP has been battling an above-target inflation of almost five percent for this year.
“The fact is that monetary policy is not the only game in town. It should be coordinated actions between the monetary authorities and the fiscal authorities. It’s just now that I’ll be moving to the fiscal side, that I am leaving very competent monetary authority,” said Diokno.
New BSP chief
Medalla is a BSP insider and similar to Diokno, will hit the ground running. He was also a former socio-economic planning secretary during the time of President Joseph Estrada, same with Diokno who was Estrada’s budget secretary.
The next BSP governor said he did not expect his future appointment as BSP’s highest-ranking official. “As late as Monday (May 23), it was a zero probability event,” Medalla told Manila Bulletin when asked about the circumstances of the BSP suddenly requiring a new governor.
However, as a senior BSP Monetary Board member since July 2011, Medalla will not have birth pains as BSP’s sixth governor.
“BSP has very clear mandates. Moreover, it is important to finish projects started by Gov Ben (Diokno). Some of which were started by Gov Nesting (Espenilla),” said Medalla.
Medalla’s term will be a holdover until July 3, 2023 but he may be reappointed for a fresh six-year term under a Marcos government.
Based on his profile on the BSP website, Medalla is a “noted economist and educator whose career spans more than four decades and the administration of four presidents.”
Medalla was first appointed to the Monetary Board, which is the BSP’s policy-making arm, in July 2011 by the late President Benigno Aquino III. He was given a second term by President Duterte in July 2017.
Both Diokno and Medalla were from the UP School of Economics. Medalla as professor was even dean for four years while Diokno was a teacher and lecturer for four decades.
Medalla earned his Ph.D. in Economics from Northwestern University in Evanston, Illinois and has an M.A. in Economics from the UP. He graduated cum laude from De La Salle University with a Bachelor of Arts and Bachelor of Science in Commerce (Economics-Accounting) degree.
Diokno, on the other hand, finished his Bachelor’s Degree in Public Administration and his M.A. in Public Administration and Economics in UP. He also holds an M.A. in Political Economy from the Johns Hopkins University in Baltimore, Maryland, USA.
Diokno likewise has a Ph.D. in Economics from the Maxwell School of Citizenship and Public Affairs, Syracuse University in Syracuse, New York, USA. In 2017, UP accorded him an honorary Doctor of Laws degree.