spot_img
29 C
Philippines
Thursday, March 28, 2024

Did BSP warn DOF of TRAIN’s inflation?

- Advertisement -

The Joint Central Bank of the Philippines-International Monetary Fund Commission (CBP-IMF) on Banking Sector Reform of 1970-1971 enacted amendments to the Central Bank Act and the General Banking Act that were intended to make the CBP an effective and independent institution. The changes were carried over into the charter of the BSP that was established in place of the CBP.

The first amendment related to the principal function of the national monetary authority. Whereas Republic Act No. 49—better known as the charter of the CBP—made the national monetary authority responsible, additionally, for the “maintenance of income, employment and growth,” the Final Report of the Joint Commission made the CBP responsible only for the maintenance of “domestic and external monetary stability.” The Commission argued that the job of creating “income, employment and growth” belonged to the Cabinet-level line departments of the government. Monetary and development policies could be— and had on numerous occasions proven to be—antithetical to one another.

The other major amendment enacted by the Joint Commission was intended to make the CBP a truly independent institution. Whereas the government previously had a built-in majority in the seven-member Monetary Board—the Governor of the Bank was considered a government representative—the Commission removed the Secretary of Trade and Industry and the NEDA (National Economic and Development Authority) Director-General and retained only the Secretary of Finance. The national monetary authority would not be able to function effectively if a majority of the Monetary Board was pushing the agenda of the incumbent administration.

I have brought these historical facts to the fore at this time because I am uncomfortable about the role that the BSP has been playing in the current inflationary surge. Has the national monetary authority been performing, in the current TRAIN-dominated scenario, in line with the functional and structural changes laid down by CBP-IMF Joint Commission four and a half decades ago, i.e., independence and focus on monetary stability?

I’m not so sure. Consider the following statement by a high-ranking BSP official. “(H)igh inflation is a serious concern but we have been expecting that all along so this should not be a surprise.” This statement suggests two things: (1) the BSP has, with regard to TRAIN, been operating in concert with the DOF and NEDA and (2) the BSP expected that the onset of high inflation could result from TRAIN’s implementation. Both suggestions are not good for the image and reputation of the national monetary authority. Indeed BSP clearly appears now to be alarmed—although its officialdom tries very hard to convey an attitude of high confidence —by the continuing surge in prices. The surge is likely to continue, albeit at a slower pace, for as long as TRAIN retains its present configuration.

- Advertisement -

Considering that the BSP’s overarching mandate is the maintenance of domestic and external monetary stability, and in the face of the quoted BSP official’s admission of the possibility of an inflationary surge, did the Monetary Board, through the Governor, warn the DOF and NEDA of the dire monetary-stability implications of TRAIN’s excise taxes, especially on fuel? Either it did or it didn’t. If it did issue the warning, it would have complied with its statutory mandate. If it didn’t, the question bears asking, why not? Certainly, the Filipino people didn’t get to hear about a cautionary position taken by the BSP on the TRAIN excise taxes.

I hope I’m proven wrong, but my feeling is that BSP functioned in BSP-on-part-of-the-government-economic-team and went along accommodatingly with the DOF on the TRAIN package. My feeling is based on the fact that not once did I hear the Governor of the BSP on any of his high-rank colleagues issue warnings about TRAIN’s negative implications for domestic prices and the value of the peso. As it tends to do when the Governor is not a towering figure, the Monetary Board deferred to the lone government representative on the Monetary Board, the Secretary of Finance. If the members of the CBP-IMF Joint Commission—one of its members, representing the private sector, was the late CB Governor Jose B. Fernandez Jr.—they would have told Governor Nestor A. Espenilla Jr. and his Monetary Board colleagues that it is not the BSP’s primary function to help provide financing for the Duterte administration’s infrastructure program.

For not having its job of issuing a warning against the adverse impact on monetary stability of a program like TRAIN, the BSP if now being blamed along with the DOF for the ongoing inflationary surge. That’s only right, I think.

- Advertisement -

LATEST NEWS

Popular Articles