Finance Secretary Carlos “Sonny” Dominguez III called it the “most important appointment” that President Rodrigo Duterte will make in his six-year term as the country’s highest chief executive.
For having kept inflation stable and the benchmark interest rate to a record low during his 12-year term, Sonny unabashedly backed Bangko Sentral Gov. Amando Tetangco for a third six-year stint starting in July this year, citing his credentials as one of the top central bankers of the world.
The BSP position is indeed key to the success of Mr. Duterte’s economic push amid the revenue challenges faced by his administration. The proposed tax reforms, for instance, is a gamble that Sonny is taking to push the pro-poor agenda of the President.
The reforms include a reduction in the personal and corporate income taxes, which would translate into an initial cut in government revenues of more than P200 billion a year. Other reforms in paper would hopefully offset the drop in revenues, resulting in a net gain of P368 billion by 2019.
This is, of course, easier said than done. With a massive infrastructure program set to take off—which will supposedly anchor the government’s economic development program—the Duterte government must work double time to raise the revenues needed to fund expenditures.
Everyone—even his critics—want the President to succeed. Businessmen are giving him the benefit of the doubt, and no less than the International Monetary Fund is backing Dominguez’s tax reform proposal. But even with the “fingers-crossed” attitude, there is still the nagging feeling that the next three years at least will be a critical period for the country. The big question is: what happens if the government can’t generate enough revenues?
It may be a good time for the President to think about the team that will lead the country through the coming critical period. Duterte and Sonny need to decide soon on one particularly important appointment: the next Bangko Sentral governor. Because the BSP chief will be a crucial cog in steering the country through a most interesting time. The stakes are high and margin for error is slim.
Some businessmen and bankers we talked to were quite perplexed with Sonny’s statement at the start of the year that he preferred either an insider or someone from the academe to be the next Bangko Sentral governor. Given the conditions in the financial market today, the policies espoused by President Duterte, and the demands on the banking community that will be surely forthcoming, the choice for the next BSP governor will be a “make or break” selection. But why the bias against bankers?
Past central bank governors who were former bankers, Jose “Jobo” Fernandez, Jose Cuisia and Rafael “Paeng” Buenaventura, turned out to be excellent central bankers. They not only maintained what was built when they first entered the central bank headquarters. They also initiated forward-looking reforms that profoundly changed banking and the capital markets.
Jobo deregulated interest rates and allowed market forces to set it, while Cuisia liberalized the foreign exchange markets and made them transparent. Paeng gave debt capital markets a boost with products like UITF, bancassurance and first layer derivatives sold to the public. He strengthened securities custodial rules, introduced PhilPass and spearheaded reforms in the setting of loan rates and set the basis for banks to give out long term loans.
Internationally, among the most respected bankers came from banks. Mark Carney, who was pirated from the Bank of Canada and currently the governor of the Bank of England, came from a private bank.
Central bankers also made their impressive mark in Bangko Sentral. Tetangco and Gabriel Singson were exemplary governors. Ironically, a member of the academe—Jaime Laya––was the proverbial sore thumb that stuck out after the infamous $600 million “padding” of country’s international reserves in 1984.
Perhaps the main criteria for selecting the next Bangko governor should be competence, knowledge of economics and the financial markets, experience, but most of all a strong sense of nationalism. The next governor—the Duterte governor—will have his work cut out for him. He will be needed to help steer the economy through a very challenging time and reform the banking system as well. Issues like criminality and corruption may seem far detached from the hallways of the central bank, but the truth of the matter is these are problems that proliferate through an unchecked banking system.
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