in Serious stuff, my friend

The Central Bank and You

VERY few people pay attention to the activities of the Bangko Sentral ng Pilipinas (BSP).
Which is a pity.
After all, it is arguably the most powerful institution in the Philippines.
While the Philippine presidency reigns supreme over the country’s armed forces-or at least theoretically-and all the agencies which control our public lives, the BSP does a far more important job. Not only does it help regulate the economy, the BSP can also print Philippine currency; currency that is no longer backed by gold or any other physical asset which can be bought or sold in world markets; currency that is honored only because of governmental fiat (which means that it is legal tender because the Philippine government says so. This explains why a P500 peso bill, although just a piece of paper with the face of Kris Aquino’s father on it, can be used to buy goods and services of the same amount).
This also means that theoretically, if it wanted to, it can go on printing money. Not that it will because it won’t. Doing so would only introduce more cash into the country’s financial system, causing demand for goods and services to increase, thereby making prices of commodities rise faster than expected. (Incidentally, the hike in prices is also one of the things it keeps tabs on.)
No thanks to our obsession with politics, celebrities, starlets, and the failure of media to further clarify economic issues, many of us-including this fairly irregular blogger-have failed to appreciate the crucial role that the BSP plays in our lives.
Take the banking industry’s interest rates, which is set by the BSP’s Monetary Board, perhaps the most powerful set of people in the Philippines.
Depending on its inclinations and perceptions, the MB by its say-so alone, can encourage or discourage local business activity.
If it decides to cut interest rates, making loans cheaper, it encourages investors, both foreign and local, to expand their businesses. After all, they can easily raise cash for their ventures since banks will be less stringent about lending money.
However, if the MB takes the opposite view, it can stunt the country’s growth. Businesses will be discouraged from borrowing money at higher rates and banks will be stricter issuing loans.
Unfortunately, whether the BSP decides to cut or raise rates at its regular meetings, the Filipino public-from whom taxes are collected and in whose name foreign debt is incurred, among others-has always been kept in the dark about how policies are formulated and implemented.
Being an agency considered as a cut above all the rest, the country’s central monetary authority is beyond the reach of a number of laws, the most important of which are those relating to the freedom of information.
Since it occasionally discusses the country’s cash position-a national secret and therefore a component of national security-the BSP can conveniently ignore a law say, covering the conduct of public officials.
According to the said law (Republic Act 6713), any government employee is duty-bound to reply to letters addressed to them within 15 days. They are also required to disclose copies of government documents within the same time frame upon request.
But then again, like most Philippine laws, these are all theoretical. Requesting copies of documents-especially sensitive ones-from government agencies are more difficult than slicing a piece of Jollibee’s Chickenjoy with Jollibee’s signature plastic knife.
Meanwhile, should you commit the mistake of requesting a copy of a document from the BSP, think again even before typing that request letter.
After all, the powerful body is allowed-perhaps even duty-bound-to ignore you legally.
Which explains why very little headway has been made about making the central bank’s decision making processes more transparent.
And it’s not just about interest rates.
This is about virtually every financial transaction that it undertakes, ranging from the amount of debt to be borrowed (whether it should be sourced from local banks or international lenders), the amount of loans to be paid (both foreign and domestic), the amount of foreign exchange to buy and sell (to defend the value of the peso from currency speculators), and, more importantly, the amount of dollar-denominated debts that Philippine companies can be allowed to borrow for their business expansion.
Since equipment used by local firms to produce goods and services are usually imported (i. e. transmitters which allow cellphone users to send and receive voice calls and text messages), businesses incur loans in US dollars-one of the generally accepted currencies around the world-to pay for these pieces of equipment.
Everytime Globe Telecoms or Smart Communications or any other local company announces intentions to borrow in dollars to buy equipment from abroad, they usually ask approval from the BSP. After all, since the equipment they require run into millions of dollars, these companies, for better or for worse, will use the country’s foreign exchange reserves.
In turn, the transaction increases the demand for dollars,
which may reduce the demand for the Philippine peso and in effect, lower its value.
The same principle goes for the country’s oil requirements.
Since the Philippines imports more than 90 percent of its crude needs, dollars are used to pay for them; the same dollars that nearly 10 million Filipino workers abroad send to their families at home.
So the next time you see a stereotypical Pinoy OFW, who may be garbed in what may well be the tackiest apparel ever since Kuya Germs donned an orange suit, think twice about calling up the fashion police.
After all, they literally help keep the Philippine economy afloat.
But this is just one of the moral lessons we need to learn about the story of the Philippine economy.
As a people, we need to realize that the dollars sent home by Filipinos abroad-many of whom are insulted, discriminated, oppressed, and even raped and tortured-are used to pay for fraudulent obligations; debts that were incurred to put up projects that never benefitted the Filipino people.
Take the Bataan Nuclear Power Plant.
Unsafe, unnecessary, and tainted with fraud, the P26 billion project, built in the mid-1970s, was paid for by the government, thanks to the endorsement what is arguably the Philippines’ most powerful institution, the Bangko Sentral ng Pilipinas.
It’s about time we take our economy and our country’s spending habits seriously.
Our money and by extension, our financial lives, are far too important to be left to officials of the BSP.