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Commencement Speech of Gov. Amando M. Tetangco, Jr. – AGSB Commencement Exercises 2014

August 29, 2014

A MESSAGE to BATCH 2014 of the
ATENEO GRADUATE SCHOOL of BUSINESS

by

BANGKO SENTRAL GOVERNOR
AMANDO M. TETANGCO, JR

Magandang hapon po sa inyong lahat!

Nelson Mandela, the great statesman and civil rights leader, once said…that…“Education…is the most powerful weapon. “which you can use…to change the world.”   This is a powerful statement from the man who stood up for racial equality through peaceful means.

Indeed, education is the lasting weapon of change for the better…not bullets, not violence, not war.  Graduations such as this therefore…should be a cause for celebration…for hope…for optimism.

According to Dean Rodolfo Ang of the Ateneo Graduate School of Business, there are over 400 graduates here today who have completed their MBAs or Master in Entrepreneurship.  This is such a rich harvest!

Given the challenges of obtaining a master’s degree… all the graduates, their families, and the Ateneo community…fully deserve praise…and our wholehearted congratulations.

Now, what is in store for our graduates?

Well, ladies and gentlemen…I can tell you that you are stepping up the plate at the right time.

Our country is on track to sustain robust economic growth…even as local and global conditions are fraught with challenges.  If you recall, even with the losses inflicted by natural disasters in 2013, the Philippines still went on to register a GDP growth rate of 7.2%,  the highest in the Southeast Asian region and the second fastest in the whole of Asia.

It was also in 2013 that the Philippines was awarded, for the first time, an investment grade credit rating by the world’s top three credit rating agencies. This is equivalent to a seal of good housekeeping…that the risk of the Philippines defaulting on its loans is remote; they are saying that our country would be able to honor and pay its loan obligations on the strength of its solid macroeconomic fundamentals. In fact, last May, S&P awarded the Philippines with another upgrade, which raised our credit rating by one more notch.

I remember, very clearly, that the environment was not as rosy and promising at the time of my graduation in 1973. That was 41 years ago, when I graduated with an AB Economics degree from the Ateneo de Manila University in Loyola. The breakout of the Arab-Israeli War had triggered sharp increases in energy prices, oil rationing across many countries, and a global recession.

In the Philippines, the oil crisis caused a slowdown in our economy…with Gross Domestic Product or GDP growth rate dipping from 8.9% in 1973 to 3.6% in 1974.  Meanwhile inflation surged from 15.7% in 1973 to nearly 32% in 1974.

This was also the year I decided that as a graduate of economics, the best place for me would be the central bank. And so, I wrote a letter of interest to then Central Bank Governor Gregorio Licaros. Soon after, I moved from SGV and Co. to the Central Bank.

Ten years later …  the economy was in worse shape… Not because of my transfer… but because the country could no longer pay its foreign debts. Against this backdrop, the country experienced the worst combination of high inflation and recession during the period 1983-1984. Inflation skyrocketed from 9.5% in 1983 to an all-time high of 50% in 1984, while GDP growth rate went into negative territory in 1984 when the economy contracted by 7.3%.

The accumulation of foreign debt since the 1970s together with the sharp rise in foreign interest rates in the early 1980s  had made debt servicing unsustainable.  This left the country with no choice but to declare a foreign debt moratorium in October 1983, two months after the assassination of Senator Benigno Aquino, Jr.

With a debt moratorium and a credit freeze as a consequence, the Philippines had to use cash in transacting with the rest of the world. That meant government had to prioritize use of and ration scarce foreign exchange resources, starting with critical items such as food, dairy products and oil.

To address the situation, the central bank negotiated additional standby credit with the International Monetary Fund. This was a crucial first step in clearing the way for debt restructuring with creditor-countries and commercial bank lenders and in securing new loans to cover current foreign exchange requirements.

I was part of the debt negotiation team under then Central Bank Governor Jose B. Fernandez. This is what I can tell you about the negotiations: it was far from easy, involving a tedious and complex process.  It took months of difficult negotiations before agreements were reached with our creditors on our debt restructuring… as well as the grant of fresh credit which they called “new money”.

With credit partially restored and after taking some hard economic measures, our economy started to recover from the debt crisis episode. By the end of 1985, inflation had eased from 50% in 1984 to 22.6 %. Inflation dropped further to one percent…yes one percent… in 1986.  This was the year when we got some respite as our crude oil imports dipped with the easing of international prices.  This was also the year when the historic EDSA People Power Revolution peacefully restored democracy in our country. By end 1986, our GDP was up 3.4%.

A little over a decade later, we had to deal with the fallout from yet another crisis: the 1997-1998 Asian Financial Crisis.  An overvalued currency that encouraged overdependence of unhedged short-term foreign loans and short-term portfolio inflows to finance a growing external current account deficit.  This left the country vulnerable to contagion when the Thai Baht devalued.  As currency speculators withdrew from the region, the value of the peso also plunged.  Just like in 1983, I found myself in the middle of the financial crisis.  During this period, I was in-charge of the BSP Treasury, which was the “face” of the BSP in the foreign exchange market.

The spike in interest rates and ensuing tight credit conditions triggered business closures and defaults on bank loans. The recessionary impact on our economy was immediate: GDP dropped from a 5.2% growth rate in 1997 to a negative 0.6% in 1998.
The next international crisis we had to contend with came a decade after. It started in the United States in 2007…with billions of sub-prime housing loans that went unpaid. Interest rates had increased to levels that made it unaffordable…and unsustainable for many borrowers to pay.

The crisis eventually escalated into a global credit freeze that triggered a debt crisis in credit-dependent institutions and sovereign countries…which had to pay sharply higher interest rates, if…and when…credit was available. Many debtors defaulted on their payments as companies closed, millions lost their jobs along with their purchasing power, and economies contracted from lower global demand for goods and services.

This led major central banks such as the US Federal Reserve, the Bank of England and the European Central Bank to support financial institutions with massive amounts of money…at low interest rates. This was a strategy meant to avoid a financial system meltdown and restart lending  that they hoped would revive their economies.  This is what is called quantitative easing or QE.

By this time, I was into the second year of my first term as central bank governor. Our assessment in the BSP then, was that there was no compelling reason for a policy move as radical as the QE, principally because our continuing structural reforms have strengthened our economy. What the BSP immediately did at the time was to assure the banks that the BSP was ready to provide both dollar and peso liquidity should this be required.  We also adopted other confidence building measures and closely monitored developments abroad, continuously assessing their potential impact on local markets and the overall economy.

When the global market got its bearing back, foreign funds searching for yield became attracted to countries such as the Philippines that offered good growth prospects.  Surges of capital inflows into economies such as ours brought with them their own sets of problems, including the threat of excessive liquidity and financial stability risks from potential asset price bubbles.

Ladies and gentlemen, I have shared some highlights of the saga of our economy…its ups and down…from the point of view of the Bangko Sentral ng Pilipinas… In a manner of speaking, I walked you through Economic History 101  in 15 minutes… This I did, mainly for three reasons:

First, to let you know that our economy provides endless exciting opportunities…and challenges…for persons who wish to contribute in keeping it strong…to achieve sustainable and inclusive growth;

Second, to share what we have learned from the past; and

Third, to describe how we are using these lessons to move our economy forward.

Essentially, we have learned the following:

•    A crisis could come anytime;

•    Crisis triggers could be national, regional or international;

•    360-degree scanning is important to avoid being blindsided and failing to see possible threats…as well as opportunities;

•     There are lessons to be learned from each crisis;

•    The best time to prepare for a crisis is in good times;

•    Patience is a virtue. Good programs such as structural reforms  take time to develop and generate dividends

•    Calibrate response to challenges to maximize results, ensuring prudent use of resources, and to avoid unintended consequences. For example, do not use an axe to swat a fly.

These are not just nice buzzwords… They are real and true every time… Take it from someone who has been a veteran of at least four crises since I left the halls of Loyola Heights!

The THREE PILLARS OF CENTRAL BANKING

At the BSP, we have used the episodes of each crisis to learn and refine the way we conduct our business. Ultimately, ours has become a success story — not perfect…that’s for sure…. but able to deliver where it counts: on our Constitutional mandate.

The most fundamental responsibility of the BSP is its mandate to provide stability to the economy through stable prices as measured by inflation, a sound banking sector, and the reliable payments and settlement system.

Based on these three pillars of central banking, I can say that the Bangko Sentral is delivering on its mandate. Price stability is being achieved, with inflation remaining within our target range of 3 to 5%; the banking system is sound, stable, and able to meet the funding requirements of our economy; and the BSP’s payments and settlements system or PhilPass is safe, reliable and efficient.

Let me elaborate. I hope that after hearing how the central bank works, some of you may be encouraged to join government service through the BSP.

The primary objective of the BSP’s monetary policy is “to promote price stability conducive to a balanced and sustainable growth of the economy.”

Well,  we have enjoyed single-digit inflation in the last 19 years. Prudent and forward-looking monetary policy has helped achieve this.  Last year, inflation was kept low at 3 percent and we expect it to stay within the target range and firmly well within single digit levels this year and over the medium term.  (slide 1 –inflation)

It is important for our people to know that the BSP is firmly committed to promote stable prices. Inflation is a people issue. This is our contract with our people: that we will keep inflation at bay to the best of our ability…through factors that are within our control …. such as  interest rates, money supply and foreign exchange rates.  At the same time, we coordinate  with other agencies responsible for the basic goods and services that the average consumer requires. In addressing price pressure coming from the supply side. We also conduct consumer and business expectation surveys to validate our targets.

Low and stable inflation has allowed the BSP to maintain  policy rates at low and stable rates.  And since banks use the BSP’s policy rates as benchmark, interest rates on loans of banks have also trended lower. This has yielded benefits for consumers, business and the economy.

Our ability to provide stability to the economy has also been enhanced by our deliberate decision to build up our gross international reserves to levels beyond the standard. The standard is to have reserves equivalent to at least three months of imports. Today, our GIR is $81 billion,  enough to cover 11 months ‘worth of imports of goods and services.  In 1973 our GIR was just over $1 billion.  Why did we do this?

Well, the world has changed so much and we have seen how contagion can spread so fast in an interconnected world. In addition, developments in the global economy remain uneven, unpredictable and volatile at times. We are now in what is called the new normal.

In such an environment, a comfortable level of GIR  provides us with buffers that can protect us from possible shocks in the future.   ( slide 2 – line or bar chart of GIR from 1973 to the present with dots to indicate crisis episodes)

With the increase in our internal reserves, we prepaid our loan to the IMF in 2006, finally ending over 40 years of indebtedness to that institution.

The BSP’s resolve to pursue its longer-term reform agenda for our banks has yielded benefits for our economy as well. We have a sound and well-capitalized banking system that is supportive of our growing economy.  Bank assets continue to grow, deposits continue to climb, and loans continue to increase, the bulk of which are directed to production sectors that have strong multiplier effects. (slide 3 –banking system from 73 to the present : assets, equity, loans, and deposits)

Credit rating agencies cite our sound and stable banking system as a credit positive… in giving the Philippines an investment grade status.

Ladies and gentlemen, this became possible because we instituted governance reforms, improved risk management guidelines, and raised required capitalization to align with international standards. In the process of crafting policies and programs, we have been consultative. We discuss proposed reform measures with our stakeholders…because at the end of the day, we want workable and effective programs for our banking industry that will benefit our people and our economy.

The BSP also takes the lead in promoting a safe, sound and efficient payments and settlement infrastructure through PhilPass, our real-time gross settlement system. This has strengthened confidence in our financial system as it has reduced systemic risks from possible huge value payment defaults.  It can be said that PhilPass is one of the reasons why our financial system continues to grow. (slide 4 –PhilPass volume and value since its start).

PhilPass has also played a significant role in lowering bank remittance charges for overseas workers and local users…. by opening up its facilities for remittances at minimum cost. By our estimates, local remittance fees have dropped from about P200-500 per transaction to just fifty pesos…with the accommodation by BSP’s PhilPass.

FINANCIAL INCLUSION

In general, people have the notion  that the BSP deals only with banks and financial institutions. Actually, the BSP is also  developing a more inclusive financial system…. to facilitate improvements in the financial condition of our people down to the grassroots level. We believe it is part of our responsibility to bring the benefits of being part of the formal financial system to our people. It also makes for a more stable banking system.

These programs under our financial inclusion initiative include:

•    A nationwide economic and financial learning program. The objective is to inform, educate and empower our people with basic financial lessons. We believe that having good money habits is a basic skill everyone must have, like reading and writing.

•    We also have a continuing program to strengthen financial consumer protection…to ensure that banks protect and respect consumer rights.

•    We also continue to promote the development of the microfinance sector to help the entrepreneurial but marginalized sector gain access to collateral-free loans they can use for business.

Let me share some of the outcomes of the Bangko Sentral’s financial inclusion program.

First,  we are witnessing a positive change in the way our people save. Three years ago, only 2 out of 10 households had bank deposits. Based on our recent surveys, more households are setting aside funds for saving.  Our challenge is to raise this number further and to find ways to sustain the habit of saving across the country.

For microentrepreneurs, being part of the formal financial system means they gain access to bank loans with interest rates of about 30-35% a year. Now they can leave behind the so-called 5/6 loans that add up to about 1,000% in interest per year. In the process, millions of microentrepreneurs and their families have been lifted from poverty. They have also served as catalysts for development in their communities, generated jobs and have transformed to become net savers.

Our success in microfinance has attracted global attention. A global survey has ranked us first in terms of providing a regulatory environment conducive to the development of microfinance.  We have won this distinction for five years in a row.

Let me also add that BSP has been recognized in other areas.  Last year, the Asian Banker – a leading financial services consultancy –named the BSP the Best Macroeconomic Regulator in the Asia Pacific Region. This year, The Asian Banker awarded the BSP for Best Conduct of Business Regulator in Asia-Pacific… in recognition of our success in building confidence in financial services and markets. The BSP was also recognized by the Netherlands-based Child & Youth Finance International for having the best financial education program for children.

I can also say that we have matured in terms of our engagement in international affairs, where we contribute significant value and perspectives in global policy discussions. This is evident in our active participation…and leadership…in key committees and working groups involving other central banks and global organizations such as the Bank for International Settlements which is the bank of central banks, the Alliance for Financial Inclusion which counts policy makers and NGOs from around the world as members, and the Financial Stability Board Regional Consultative Group for Asia.

In addition, the Bangko Sentral provides technical assistance to other central banks wishing to leverage on our experience and expertise.

APPLYING THE LESSONS LEARNED

Ladies and gentlemen, all these did not happen overnight. These happened because we have learned our lessons well. We have a clear vision of what we want to achieve and how to get there.

In particular, we believe that responsible central banking could only come about if we have a workforce characterized by competence, professionalism, excellence and integrity. It requires modernizing the BSP and supporting it in forming sound policies— through robust organizational structures, and effective management methods. We are committed therefore to an institution that is strong in capacity building.

In this connection, training, education and continuous skills upgrading are a priority at the Bangko Sentral. In fact, we have what we call a BSP Institute that is responsible for meeting the training needs of our people.  We also encourage our staff to pursue graduate degrees, either on their own or under scholarship with the BSP in select local foreign universities.  In many cases, our scholars graduate with distinction or the top of their class. Today, the BSP has more than 1,750  masters degree holders.  This means that roughly one out of three of BSP employees holds a masters degree.

We also encourage and support BSP employees who pursue global certification. At last count, 220 BSPers had  global certifications, including chartered financial analysts, financial risk managers,  certified financial services auditors, certified information system auditors and certified internal auditors.

And early this year, we launched a Mentoring Program to provide a formal framework for our senior managers to share their expertise with our next generation of leaders. Senior executives of the BSP…including Members of the Monetary Board… have volunteered as mentors. I myself have six mentees from the officer corps.

Indeed, continuing training and education is the norm at the BSP. BSPers are always a work in progress. We believe that if we stop learning, we stagnate. We will be left behind in an interconnected world that is so dynamic, constantly shifting and continuously  evolving.

Another important initiative of the BSP for its employees…is the promotion of a healthy lifestyle and work-life balance. To us, this is the  best way to protect our  people –our most important resource. We have a weekly medical forum; our canteens offer healthy menu options; we have lactation rooms; and  our effective campaign to eradicate smoking resulted in back-to-back awards from the Department of Health.  We also have a modest rooftop gym for our employees, which I visit regularly.

WALKING THE TALK

Indeed, it is important that management is seen to walk their talk. There should be no dissonance in what we say…and in what we do. This holds true not only for choosing a healthy lifestyle but also in living out good governance principles at the workplace.

At the Bangko Sentral ng Pilipinas, we have a mantra. It goes this way: “We do not just count the numbers, we make the numbers count. And so, in ordinary times, we build and reinforce; amid challenges, we are resilient, steadfast and decisive; in success, we celebrate and resolve to do even better.”

At the Bangko Sentral, we value patriotism, integrity, excellence, dynamism and solidarity.  These are the values that underpin our work ethic at the BSP.

We saw this in the way BSPers kept operations going…in the midst of armed conflict in Zamboanga, and the natural disasters in the cities of Tacloban, Cebu and Roxas.

In Zamboanga, our people had to dodge bullets to get to work and even while working inside the BSP branch.  Rebel forces captured one of our guards on his way to work. On the same day, he found a way to escape and immediately reported for work. He stayed on with the rest of the security team to secure the BSP branch until the conflict was resolved.

The same thing happened in Leyte. Our people stayed on at the BSP office for the duration of the typhoon. They know how important it is to ensure BSP’s continuous operation.  The availability of currency helped provide immediate relief to alleviate conditions in these areas.

And then we have excellent and courageous field bank examiners whose integrity could not be shaken even under threat of physical harm and legal challenge. I could go on, and on.

I simply want to say that like many public servants across government, BSPers serve our country and our people with integrity, dedication and passion.

Ladies and gentlemen, they make me proud to be a BSPer… to be in government. This is one of the answers I give whenever I am asked this recurring question: why am I a government employee?  I have even been teased quite a number of times that my annual salary does not even come close to the taxes paid by some bank presidents here. That is true; but this…is MY choice.
Here at the Ateneo, we are taught…and we learn…to serve with excellence, with integrity, and to become a man for others. This is as it should be. Always, there is room for everyone to help and serve others, whether they are in government or in the private sector. By helping each other, by being the best you can be in your respective careers, all of us here today can contribute to making life better for Filipinos. Together, we can do our share in programs that ensure long-term growth for our economy…growth that is balanced, sustainable and inclusive.

We can do this because we have learned from the past…and we have the momentum.

THE FUTURE

Moving forward, what does the future hold for us?

Well, our economy has been growing uninterruptedly for the past 61 quarters. And in the past few years, the Philippine economy has been enjoying a good convergence of higher economic growth, stable prices and a sounder fiscal position. This is likely to continue even as growth projections are being tempered on account of recent developments.

For sure, there will be speed bumps along the way. Nevertheless, our economy’s underpinnings are sturdier and broader to withstand adverse factors — domestic or global, economic or otherwise. In other words, the Philippine economy is in stronger form to sail even in turbulent weather.

The Philippine economic narrative therefore works in your favor as post-graduate students. In addition, the forthcoming integration of ASEAN economies…where 600 million people live…presents new opportunities. I know you will endeavor to make the most of these opportunities.

Dear graduates. I have been working for 41 years now, 40 of which I have spent with the central bank. If you don’t mind, I would like to offer you some advice.

First, make excellence the standard for everything that you do. As a wise man once said, we should autograph our work with quality…at all times…even if our name is not on it.

Second, integrity is a fixed element; it is always consistent; it is non-negotiable. My advice, never compromise your integrity. They say that the proof of a man’s integrity is if he would do the same things in the dark of night, as he would in the light of day. At the workplace, that means being diligent, honest, and aboveboard in all your dealings.

Third, to make sure that you are on the right path, consult your ultimate barometer: …  your conscience.  George Washington once advised:  “Labor to keep alive in your breast that little spark of celestial fire called conscience.”

Fourth, continue to seek to be educated, both within and away from the confines of the Ateneo.  Learning is never static; it is a dynamic process that occurs in a continuum. As Nelson Mandela said, education is most powerful weapon for change. Keep your mind fertile with ideas. Be open to rethink the old ways, the conventional ways, the comfortable ways.  This will help you in your future roles, whether in public service or in the private sector.

Finally, hold true to the Ignatian way of honest hard work for the greater glory of God. In this manner, your service—in whatever profession or career, no matter how humble or how high—will have a profound resonance in your life and the lives of others. Be a positive force multiplier for meaningful positive change to help unlock the potential for growth and leave a solid footprint for the next generations.

At this point, I wish to take this opportunity to thank once again, the Ateneo, its faculty and staff, and the members of the Society of Jesus for preparing me well for the life I live.  Combined with the way my parents brought me up with my 8 brothers and sisters, I was in good hands, both literally and figuratively.  I am also forever grateful that all the members of my family are steeped in the values of St. Ignatius – having studied here in Loyola – my wife, my son Patrick, and my two daughters Eula and Mia.  Maraming salamat sa inyo.

Again, I congratulate you our graduates, your families and the Ateneo community for the successful collaboration that has yielded this biggest batch ever under the Ateneo Graduate School of Business.

Thank you all for your attention.

“Ad majorem Dei gloriam.”