Governor Gollum

The new Bangko Sentral ng Pilipinas (BSP) governor, whom the care and worry of public service has aged so that he charmingly resembles Sméagol (in his Gollum phase), looked not only pleased, but relieved, he’s been kicked upstairs. The President, too, looked bemused and happy as he shook Governor Gollum’s hand at the end of Monday’s Cabinet meeting.

The Great Eagle Father looking bemused possibly stems from Benjamin Diokno’s relief at being relieved of the Department of Budget and Management portfolio without it looking like a defeat. He’s been a whipped man since the time he and the rest of the President’s economic team were summoned to the Batasan to be lectured by Speaker Gloria Macapagal Arroyo, to the continuing konfrontasi between Arroyo’s deputy speakers about the budget.

The happy part likely stems from Gollum now having supervision of the Anti-Money Laundering Council (AMLC). Gadflies like Antonio Trillanes IV buzz too much about bank accounts; no one can doubt the AMLC won’t be leaking in any way, shape, or form, under the new governorship.

The bluntest comment came from an emerging-market currency trader at Mizuho Bank Ltd. in Tokyo, Masakatsu Fukaya: “It is seen negative in view of the central bank’s independence as the new governor was selected from the government side,” he told Bloomberg.

Native observers contacted by Bloomberg for comment were, of course, cautiously optimistic. It does no one, domestically, to burn bridges on the first day of a new regime. The most one would go was when Jonathan Ravelas (chief market strategist at BDO Unibank Inc. in Manila) suggested, “The challenge he faces is assure investors that the central bank will stay independent and faithful to its critical role that it is the glue holding the economy together.”

Although he “is leaving the Department of Budget and Management at a time with somewhat of an uncertain outlook for spending,” the reason for the cautious optimism came from Christian de Guzman (vice president at Moody’s Investors Service in Singapore): the Monetary Board is there. “BSP’s monetary decisions are not reflective of one single person. Monetary policy is dictated by the board and as far as we know the broad membership remains intact apart from the change in the governor,” he told Bloomberg.

Governor Gollum himself texted his words of quiet triumph to the press: “Price stability is one goal of BSP. Financial stability is the other one. But it’s more than that,” texted he, savoring the opportunity to pull his new rank on his former naysayers: “BSP’s role is to ensure steady, strong growth. In order to achieve this, monetary policy has to be in sync with fiscal policy.” This of course sends the first policy signal to the Monetary Board, the analysts and reporters.

HSBC economist Noelan Arbis has blandly summarized this statement of intent as a “progrowth bias,” adding, “It seems Secretary Diokno is going to be focusing a little more on growth.” This suggests, Arbis added, “he could cut the reserve ratio requirement for banks within the year.” So, if the BSP had concentrated on tightening supply to soak up money and slow inflation, the Gollum-led BSP would now (depending on whether the Monetary Board agrees and reins him in or not) decide to make easy money the name of the game.

As summarized by Bloomberg, Manny Cruz (head of research at Papa Securities Corp. in Manila) disagrees that cutting reserve requirements is in the cards. “Diokno has consistently communicated as budget secretary that his primary aim is to boost economic growth, keep the Philippines on higher growth path and that high inflation is tolerable as long as the economy is growing correspondingly.” A direct quote: “We have a governor who is probably more aggressive than the other contenders when it comes to cutting interest rates. His presence raises the possibility of interest-rate cuts, particularly if inflation slows to below 3 percent,” explaining to Bloomberg that a rate reduction will have a quicker effect in boosting economic growth.

Our famously laissez-faire (about anything other than liquidations) Chief Executive, knows what matters. The AMLC is in good hands. Well into the next term.

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