Independent BSP chief needed
President Marcos is about to make what is arguably the most important economic appointment of his presidency, potentially more important than choosing his finance secretary. And that is choosing the person who will steer the Bangko Sentral ng Pilipinas (BSP) — and, in the process, help determine the value of the money in the wallets of all Filipinos — for the next six years.
With the legally mandated term of the current central bank head set to end on July 3, ahead of Mr. Marcos’ second State of the Nation Address, the Chief Executive must contend with aggressive lobbying both from inside and outside his official family.
But as he weighs the qualifications of each candidate and the clout of whoever is backing each prospective governor, the President would do well to remember that the job of the central bank is to “take away the punch bowl just as the party gets going’’ as prescribed by William McChesney Martin Jr. who was at the helm of the United States Federal Reserve from 1951 to 1970 — the longest serving chief of the most powerful monetary regulator in the world.
What he meant was that central bankers’ key role in any modern economy is to protect citizens’ purchasing power, that is, to help safeguard the value of the money in citizens’ wallets, even to the point of reining in economic growth which, when left unchecked, feeds inflation.
For this to happen — for the central bank to play its role of moderating the government’s tendency toward fiscal excess—the BSP and its leadership must remain independent from the executive branch.
This is the seed of a lasting legacy Mr. Marcos can plant this early in his presidency: To ensure the independence of the central bank from fiscal and political interference.
To his credit, outgoing BSP Governor Felipe Medalla exhibited much of this desired trait when he made it his mission to restore the independence of the BSP, which had been eroded during the previous administration.
Medalla also exhibited another desirable trait among central bankers: transparency — transparency in communicating his preferred policy direction, so that the public can plot their financial future with a clear understanding of where the economy is heading. (Unfortunately for him, he may have scuppered his own chance of getting reappointed by being too transparent with his concerns about the early version of the Maharlika Investment Fund, which was a commendable act but which apparently displeased the proponents of the controversial measure.)
Meanwhile, Finance Secretary Benjamin Diokno’s advice to the President to exclude bankers from the list of candidates is understandable. Diokno reportedly said in an interview that he preferred an economist as the next BSP governor, saying that a banker would mean “you will be one of the boys.”
But being a banker should not be a disqualification. In fact, three of the Philippines’ most successful central bank governors—Jose Fernandez Jr., Gabriel Singson, and Rafael Buenaventura—were bankers. And all three excelled in times of crisis.
Diokno may not have been a banker, but during his successful and abbreviated stint as central bank head, he actively engaged with bankers and sought their counsel and inputs on where best to steer the country’s financial system, adopting many of their prescriptions, including on monetary policy. A banker would have done no differently.
Amid the barrage of advice and recommendations Mr. Marcos is likely receiving in selecting the country’s next central bank chief, the President must choose a person who will act counterintuitively and countercyclically. Yes, appoint a governor who will lower interest rates when the economy is weak but, more importantly, who will raise them when the economy is strong—one who will “take away the punch bowl” before everyone gets drunk with the good times and end up making fools of themselves. In other words, appoint an adult in the room who will have his own mind, rather than bend to the will of your subalterns.
The very first line of the law that created the BSP in 1993 reads: “The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking, and credit.”
The New Central Bank Act further says: “The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and sustainable growth of the economy and employment.”
The framers of the law understood that the central bank cannot be effective in protecting the value of the peso—in helping assure that Filipinos can continue to afford basic goods and services—if they are subservient to the appointing authority or their political backers who value headline-grabbing economic growth over boring inflation statistics.
An independent central bank is essential. And a central bank governor independent of padrinos is the key.
