Second most important post?

This is not about the embattled vice presidency, the second highest elective post in the land, certainly of critical importance being “only a heartbeat from the presidency.” Rather, it’s about leadership of the country’s central bank, an extremely critical responsibility in modern economies, whose fortunes hinge heavily on how well the economy’s lifeblood, the monetary sector, is managed. The chair of the United States Federal Reserve Bank is often described as that country’s second most powerful person, for good reason. Many believe that the US Fed chair’s decisions could have even more far-reaching impact on people’s lives worldwide than those of the US president.

Next year, Amando “Say” M. Tetangco Jr. completes his second term as governor of the Bangko Sentral ng Pilipinas (BSP). Few would dispute that the Philippines owes much of the stability and dynamic performance of its economy over the past decade to his excellent stewardship of the country’s central bank. For this, internationally respected Global Finance magazine counts him among the elite group of the world’s best central bankers, rating him “A” for the eighth time in his nearly 12-year tenure (besting US Federal Reserve Bank chair Janet Yellen, who was rated “A-minus”).

I attribute Say Tetangco’s exemplary performance to his being an economist by training. With an AB Economics  (cum laude) from Ateneo de Manila University and an MA in Public Policy and Administration in Development Economics from the University of Wisconsin, he was of a different mold from his mostly banker-predecessors. His economist background gives him the holistic perspective needed to understand the full implications of directions he pursues in steering the country’s monetary policy, which is all about determining the supply of money circulating in the economy.

“(My job) is one of balancing the many competing interests in the economy affected by BSP policy,” Tetangco once explained in an interview, noting that in monetary policy, borrowers want interest rates low, while savers want them high. “The BSP must find the appropriate level that would be reasonable so that borrowers can borrow to prop business expansion and savers are enticed to put money into banks and alternative sources of saving/investment.” On the exchange rate: “Exporters and families of overseas Filipino workers want (it) high, while importers and those with debts in foreign currencies want it low. We can’t cater to specific sectors, so we make sure the peso remains market-determined and relatively competitive, with volatility of its movements low.” He sees the BSP’s role as ensuring stability, buying and selling foreign exchange mainly to iron out disruptive violent currency movements.

Managing money supply, with the primary aim of keeping prices stable, is any central bank’s basic function. It is also lender of last resort to both banks and the government. Extending discounts, loans and advances to banks is one way it influences money supply in the economy. Its supervision of banks and quasi-banking entities aims to ensure stability in the financial system. It also manages foreign currency reserves to maintain sufficient levels to meet anticipated requirements and preserve the international stability and convertibility of the currency. In so doing, it determines an exchange rate policy that would provide the greatest good for the greatest number.

All these require the skills and intuition of a trained economist, not just a banker. Indeed, the central bank head would best not have any previous ties to commercial banks, to be free from possible influence by vested interests. For this reason, the US Federal Reserve Bank’s chair has consistently been drawn from among the country’s respected economists. That is why Tetangco has served us so well. I thus heartily endorse the reported wish of President Duterte to have him continue steering the BSP for yet another term—and amend the BSP Law accordingly to pave the way.

Our second most important post? Maybe not, but I’m convinced the BSP governorship is the most critical appointment President Duterte will make.

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