Medalla the BSP governor

Among all the 14 governors of the central bank of the Philippines, from 1949 to the present, No. 13, Felipe Medalla, had the shortest stint, just one year, from June 30, 2022 to July 2, 2023.

Yet, the former economics professor Philip’s stewardship as head of the Bangko Sentral ng Pilipinas (BSP) has had an incredible and indelible impact on many of us, today and in the coming years.

I spent more than ten hours in two sessions in two weeks interviewing Philip after he became governor during the third quarter of 2022.

He has an independent streak and manages to call a spade a spade every time, although often using some fancy language only economists of his caliber understand.

Philip’s independence of mind is probably one reason why he was not reappointed to a regular full six-year term of a BSP governor when the remaining one year of Ben Diokno’s term expired July 3, 2023.

Philip had reservations about the Maharlika Investment Fund, a pet project of PBBM and Diokno, until it became “more acceptable” to him. Philip had frowned on the use of the country’s foreign reserves to fund Maharlika.

Named BSP governor by President Duterte on March 4, 2019 to succeed Nestor Espenilla who died, Ben became finance secretary under President Bongbong Marcos Jr. on June 30, 2022. Ben recommended Philip to BBM as his successor at the central bank. Philip had been a member of the Monetary Board, BSP’s policy-making body, for 11 years, before becoming the 13th governor.

Immediately, Philip went to work reviving an economy battered by two years of COVID, four months of the Russia-Ukraine war, severe food and energy shortages, a 40-year-high US inflation and a five-year-high Philippine inflation.

The results of Governor Philip’s bold actions were immediate – on three fronts: price stability, the banking system and on the payments system.

On July 3, 2023 as he bade farewell to his BSPers, he summed up the results of his work. He said:

“We managed to ensure the uninterrupted supply of money across our country, kept the banking system strong and stable, made our financial system even more inclusive, battled record-high inflation – by the way, at the rate it is going, 18 straight months of above-target inflation,  three months longer than the previous record – and helped provide stability to our economy.”

On price stability, “2022 was a year like no other. It was a very difficult year,” recalled Philip, noting “we encountered unprecedented challenges over which the BSP has little control. Of course, we call them supply shocks. Supply chain disruptions, here and overseas, triggered price hikes in basic commodities, transport and other services.”

“We had to act decisively,” he related. “And we did. The BSP raised the policy rates by a total of 350 basis points (bps), on top of the 75 bps already taken before I became governor.

“We also sold foreign exchange (forex) as necessary. By the way, this has now become standard language in the IMF [International Monetary Fund]. They used not to like it. It even has an acronym, ‘FXI,’ [which stands for] foreign exchange intervention. In the old days, the IMF frowned on all these things.

“We communicated our policy actions and explained why we were doing them through forward guidance.  Combined with non-monetary measures, our actions helped reduce second-round effects and re-anchor inflationary expectations. We have already brought inflation to a target-consistent path, operationally defined as within 2.0-4.0 percent.”

Unless there are new shocks, Philip now says, “we should see inflation below 4.0 percent before the end of this year. This is something to look forward to and, to pray for – that there will be no more large shocks. Of course, as they say, anything that can happen can happen, but anything you pray for, you hope to happen.”

Meanwhile, after depreciating year-to-date from January to October 2022 to a record low of P59.0 to US$1, the peso has since appreciated against the dollar, closing on 30 June 2023 at P55.2 to US$1. “The exchange rate does not matter until it does,” noted Philip.  “Unfortunately, that time came. It did matter quite a bit.”

Governor Philip also helped the banking system remain steady and strong.  “On account of our continuing reforms, our banks are strong, stable, well-capitalized, highly liquid and well-governed. Thus, our banks have remained a source of strength and support to our local economy and [facilitated] a strong recovery right after the restrictions on mobility were lifted.”

The Philippine banking system has P23.1 trillion in assets, the same amount as the GDP as of third quarter 2023.

Relishes Philip: “Today, the BSP has the flexibility and policy space to preserve its two pillars of price and financial stability without needing to sacrifice one for the other.”

Finally, “we continue to make good progress on our third pillar of providing a safe, secure and efficient payments and settlements system,” Philip reported.

About 42.1 percent of retail payments in 2022 were already digital. “This puts us on track to achieve our target of digitalizing half of domestic retail payments by the end of this year.”

On top of that, Philip brags, “we now have been given the power to strengthen consumer protection alongside widespread digitalization. We have produced circulars in line with the implementation of the Financial Products and Services Consumer Protection Act. By the way, for those who are not familiar, we actually have a little court here in the BSP that settles [consumer] disputes.”

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