Governor Tetangco’s legacy

In five months, Bangko Sentral Governor Amando “Say” Tetangco bows out from a sterling stewardship of the monetary body with numerous firsts for the country and to name a few: the paying off of the Philippines’s loan to the International Monetary Fund and its subsequent role as lender ($1 billion), the huge reserves of $80 billion equivalent to 10.5 months of imports, and its pre-emptive and forward-looking monetary policy

That pre-emptive and forward-looking monetary policy is what the Bangko Sentral has been putting to good use, and to give a perspective on the depth of Tetangco’s understanding of the country’s monetary history is the way the inflation has been tamed. In May 2007, for instance, the BSP approved a one-percent increase in the reserve rate, in the process sterilizing about P60 billion in bank vaults, excess money that could have stoked inflation.

And then there were the special deposit accounts that the BSP offered to the banking institutions so that they may park their money with the monetary authority in exchange for a marginally higher interest rate. And later on, the BSP controlled the SDA fund inflows.

Thus, when Tetangco ticked off before the Tuesday Club the challenges that the country faces and the BSP’s possible thrusts to contain any financial risk in whatever form they may arise, one could see an impish smile a-forming from the BSP chief as he pronounced the “nimble” steps the BSP put in place.

Later on, he told me that the BSP has been churning out possible scenarios that could arise should a global economic event come up. Scenario building is what prepares the BSP in its main thrust to ensure price stability and toward this end, even the local banking system is made part of the scenario-building exercises.

Somehow, Tetangco’s legacy is intertwined with his firm grasp of the country’s monetary history such that he could rely on cataclysmic events in the past that needed to be nimbly sidestepped by the Bangko Sentral when similar events threaten to crop up in the horizon.

Why, when that crucial one-percentage increase in the reserve rate was put in place, the country was saved the possibility of an asset bubble eight years ago. For perspective, one only needs to look at the Monetary Board explanation as it noted “the likelihood of a continued acceleration in liquidity growth could feed into asset market frothiness given continued strong credit growth,” which translates to the need to curb money supply.

Tetangco has a historical perspective on central banking, essaying “The Macroeconomic Perspective” that discussed the pitfalls of adopting one monetary or fiscal tool in the course of the Philippines’s economic history.

That is what Tetangco brought to the BSP: a wealth of experience and uncanny ability at reading the economic developments and what possible tools to use given his scholarship on what transpired in the country’s central banking history. Thus, with the recent market crash in China, the decline in crude-oil prices, the European economic woes and even a blip in other economic numbers, Tetangco made reassuring remarks about the aerodynamic stability of the Philippines.

The optimism that Tetangco exuded is due to the BSP simulations that the monetary authority churns out so that it remains a step ahead of the game. This is why Tetangco has always been cited by his peers for his able handling of the BSP such that he is considered one of the top five central bank governors in the world.

With $80 billion in bank reserves, Tetangco has already eclipsed the legacy of the late Central Bank Governor Gregorio Licaros, under whose stewardship Tetangco started as an economic researcher. When we asked Licaros about his most notable achievement during his watch, as he was about to step down, he pointed to the reserve level at that time of $200 million.

But more than the reserve level, Tetangco could always look toward the time when the Bangko Sentral prepaid its over $200 million in loans to the International Monetary Fund, that ended the country’s 40 plus years of tutelage under the multilateral institution.

And then there was that notable economic event that happened when the Bangko Sentral reversed its role and became a net lender of $1 billion. That, by far, is a compelling narrative about Tetangco’s stewardship of the BSP, and to say that it is an enduring legacy is an understatement.