This speech was delivered by Aurelio Montinola III, Bank of the Philippine Islands CEO and president, at the Mid-Year Economic Briefing 2012 on 17 September 2012 at the Philippine International Convention Center (PICC).
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Governor Amando Tetangco,Jr, Honorable Secretary Cesar Purisima,
Distinguished Cabinet Secretaries, colleagues in the Business Sector,
Ladies and Gentlemen,
Rather than comment on a specific sector, I shall make broad remarks on Global and Local Issues.
Despite major challenges in the world –
For the US , anti American riots in the Arab world, bitterly contested
November elections, QE 3 and a fiscal cliff soon after
For Europe, continuing discussion about More or Less Europe, an expanded European Central Bank, unclear political will, and still sky-high youth unemployment For China, slowing growth, political change, and xenophobia over disputed
islands For India, a growth rate now slightly below the Philippines
Thankfully, the Philippines is in a sweet spot – great economics, vastly improved external competitiveness, good international press, and consistently high public satisfaction ratings for government officials who walk the talk in a, as your theme says today, “Good governance is Good Economics” program.
Philippine banks are healthy, will continue to lend, and will continue to lend at low interest rates. Depending on which side you are, the FX rate around P 42 appears close to, as the Governor puts it, a “market oriented exchange regime” . In fact, the BSP has been ably walking a tightrope of stifling foreign investments in local SDAs while keeping an internationally welcome “no capital controls” policy.
Therefore, after two good years of the Aquino administration, the key question has now become “Is this virtuous cycle sustainable.?”
Is the former “Sick Man of Asia” not only healed but going strong, with the second best economy in the ASEAN? Can it potentially become a triathlete?
From countries formerly called the “PIT”, are we now increasingly a major part of the investors “TIP” (Turkey, Indonesia, Philippines)?
The President’s Social Contract with the Filipino people focusing on a
Philippine Development Plan for 2011 – 2016 is a good start. I particularly like the 1 million employment generation per year , the 2 pct deficit to GDP ratio by 2013, and an investment grade sovereign rating by 2016 ( frankly I think we can get there by end 2013 or mid 2014).
Before we get carried away with too much self praise, we must realize that collectively we still have a lot of work to do to stay the course of Good Economics via Good Governance.
As President Pnoy put it, he prefers to see the glass full rather than half empty – it is our collective job to make sure we move it to three fourths full so there is no debate about where we are.
To do this, I submit that we must focus on Inclusive Growth, Job Creation, and Ease of Doing Business ( which by the way is still the second worst score in our Competitiveness ranking, right after Corruption – in fairness, there have been improvements in both scores).
I therefore agree with the 5 key priorities – electronics manufacturing, agriculture and fisheries development, business process outsourcing, tourism development, and General Infrastructure – highlighted by the Economic Team.
Over the short term, we should focus on BPOs, Tourism and General
Infrastructure.
Our first good wave was Remittances, which now brings in $ 20 b but exports our workers to places where they can get better jobs. At some point, the global economic slowdown or political events in the Midlle East may force some to go back to the Philippines.
The second wave has been our much touted BPO industry, which Benedict Hernandez has just ably spoken about. What impresses me more than the $ 11b inflows (plus promise of $25 b by 2016) are the 640 k jobs (and hopefully 1.3 million direct and 3.2 million indirect jobs by 2016).
Let’s hope that our third wave is Tourism, as this has the potential to
double or triple in $ inflow over the next 5- 10 years, and more
importantly, create all sorts of jobs in the countryside. Of interest is
expanding secondary international airports in a PPP fashion, implementing mandatory accreditation for quality control, and improving the safety and security measures for tourists for perception and reality reasons.
General Infrastructure comes hand in hand with Tourism, energy savings, and ease of travel reasons. PPP approvals should continue, and all the connector road or light rail projects should be prioritized.
Infrastructure projects create immediate low skill jobs, and this will be
helpful in the job generation target.
Over the medium term, we should focus on Electronics and Light
Manufacturing, as well as agriculture and fisheries.
Manufacturing provides the most number of jobs, and we should start getting back what we lost to China in the late 90s post Asian crisis era when their labor and input costs were considerably superior to ours. Today, their labor cost advantage has disappeared, and we should be soliciting foreign and local direct investment in the manufacturing space. Our well run PEZA is the most natural destination for foreign direct investment, but small
scale light manufacturing anywhere should also be welcomed.
Agriculture and fisheries always seem complicated, but I submit that we only need two major government interventions – better government driven irrigation systems as well as a modification of the Agrarian Reform law which discourages banks from taking agrarian land as collateral, hence limiting considerably cheaper bank financing for farmers. Today’s good news is that the House has just approved a 21 pct increase in budget to P 74 b for agriculture.
Allow me to close with two final comments
Education – Thankfully, the government realizes that better education – higher budget funding for more teachers and more classrooms, moving to a K to 12 system, and supporting Continuous Learning initiatives at the workforce level – will be the key to influence productivity and competitiveness rankings for our long term future. However, I understand that the K to 12 policy has not actually been passed into law, and so any help from Congress in that area will be appreciated.
Finance and Banking – Thankfully, we have for now escaped the travails of foreign banks in the developed world. Whereas in the past, governments and banks used to evaluate corporations for financial strength, now it is the multinational corporations worrying about interconnected governments shaky sovereign debt and banks large holdings in sovereign debt.
Fortunately in the Philippines, all three sectors – the Government, the banks, and the corporations are doing well.
As the Governor and I said earlier, Philippine banks today are well
capitalized, have good loan growth, low non performing loans, improved risk management systems,and good profitability. Therefore, rather than being a taxpayer burden, Philippine banks fulfill Banking’s traditional mission of taking deposits and then on lending these in a value added business growth manner.
Put another way, and paraphrasing the main theme , we can say
“Healthy banking supports good economics.”
Thank you, and good morning.
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Source: Investor Relations Office
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