Espenilla and central banking

posted May 10, 2017 at 12:01 am
by  Tony Lopez

Nestor  “Nesting” Espenilla Jr. is the next or 11th governor of the Bangko Sentral ng Pilipinas or central bank, succeeding the much-appreciated Amando M. Tetangco Jr. who served two consecutive terms.

To me, Nesting Espenilla at the helm of the Philippine central bank is both good news and bad news.

First the good news.   Espenilla, 58 and a father of three,  has both competence and experience.  He is an economist.  He finished business economics at the University of the Philippines, magna cum laude, in 1981, MBA, with honors, also at UP, in 1982, and an MS in policy science from the Graduate Institute of Policy Science (GRIPS) in Tokyo, Japan, in 1988.   The central bank is his first-ever and only employer, he having joined the institution after graduation in 1981.  That’s 36 years of experience. He worked in Economic Research, International Operations, and in the Office of the Governor. He was seconded to the IMF in 1990-1992.

Espenilla is currently the BSP deputy governor for banking supervision, and concurrently, the governor’s representative in the powerful Anti-Money Laundering Council which disclosed the late Chief Justice Renato Corona’s alleged secret bank accounts that led to his impeachment, ouster, and eventually to a fatal heart attack in April 2016.  The AMLC or AMLA also refused to disclose Senator Leila de Lima alleged bank deposits linked top drug lords and was used to link then presidential candidate Rodrigo Roa Duterte to hidden wealth or bank accounts which prompted him to denounce the Council, demand the resignation of its top officers, and incur his eternal emnity against its men and women.  Duterte’s anger led to the resignation of AMLC’s executive director.

Now for the bad news.  As the BSP’s top honcho in charge of bank supervision, Espenilla was perceived by businessmen as very strict, thus hampering the greater flow of bank loans to business and a greater growth of the economy.   Also, as the  successor, the new governor is expected to continue the Tetangco’s policies and programs.  True, Say Tetangco was cited among the world’s best central governors at least eight times.  He even became the Management Man of the Year by the Management Association of the Philippines.  (Five central bank governors became Management Men of the Year, whether they did badly or not.)

I find Tetangco rather conservative as the head of the country’s central monetary authority.  Like his predecessors, the governor was fixated on just three things—controlling the inflation rate, stabilizing the peso-dollar rate, and managing money supply.    That narrow focus meant less money that could have gone to boost economic development.   Instead of growing by just 5 to 6 percent as it had done in the past 18 years, the economy could have easily expanded by 8 to 9 percent per year had more money been made available to the system.  

Did you know that as much as P3 trillion of excess deposits of private banks are parked with the Bangko Sentral?   Did you know that as much as 30 percent or P5 trillion of the country’s GDP or value of economic output of P15 trillion is in the form of savings?    Did you know that under normal banking rules, you can leverage your equity—or deposits or savings—by as much as eight times (what bankers call the gearing ratio) to pump-prime the economy?  Every peso of deposit could be lent eight times.   One peso can generate eight pesos of output.

What has been the effect of that conservatism?  The economy grew but it made the rich richer and the poor poorer.    Growth did not trickle down to the poor.  That is why in the last 30 years, poverty, instead of being reduced, has remained stagnant at 25 percent of the population.  The government later claimed poverty incidence is now only 21 percent.

If our central bank is that good and it is among the oldest central banks in Asia, how can you explain the fact that in Asean, with the possible exception of Indonesia, the Philippines has the highest inflation rate, the highest interest rates, the highest unemployment, the highest poverty incidence, and the lowest foreign investment inflow?     Did you know that a third of the country’s 1,500 towns do not have a bank branch?  Did you know that more than 50 million Filipinos do not have a bank account?

How else can one measure the effectiveness of central banking except on how its programs and policies have benefited the greater mass of our people?  A central bank exists for the majority of the people.  Not for the few who are very rich.

You cannot blame Tetangco and his cohorts for their ultra conservatism.   In 1993, the central bank changed is policy focus.  It is merely to watch the inflation rate, the peso-dollar rate, and the volume of money supply.  This makes the CB governor nothing more than a glamorized watchman, making day out of night, and night out of day.  And it was called hard work.

When the original Philippines central bank was born in June 1948, it had three primary functions—maintain monetary stability, preserve the international value of the peso, and promote a rising level of production, employment, and real income.

Plainly, the central bank is supposed to boost economic production or GDP, boost employment, and boost wages, net of inflation.  That is what is called development banking.  I remember the late Central Bank Governor Gregorio Licaros.  In 1972, there was a big flood in Central Luzon because Lingayen Gulf and Manila Bay had a date in Luzon’s vast central plains.  Luzon was devastated.  What did Licaros do?  He unleashed P200 million to revive Central Luzon.

Maybe, there is a connection.  With the old central bank, the Philippines became the second-richest country in Asia.   Today, with our BSP, the Philippines is being whip-lashed in the economic race by newly emerging tiger countries like Singapore, Malaysia, Thailand,  Indonesia, Vietnam and even lately, Cambodia—countries which were not even independent states when our central bank was founded in 1948.


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Topics: Tony Lopez , Nestor “Nesting” Espenilla Jr. , Bangko Sentral ng Pilipinas , central bank governor , Amando M. Tetangco Jr.
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