By Carlo Sarino
The Bangko Sentral ng Pilipinas (BSP) is the institution responsible for the monetary policy implemented in the country. It was established on the 3rd of July, 1993, pursuant to the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993. The BSP took over from the Central Bank of Philippines, which was established on the 3rd of January, 1943, as the country’s central monetary authority. The bank actually has a simple structure, but with many departments underneath. The Monetary Board sits at the top, and consists of seven members appointed by the President of the Philippines.
Their main tasks include the following: to issue rules and regulations, to adopt an annual budget, and to handle other administrative tasks and needs. The current chairman of the board is Governor Amando M. Tetangco, Jr., who serves as the principal representative of the Monetary Board. Under the Monetary Board, there are four main sectors, namely: Monetary Stability, Supervision and Examination, Resource Management, and the Security Plant Complex. The Monetary Stability Sector includes departments which handle economic research, international relations, and regional monetary affairs. The Supervision and Examination Sector is in charge of financial advocacy, evaluation of requests from banks, examination of risk exposure, and many other services which cater to the needs of the local banks and financial institutions. The Resource Management Sector includes departments which handle crisis management, human resources management, accounting and bookkeeping, provident fund management, and IT services. Lastly, the Security Plan Complex is in charge with banknote printing and coin minting operations.
The BSP practices inflation targeting, under the notion that stable price levels will lead to a more balanced and sustainable economic growth. The central bank has actually been at a loss for the first 11 months of last year, with total losses amounting to ₱86.31 billion, due to its operations to control peso appreciation. This is due to the main mandate of the BSP, which is not for profit but stabilization. However, certain theoretical and empirical literature still supports the idea of inflation targeting. Research by the International Monetary Fund (IMF) has shown that inflation targeting is associated with lower inflation and has no adverse effects on output or interest rate volatility. Further research by the IMF has shown that inflation targeting seems more effective in emerging economies like the Philippines.
On the other hand, with respect to management and decision-making, the country’s central bank practices (instrument) independence, but it does not have goal independence since the inflation objective is set by the government. An inter-agency body called the Development Budget Coordinating Committee sets the annual government goals for macroeconomic variables, like gross national income and gross national product growth rates. This same body sets the inflation target in consultation with the BSP.
“Without operational independence, central banks may employ sub-optimal policies that could result in higher inflation, reducing the purchasing power of every economic agent, particularly the poor,” says Diwa C. Guinigundo, BSP Deputy Governor, in response to an e-mail interview.
Despite the aura of autonomy, there still had been cooperative efforts between the BSP and the government in history. An example of this would be in 1986—when the Central Bank of the Philippines still stood—where monetary policy turned more accommodative to support the government’s newly-installed Economic Recovery Program to provide ample liquidity to finance the country’s production and investment projects, under the administration of former President Corazon ‘Cory’ Aquino. It is worth noting, however, that the BSP has been practicing monetary policy without much political pressure since it became independent in 1993.
Bangko Sentral ng Pilipinas. “About the Bank.” Official Website of the Banko Sentral ng Pilipinas. BSP, 2010. Web. 5 Mar. 2013.
Guinigundo, Diwa C. E-mail Interview. 5 Mar, 2013.
Magtulis, Prinz B. “BSP Losses Hit P86.31 B.” The Philippine Star. Web. 5 Mar. 2013.