SYSTEMIC RISKS. Bangko Sentral ng Pilipinas (BSP) Senior Assistant Governor Johnny Noe Ravalo (leftmost) highlights the need for flexible measures to be implemented by regulators across Asia to limit systemic risks amid the current economic situation during the International Conference on Financial Stability hosted by the BSP and the International (IMF) in Mactan, Cebu on Monday (May 15, 2023). With Ravalo are (from left) Financial Stability Board Chairman Dr. Klaas Knot, BSP Governor Felipe M. Medalla, Bank of Thailand Deputy Governor Ronadol Numnonda, and Ayala Corporation President and Chief Executive Officer Cezar P. Consing. (PNA photo by Joann S. Villanueva)

MACTAN, Cebu – With Asia projected to contribute around 70 percent of growth this 2023, authorities have to come up with a coordinated effort to limit and thwart the systemic risks that may arise from the current situation, a Bangko Sentral ng Pilipinas (BSP) official said Monday.

In an interview, BSP Senior Assistant Governor Dr. Johnny Noe E. Ravalo told journalists that among the issues faced by the world right now include high-interest rates, elevated inflation, and how to cope with new challenges, such as the impact of the banking issues in the US and the possible recession of the world’s largest economy.

He said this is the reason for the holding of the two-day International Conference on Financial Stability hosted by the BSP and the International (IMF) here that started May 15.

The BSP official noted that the important thing for regulators right now is to be on the lookout for systemic risks, determine how to address these, and the implications for the future of how the authorities would intervene.

He likened the systemic risk to superspreaders at the height of the Covid-19 pandemic, wherein one does not know if he or she has the virus and is spreading it to the detriment of people around.

He said this was experienced during the 1997 Asian Financial Crisis, the 2007-2008 global financial crisis, the 2011 European debt crisis, and the recent pandemic.

He pointed out that with the ongoing banking issues in the US, the move of the authorities to provide liquidity to an ailing bank is not targeted mainly to save that bank but to prevent contagion.

“You don’t want a perception of risk magnifying and everybody sort of panic… When the authorities injected liquidity into their respective financial system (it has) nothing to do with monetary policy or inflation. That has everything to do with making sure that the economic engines are running,” Ravalo said.

Asked how Asia would be able to address the current situation without coordinated efforts among regulators, Ravalo said this is what authorities from the region and international organizations want to know during the conference, citing that, to date, this is discussed on a per country level.

He added that because Asia has diverse issues and, thus, different actions among authorities, there should be flexibility in what measures should be implemented.

“So, we will stir the pot and see where it takes us,” he said.

Public understanding of policies

Relatively, BSP Governor Felipe Medalla said the general public, and not just the regulators and financial sector players, should also understand regulatory policies.

“The advantage of the general public understanding this is they will be more supportive of the regulations,” he said.

He added that most financial market measures currently in place take the lessons from the 1997 financial crisis, which has allowed the Philippine banks, among others, to be stronger from ensuing crises.

This, he said, not only buoyed the financial institutions but the economy as well.

After the 1997 financial crisis, Medalla said the domestic economy contracted by around 0.5 percent and growth in the succeeding years was lower by around 1-2 percent, partly due to the country’s small level of foreign reserves.

He noted that this situation lasted for at least seven years.

On the other hand, with the recent pandemic, Medalla said the economy was able to recover faster, partly with the help of the liquidity boost from the central bank, which was able to increase its foreign reserves, to a record-high of USD110 billion in December 2020.

After the lockdowns started in March 2020, growth, as measured by gross domestic product (GDP), contracted by 0.7 percent in the first quarter of that year, the first negative print since the last quarter of 1998.

GDP even registered a-16.9 percent print in the following three months.

The negative growth print continued until the next three quarters but it recovered in the first quarter of 2022 with an expansion of 12 percent.

Since then, growth has normalized, with the first quarter 2023 output of 6.4 percent.

Medalla said despite the growth contraction during the pandemic, domestic banks remained strong and were able to extend loans to help lift the economy.

He said fiscal and monetary reforms after the Asian Financial Crisis has allowed the government, as well as Philippine financial institutions, to become more resilient and limit the impact of the latest pandemic. (PNA)