Feedback Corner

Publications and Research



Date: 03.13.2000

Place: Bangko Sentral ng Pilipinas

Occasion: Investors' Briefing, ABN-AMRO

Speaker: Governor Rafael Buenaventura


Good afternoon, ladies and gentlemen. Let me welcome you to the Bangko Sentral ng Pilipinas.

I am sure our potential investors will agree that year 1999 saw encouraging signs that the world economy was on the mend. In Asia, most indicators were looking up. Within Asia, the Philippine economy made good progress in most economic fronts. 


  Our thrust this year, therefore, is to consolidate the economic gains so far achieved. Now let me walk you through recent developments in key areas of the economy. 

An Early Rebound

The economy started its recovery during the first quarter of 1999 and continued into the fourth quarter, with GDP growing by an average of 3.2  percent. This was driven mainly by a strong rebound in agriculture and the sustained growth in services.

Low Inflation Rate 

Inflation rate continued to decline as a result of stable food supply and prudent monetary management. Inflation has posted a record low of 2.6 percent in January and 3.0 percent in February 2000. 

Favorable External Payments Position 

For the period January to November 1999, overall balance of payments and current account position posted surpluses of $3.54 billion and $6.45 billion, respectively, boosted by sustained growth in exports and higher capital flows from loans and portfolio investments. 

A Robust Export Sector 

One of the key factors behind our continued economic strength is our exports. Even during the crisis, when exports were declining in most of the region, Philippine exports, which consisted largely of electronics, machinery and transport equipment, managed to post double-digit growth. In 1999, our exports grew by 18.8 percent. 

Growing Foreign Reserves 

As a result of the country’s favorable external position, our gross international reserves has broken record levels, reaching $15 billion at end-December 1999 equivalent to about 4.3 months of imports of goods and services. More recent data indicate that international reserves remain sizeable at $14.8 billion as of end-January 2000. 

Continued Stability of the Peso 

In the case of the peso, while the Bangko Sentral sustained the market orientation of the exchange rate, it also implemented policies to rationalize the foreign exchange market and limit opportunities for speculative play. As a result, exchange rate movements in 1999 were less volatile compared to the second half of 1997 and in 1998. 

A Manageable Level of External Debt 

Turning now to our foreign obligations, our external debt remains relatively manageable at US$51.2 billion as of September 1999 or 69.1 percent of annual GDP. It is also important to note that the proceeds of our foreign borrowings have been channeled to productive sectors, including infrastructure, capital goods, exports, and education. Our private external debt is among the lowest in the region.

Our foreign debt burden is also low relative to most other emerging economies. 

A Relatively Strong Banking Sector 

In the banking sector, our well-regulated banking system has helped significantly in insulating the Philippines from problems being experienced in other Asian countries.

As a result of banking sector reforms implemented before and during the crisis, our banks have remained relatively strong as evidenced by their low NPL ratio and strong capital adequacy ratio. As of December 1999, the banking system’s NPL ratio was 12.8 percent.   This is one of the lowest in the region. Moreover, for commercial banks, the NPL ratio was lower at 12.3 percent as of December 1999. Meanwhile, capital adequacy ratio of banks at 18.0 percent as of end-September 1999 is above the 10 percent minimum requirement and the 8 percent BIS standard. 

Limited Exposure of Banks to Property Sector 

In addition, our banks’ real estate exposure at 12.2 percent of total loan portfolio as of September 1999 is way below the 20 percent ceiling imposed by the BSP. It also compares favorably with most other Asian banking systems.

As a result, we saw only a moderate correction in asset prices and a limited supply glut in selected segments of the property market.

Overall, save for a few thrift banks and a number of small rural banks that had to be closed, the banking system remains sound and continues to be an efficient channel of monetary policy. This was validated further by the system’s smooth crossover into the new millennium last January. 

Effective Counter-Cyclical Policies 

The continued stability of the peso and the fall in inflation starting in February 1999, have afforded the BSP enough flexibility in monetary management.

This flexibility enabled the BSP to reduce its policy interest rates several times by more than 400 basis points and its reserve requirements by five percentage points in 1999. These, in turn, provided strong support for the reduction in market interest rates, which have fallen to pre-crisis levels since May 1999. 

Flexible Fiscal Response 

On the fiscal side, the government continued to pump-prime the economy to boost domestic demand and enhance an early recovery. 

Endorsement From the IMF 

We also need to tell you that in march 1998, a two-year stand-by arrangement was agreed with the IMF, with $1.4 billion in available funds. This modest amount was in contrast to the huge rescue packages for the other crisis-hit economies in the region. So far, the country has drawn $755 million from the facility. While the facility ends this march, we have formally requested from the IMF an initial three-month extension of the standby arrangement to complete the reforms we have begun.

The Country’s Performance Exceeded Program Targets 

Most of the macroeconomic objectives of the program for 1999 were met. I refer to our over performance in output, inflation and the current account.

The economy’s performance was within the criteria set in the program. These criteria cover base money, net international reserves, short-term debt availments and BSP approvals of medium and long-term loans.

These favorable developments were confirmed in our recent discussions with the IMF. We wish to assure you that the Philippines remains committed to continue the reforms begun under this facility. 

III.  BSP Financial Highlights 

Let me now brief you on the Bangko Sentral operations. In sum, we were able to sustain a fairly sound financial condition during the last three years. 

Assets increased to P967 billion in December 1999 from P730 billion in 1998, or an expansion of 32 percent, while net worth increased by 7 percent to P75 billion. 

Net income for 1999 was P2.0 billion or a return on equity of 20 percent, given its paid-up capital of only P10 billion.

For 1999, the Bangko Sentral had paid p6.0 billion in taxes to the national government. As a result, total taxes paid to the national government since its tax-exemption status expired last July 1998 amounted to P14.7 billion. 

From July 1993 to June 1999, the Bangko Sentral has remitted to the national government P43.8 billion in dividends and interest rebates. Including taxes paid as of December 1999 of P14.7 billion, total funds transferred to the national government since July 1993 amounted to P58.5 billion, an amount higher than the total statutory capital of the BSP itself. 


Looking forward, we do anticipate an acceleration of economic growth at a rate of 4.5-5.5 percent this year. 

Inflation is expected to average 6.0-7.0 percent for the whole year. For the first two months of this year, inflation averaged 2.8 percent. 

With falling inflation and a stable peso, interest rates are seen to remain relatively low this year, ranging from 9.5 to 10.5 percent. 

For the year, the current account is estimated to post a US$5.1 billion surplus, resulting in a US $2.8 billion surplus in our balance of payments. By end-2000, our foreign reserves are estimated to rise to US $17.4 billion. 

Economic Reforms to Continue 

In terms of our policies, most of the reforms initiated in 1999 will be continued. 

These include: the implementation of prudent fiscal and monetary policies; adoption of a liberal foreign exchange regime; liberalization and privatization of the banking and power sectors; proactive management of the external debt; and progressive development of the capital market. 

On the part of the Bangko Sentral, focus will be on the continuation of structural reforms to make the economy, in particular the banking system, more market-oriented. 

Towards this end, the Bangko Sentral will continue to encourage mergers in the banking system to promote big, globally competitive banks. We intend to further liberalize the banking environment by working for the entry of more foreign banks, possibly for a limited period. 


In closing, let me assure you that the Bangko Sentral will remain committed to its strategic role in promoting early and sustainable recovery of the economy. This role covers the objectives of: keeping prices low, the peso relatively stable, interest rates reasonable and the banking system safe and sound. 

As the new century dawns, we look forward to a gradual but sustained growth in the economy as government renews its commitment to continue the process of economic reforms.

Thank you very much.  

(Note: “The Philippines: Consolidating Economic Growth”, ABN-AMRO Investors’ Briefing, March 13, 2000, Bangko Sentral ng Pilipinas)