Bangko Sentral ng Pilipinas Governor Felipe Medalla said Monday central banks, financial authorities and the general public should learn from the lessons from the past financial crises to avert any instability.
Medalla, in a speech during the 2023 International Conference on Financial Stability in Mactan, Cebu jointly hosted by the BSP and the International Monetary Fund, underscored the importance of building up the strategic forex reserves and enhancing rules on bank capitalization, liquidity and risk management.
“We always look at the 1997 Asian financial crisis. [Back then], we did not have enough reserves.. [But] many things have happened since then: we built up our reserves and we refined the rules on bank capitalization,” Medalla said.
Medalla said when the COVID-19 pandemic struck, the Philippine economy contracted by almost 10 percent in 2020, which was the worst economic performance since the end of World War 2.
“But banks remained strong… The difference here is banks remained healthy despite the almost 10-percent GDP contraction… We rebounded because our banks were strong,” Medalla said.
“It is all about execution… The execution of things you have prepared for during good times so that when bad times happen, you are able to minimize the damage and return to normal and stable growth more quickly…” he said.
The economy grew by a 46-year high of 7.6 percent in 2022, faster than the 5.7-percent expansion in 2021 despite the global headwinds highlighted by higher interest rates and elevated inflation.
The gross domestic product grew by a slower 6.4 percent in the first quarter, but within the target range of 6 percent to 7 percent. Economic managers expect the growth trajectory to be sustained.
Medalla said learning from past crises should not be limited to regulators and bankers, and it should include the general public.
He said moving forward, regulators should continue to strike a careful balance between establishing strong institutions while encouraging innovation in the design of tools that would have the requisite safeguards to build-in resilience. This balance would help crisis-proof the system.
“It’s finding the middle [where] there’s enough creativity [encouraged] but without thinking in terms of the public cost of mistakes,” Medalla said.
Medalla said today’s environment poses a different set of challenges for the authorities and the market stakeholders.
Joining the conference are 14 central banks and financial authorities from the region as well as six regional and global organizations. The private sector was fully represented with 31 organizations.
The theme of the conference, “The New Frontier of Financial Stability: Global Problems, Global Solutions, Local Challenges,” suggested that global developments invariably spill over to various jurisdictions. The participants of the conference then looked at how Asia could find a collective solution.
The conference is organized to assess how systemic risks are managed and discuss how stakeholders have coped with changing market conditions. There is likewise a discussion on the challenges of communicating risk issues to the public.
One of the conference highlights is to focus on Asia as a collective body in light of the systemic risk issues affecting the global economy.
The conference revisits the issue of a common approach in light of the latest IMF forecast where Asia contributes around 70 percent of world growth in 2023.
In January 2019, the BSP and the IMF co-hosted the inaugural regional dialog on Financial Stability which was held in Manila.
This year, systemic risk management is once again front and center as authorities respond to the current challenges and prepare for what lie ahead.
