Four letter weird

The next governor of the BSP, the central bank, would be the most important appointment of the motor-biking Duterte Harley.

Those words could be the most famous pronouncement of our publicity-shy finance secretary, Carlos Dominiguez.

In a few months Duterte Harley would have to appoint a new BSP governor, when the incumbent, Armando Tetangco Jr., would end his second term. And so Dominguez endorsed Tetangco for a third term—publicly.

But that would be illegal, unless Congress could bend backwards to amend the central bank law, RA 7653, which capped the BSP governorship to two terms.

Dominguez also revealed the profound philosophy behind his choice: a banker from outside the BSP as the next governor would be… well, “weird.” Like it was a four-letter word!

Immediately following was a rush of PR stunts, proclaiming the good news why some BSP “insider” would be right for the position, as if any BSP insider was next in line to Mother Teresa.

Business anyway would readily agree that the BSP would be critical in Duterte Harley’s legacy, “golden age of infrastructure,” what with its price tag of P9 trillion!

With seven months in its term already spent, the Duterte administration still had yet to put flesh and bone to that germ of an idea on infra spending binge.

It had yet to decide on a model, and so questions arose in the business sector. Could the government itself cover the entire P9 trillion? Would it need the PPP? Would local private contractors be enough? Who would finance the contractors?

Some bright guys in business thus started to wonder whether or not the “change” that Duterte Harley talked about during the campaign would include innovation and creativeness in business, including banking.

The entire domestic financial system would need to develop new products for that humonguos plan worth some P9 trillion in less than six short years.

Sadly, the capital markets were one area that the Philippines lagged behind miserably in the past years in this region.

Some years ago, one bank approached the BSP for permission—i.e. license—to deal in new innovative financial instruments. It got an instant flat rejection. It seemed the BSP did not fully understand the instruments, and so it could not come up with the rules.

Yet the whole world already used extensively the instruments that the BSP could not yet understand.

In this country, central banking seemed to be all about rules, the use of the stick to regulate banks, minus the matching carrots to encourage those that did their homework.

There was the long time issue on interest rates. Official figures would show that loan rates were almost at 6 percent a year, while the savings deposit rate was less than 1 percent a year.

Sure, if you had tons of money that you did not need for years on end, you could go for time deposits with rates of less than 2 percent a year.

Anyway, why the wide open gap between deposit and loan rates of banks of 4 to 5 percentage points?

Of course, the ongoing PR campaign would point to the greedy bankers and their vested interests. You know—the “weird” choice!

But for the longest time, business has been calling for reforms in banking, wanting to do away with many things that make the system more inefficient than our mobile phone service.

Look, in this country, the BSP had supervision over an investment house owned by a bank, but the SEC had jurisdiction over one that had no bank affiliation.

Again, it was the same business called investment house!

Let us not even talk about the unrealistic “agri-agra” requirement.

Just consider the premium that banks paid for deposit insurance, which was a uniform rate for all of them, whether the bank was as strong as a carabao, or as weak as the reasons for our need for a non-banker for the position of BSP governor.

Did I say the BSP and the SEC required the board and top executives to seminars on everything under the sun, in which highly paid lecturers talked about the same things, for which the banks paid a lot of money?

Yes, freaking seminars for all! At least once a year, at that! What a nice little racket!