BSP, foreign central banks bracing for pandemic financial shocks

MANILA, Philippines—The central bank is coordinating with its foreign counterparts in an effort to protect the Philippines from financial instability that could rise from a prolonged COVID-19 pandemic, it said on Tuesday (March 30).

In a statement, the Bangko Sentral ng Pilipinas (BSP) said it recently took an active part in a high-level conference hosted by the Asia and Pacific Department of the International Monetary Fund meant to address emerging threats in this field.

The conference gathered senior policymakers in Asia to assess the ongoing challenges faced by the region and discussed what should be done to address the financial stability risks. The event coincides with the release of the IMF-APD paper “Policy Advice to Asia in the COVID-19 Era.”

Assistant BSP Governor Johnny Noe Ravalo, head of the Office of Systemic Risk Management, took part in the session on “Dealing with Debt.”

In his remarks, the BSP official said the interventions needed are already well-known because these are defined by the effects of the recession.

“We know that we have to manage the servicing of existing debts and we know that some firms may no longer be as viable in the new economy,” he said.

Ravalo said the real challenge was in the execution of the interventions.

“COVID is a heavy cost to society but, in the financial markets, debt exposures are governed by private relationships and contracts,” he said. “How we address the public burden from debt arrangements that are typically private needs to be managed well.”

In the ensuing discussion, the focus was on the role of central banks and financial authorities in resolving the debt problem. Ravalo noted that the main issue is that private corporations have been made vulnerable by the pandemic-cum-recession.

“This problem, its surprise occurrence, and its sheer magnitude are uniquely different and require creative interventions from the authorities,” he said.

Highlighting the need for holistic solutions to address this whole-of-market problem, Ravalo argued for keeping in mind vulnerable households as well.

“We need to actively communicate so that people can make informed choices. And we should be concerned with welfare changes within society because this is what financial stability is all about after all,” he said.

TSB