Bangko Sentral ng Pilipinas Governor Benjamin Diokno believes that despite the sharp contraction of the economy in the second quarter of the year – the largest decline in the country’s history – the Philippines is still on better footing to handle the crisis caused by the coronavirus disease 2019 pandemic.
In a statement, the BSP Governor said “inherent weaknesses” in the country’s economy and financial system made previous declines much worse than the current one.
“I remember vividly that in previous crises, the peso depreciated, interest rates rose, public debt-to-GDP ratio expanded, gross international reserves thinned, and the banking industry wobbled,” Diokno said, referring to the 1983 debt default, the 1997 East Asian financial crisis and the 2007 global financial crisis.
“In sum, there were inherent weaknesses in the economy then,” he said. “I recall than in the 1980s, the Philippines belonged to a select group called heavily indebted countries.”
Despite the 16.5 percent contraction in the second quarter in 2020 – the sharpest decline since reliable records began in 1981 and likely since World War II, Diokno probably has reason to be optimistic in the country’s strong economic and financial fundamentals that he inherited. Filipinos are hoping that he is correct when he says the contraction will be temporary and recovery can come quickly with the return of consumer confidence, factories and construction, particularly the highly vaunted “Build Build Build” program and the full restoration of public transportation.
Diokno said the country’s robust economy is characterized by “strong fundamentals” such as falling interest rates, an appreciating currency that is currently one of the strongest in Asia, a sound external sector with gross international reserves of $94 billion, a low debt-to-GDP ratio, and a robust banking industry with high capital adequacy ratios and low nonperforming loans. He cited the BSP’s role in policy making that allowed this to happen.
We are hopeful that the BSP governor’s optimism is as contagious as the coronavirus and the country’s currently faltering economy can still recover as soon as the solution our government officials have been pining for arrives.*