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BSP executive emphasizes systemic dangers vs. the need for adaptive measures.

A Bangko Sentral ng Pilipinas (BSP) official stated on Monday that with Asia expected to contribute almost 70% of growth in 2023, authorities must devise a coordinated plan to reduce and counter any systemic risks that may result from the current position.

According to BSP Senior Assistant Governor Dr. Johnny Noe E. Ravalo in an interview with journalists, the world is currently grappling with problems like high-interest rates, high inflation, and how to deal with brand-new difficulties like the effects of the US banking crisis and the potential for a global recession.

He claimed that this was the rationale for the BSP and IMF-hosted, two-day International Conference on Financial Stability that got underway here on May 15 in the first place.

The BSP official stated that at this time, regulators must keep an eye out for systemic concerns, figure out how to address them and consider the consequences of how the authorities would interfere in the future.

He compared the systemic risk to superspreaders during the peak of the Covid-19 pandemic, where a person spreads the virus without knowing it to harm those nearby.

He claimed this occurred throughout the latest pandemic, the global financial crisis of 2007–2008, the Asian Financial Crisis of 1997, the European Debt Crisis of 2011, and the recent epidemic.

The move by the regulators to provide liquidity to a struggling bank is not primarily intended to preserve that bank, he noted, but rather to prevent contagion due to the ongoing banking troubles in the US.

“You don’t want people to start panicking, and the sense of risk worsens… There was no connection between the government’s cash injection into each financial sector and monetary policy or inflation. Making sure that the economic engines are operating has everything to do with that, according to Ravalo.

Ravalo responded that authorities from the area and international organizations want to know during the conference how Asia would be able to manage the current problem without coordinated efforts among regulators, highlighting the fact that, to date, this is discussed on a per-country basis.

He continued by saying that there should be flexibility in the measures that should be put into place because Asia has a variety of difficulties and, as a result, various actions among authorities.

So, he said, “We’ll stir the pot and see where it leads us.”

The public’s comprehension of policies

BSP Governor Felipe Medalla remarked that besides regulators and participants in the financial industry, the general people should also be aware of regulatory regulations.

“The advantage of the general public understanding this is that they will be more supportive of the regulations,” he said.

He continued that most financial market regulations currently in effect are based on the lessons learned during the financial crisis of 1997, making it possible for institutions like the Philippine banks, among others, to withstand subsequent crises better.

He said that this boosted both the economy and financial institutions.

According to Medalla, the domestic economy shrank by about 0.5 percent following the 1997 financial crisis, and growth in the following years was slightly slower by about 1-2 percent, partly because of the nation’s low level of foreign reserves.

He observed that at least seven years had passed throughout this condition.

On the other hand, Medalla claimed that in the wake of the recent epidemic, the economy recovered more quickly, partly thanks to the central bank’s increased liquidity, which allowed it to raise its foreign reserves to a record-high of USD110 billion in December 2020.

After the lockdowns were implemented in March 2020, GDP growth decreased by 0.7 percent in the first quarter of that year, marking the first negative reading since the final quarter of 1998.

Even still, the following three months’ GDP print was 16.9%.

The subsequent three quarters saw a continuation of the negative growth print, but the first quarter of 2022 saw a recovery with a 12 percent expansion.

Since then, growth has returned to normal, with 6.4 percent in the first quarter of 2023.

According to Medalla, domestic banks remained robust and could make loans to boost the economy despite the pandemic’s slowdown of growth.

He claimed that monetary and fiscal changes implemented in the wake of the Asian Financial Crisis had made the government and financial institutions in the Philippines more robust and have lessened the effects of the most recent epidemic.

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