Why Espenilla was chosen new BSP governor

Former Central Bank governor Jose Cuisia has these to say about BSP's Amando Tetangco, Nestor Espenilla, and Diwa Guinigundo

THE CHOSEN ONE. Nestor Espenilla Jr, the incoming governor of the Bangko Sentral ng Pilipinas, has a broader outlook of BSP’s mandate, says former central bank governor Jose Cuisia Jr.

MANILA, Philippines — What awaits incoming Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr when he assumes a role that exposes him to more pressure, including those from politicians? Why was he chosen over another BSP “insider”, Deputy Governor Diwa Guinigundo? 

For his thoughts on these issues and the personalities at the BSP, Jose Cuisia Jr, former governor of the Central Bank of the Philippines, which precedes the BSP, talked to Lala Rimando of Rappler. 

Here is an excerpt of the interview:

Lala Rimando: This is regarding the coming leadership (changes) in BSP. You’re familiar with the institution because you used to be the governor of the predecessor. We would like to get to know your (insights) regarding different personalities and issues as well.

Jose Cuisia: I worked with both of them. In fact Deputy Governor Nesting (Nestor Espenilla Jr) was my executive assistant maybe for about 15 months when I was governor in the early 90s. That’s why I know both of them very well.

Rimando: Let’s start though with the outgoing Governor Amando Tetangco. He’s been cited, complimented and recognized worldwide. Personally, what do you think is the most important legacy of Mr Tetangco?

Cuisia: Institutional strengthening definitely is one of his great legacies in the BSP. The banking system today is much stronger, better capitalized, more stable, and in fact, when you look around the region, I think the Philippine banking system is probably one of the most stable banking systems. To a large extent, credit should be given to Governor Tetangco and Deputy Governor Espenilla.

For example, you know the banking industry has had maybe 7 or 8 rounds of bank capital increases required by the central bank? The insurance industry has had one round and yet some of the members of the industry sued the insurance commissioner for increasing the capital – which was, in my view, so silly on the part of this insurance company. That’s why today the Philippine insurance industry is grossly undercapitalized in contrast to the banking industry. That’s why I said (BSP) regulators lead very well. Fortunately, the industry leaders are recognizing the importance of having it well capitalized.

I think he has also illustrated that despite high growth – let’s say, if you look at the last 5 or 6 years, the economic growth has been 6% or 7% – yet inflation has been kept at a very modest level. That’s a very ideal situation. And through the regulatory prudential policies that have been adopted by Governor and the Monetary Board, it has been proven that you can have both high growth and a manageable inflation (at the same time). Because many economists have said, well when you have high growth it’s almost inevitable that you’re going to have high inflation, which is not the case. I think they have proven that.

Rimando: There has been a lot of balancing act. They were also trying to manage the aspirations of those who were looking for growth, at the same time those who want to see monetary prudence and strong banking.

Cuisia: That’s going to be the challenge for the next governor. Is he going to do the same?

Rimando: Before we go to Mr Espenilla, do you think Mr Tetangco’s 12 years in the BSP (two 6-year terms) was a factor for being able to do all of these?

Cuisia: That, of course, allowed him to do much more within a longer period, that 12-year period. But even if you look at his first term (which started in 2005), remember that it was in 2008 and 2009 that the (global economic) crisis took place. Despite that, the Philippines came out relatively unscathed there because of the prudential monetary policies, the prudential supervisor policy or regulations that were imposed in the banking system. So you have to give them that.

It was not just luck or just because he had a long term. Look at the long term of President Gloria Macapagal Arroyo? (She had) 9.5 years and can we say the same thing? I’m sorry it’s not the same. So I think it was the very proactive and prudential policy adopted by the BSP under the watch of Governor Tetangco that should be given credit for that extraordinary performance of the BSP.

Rimando: Incoming governor Espenila will likely just have 6 years. (Will) he have enough time to show off his own leadership as well?

Cuisia: Yes, definitely. I am confident because, first he had very good training over the years. As you know he started in 1981 as an analyst, so he worked his way up. He is quite knowledgeable about the operation and he understands monetary policy very well, being an economist. He has spent a lot of time in terms of bank supervision and that’s probably his strength, that he knows the banking system very well. And I am very comfortable that he is up (to the task) because even the banking system will see challenges in the years ahead.

Rimando: You mentioned awhile ago that you worked with him for a couple of months when you were still the Central Bank governor (from 1990 to 1993). Can you tell us more about what you think of him?

Cuisia: He’s a hard worker and has very good analytical skills. He writes very well. He’s quiet but reliable. He does not show off. He’s a very solid professional, and not the type that looks for publicity. (He is) very low key, but when he is in a discussion, he certainly understands the issues that are confronting the central bank as well as the Philippine economy.

The biggest challenge of course is very (difficult): Poverty incidence in the country today and how to bring that down. It can’t be done by just by the central bank or BSP alone. It’s got to be a concerted and coordinated effort of various agencies (tackling) that huge problem of high poverty incidence, as well as income inequality in the country. (Espenilla has to) look at what policies will enable to precisely sustain growth in an environment where inflation can be managed so prices (will not) shoot up. That’s going to be one of the challenges (for Espenilla).

Rimando: Those challenges you’ve mentioned are something that his colleague, Deputy Governor (DG) Diwa Guinigundo, is also familiar with, having been (in the BSP) longer than Mr Espenilla. Why do think then was Espenilla the one chosen?

Cuisia: In my own article that I came out (with in Inquirer) some weeks ago, I said that anyone of the two insiders, the career central bankers – whether DG Espenilla or Diwa Guinigundo – would be a very good choice. Personally, I know DG Espenilla because we worked together for about 15 months, but as I said, both are well qualified.

I think Nesting (Espenilla) has a broader exposure within the central bank because he’s been in bank supervision, he’s been in research, he’s been in treasury, he’s been in other departments, and of course the last was as head of (bank) supervision, which is very critical within the BSP . Not to say that research is not also a very, very important role, which is headed by or overseen by DG Guinigundo. But I think that Nesting (Espenilla) has been in more posts within the BSP (so) he’s gotten more broader outlook of BSP’s mandate.

Rimando: Some of the future challenges involve monetary regulation or monetary moves, like (managing) the potential Fed rate increases and the impact of populism. So that kind of made some of those who were betting on Deputy General Guinigundo think he’ll be the one to get the job.

Cuisia: Just remember, deputy governor Espenilla is also an economist. He completed his business economics course at UP (University of the Philippines), magna cum laude. He was also involved in economic research before he went to supervision. So he understands monetary policy and he appreciates the ramifications of monetary policy moves on the economy. Obviously Deputy Governor Guinigundo would have a much deeper understanding, but that doesn’t mean that (Espenilla) doesn’t. He does understand it quite well. He has been in the Office of the Governor. He’s been exposed to all of those discussions in the Monetary Board when he was my assistant. And even as a deputy governor, they were there to listen to the discussions of the Monetary Board. So I think it’s not fair to say that just because he is not been much longer at economic research he doesn’t understand or does not fully appreciate. I think I would disagree with that.

Rimando: What does (Espenilla’s appointment) also say about priority of the Philippines now as far as inclusiveness is concerned?

Cuisia: That’s a very good question precisely because our government has been talking about inclusive growth. It’s very important that the benefits for economic growth are brought down to the lowest levels. This why one of the priorities of Deputy Governor Espenilla is to promote financial inclusion, get the people in the lowest income groups to understand what opening a bank account means, why it’s so important to have a bank account to keep their money safe, why it’s important to use, for example, the National Retail Payment System, which is safe and reliable. He is promoting financial inclusion precisely as part of the move to get the lower income groups to participate (in the formal financial system).

For example, if the Conditional Cash Transfer were to be paid out by, say, the government via Landbank, (to beneficiaries)…and if all of the beneficiaries have bank accounts, they would save a lot of money. Right now they go to money changers, pawnshops, etc. When they go to the bank or even if they just had it deposited online, then they save a lot of money. They don’t have to pay for transportation and they don’t have to go to the notorious money lenders. That’s why that’s one of (Espenilla’s) priorities: to push financial inclusion which means getting more of lower income groups to make use of the banking system.

Rimando: I personally think that Mr Espenilla has a good grasp of those aspects because he’s been championing even financial technology or “fintech” or these innovative ways for payments.

Cuisia: Yes, he has been behind that. He and, of course, Governor Tetangco, too, but Deputy Governor Espenilla has been personally involved in all of those moves.

Rimando: But let me just go through another aspect of the job that Mr Espenilla will have to get through. I hope you can give us some insights about navigating the politics within and outside the BSP. I’ve read what you wrote in Inquirer about this being a very critical appointment and that it’s very important to avoid the politicization of the BSP. Can you share some personal insights regarding that?

Cuisia: Let me say that I was very fortunate when I served two presidents: President Corazon Aquino and President Fidel Ramos. I was never asked to do something by either President Aquino or President Ramos. The only time President Ramos called me was to warn me that one of his relatives is going to ask something from me using his name and that I did not have to accede to that request of his relative, whatever that was.

Another thing is, I received a lot of requests from politicians to put in people they wanted. These are maybe supporters of theirs, relatives, friends, etc. My policy was that if they’re not qualified, we’re not going to hire them, no matter who they are. In fact, I recall Senate President Salonga told me at one time, “Ni minsan hindi mo ako pinagbigyan sa pakiusap ko” (You did not grant any of my requests even once). And I said, “Eh hindi ho kasi qualified yung pinadala niyo sa amin.” (Because the ones you sent were not qualified for the job.)

You’ve got to resist all these politicians trying to put pressure. That’s why it’s important to maintain the independence of central bank. When we got that bill to create the BSP (to replace the central bank), only one Cabinet member (can join the Monetary Board, the policy-making body of the BSP). They’re 6, including the BSP governor, so even the national government cannot bamboozle the Monetary Board, or the Governor, to pass (what is not a prudent policy).

For example, if the government wanted to borrow money – in other countries, that’s what they do: they just get the money from central bank — we should not (allow them). That’s why we said it’s important that we maintain the independence of the central bank.

So far that has worked very well. We have to make sure precisely that, that independence is respected by everyone, not just the legislative, but also the executive department, and even the judiciary. Fortunately, Senator Raul Roco was very much behind me. I appreciated that kind of support from Senator Roco who singlehandedly passed, got that bill passed in the Senate by the way. I give him credit for that.

Rimando: Under Mr Tetangco and even directly under Mr Espenilla, the BSP has gone through different battles with the most influential groups.

Cuisia: Yes, and I give credit to Deputy Governor Espenilla for finally putting the nail on the coffin of Banco Filipino. You know because we tried many times (to close Banco Filipino) and they were able to get even the Supreme Court to reopen and that was of course a wrong decision of the Supreme Court. Look at what happened. The government lost a lot more money and some day I hope I can say, you know, Supreme Court has to answer for that. I mean that Supreme Court, which decided for the reopening of Banco Filipino. That was a big mistake. Anyway, I have to give credit to Deputy Governor Espenilla for having it finally closed, because that should’ve been done a long time.

Rimando: That Banco Filipino saga has been one of the turning points for us to really look at BSP as an independent institution that can be bold and brave against the powerful and the influential in the country. At the same time you’ve seen the BSP and Mr Espenilla himself go against the likes of RCBC or Mr Roberto Ongpin, and other groups. These make the BSP what it is now, very independent and effective.

Cuisia: (The BSP is) very respected precisely because it has exercised its independence and it has shown that even the sacred cows are not gonna be treated as sacred cows by the BSP.  Rappler.com