For: Ms. Belinda Olivares-Cunanan
Members of media
Members of the academe
Members of the economics “profession”
BSP Governor and members of the BSP Monetary Board
Concerned Filipinos who care about what is happening
in our country and economy
Subject: AT LAST, THE PROOF THAT BSP MISMANAGED THE ASIAN CRISIS--THROUGH SUCCESSFULLY IMPLEMENTING THE LONG EVADED LESS DISASTROUS HIGH-INTEREST-RATE ALTERNATIVES AFTER, BUT NOT WHEN NEEDED MOST DURING, THE CRISIS--WHICH MEANS THAT PAST DISASTERS FROM AVOIDABLE BUT NOT AVOIDED HIGH INTEREST RATES WERE DUE MERELY TO BSP'S FAULT
THERE WAS A PACKAGE OF VIABLE LESS DISASTROUS ALTERNATIVES
TO BAD-LOAN PROVOKING HIGH INTEREST RATES IN THE ASIAN MELTDOWN--
BUT BSP FAILED TO IMPLEMENT IT DURING THE ENTIRE DURATION OF THE CRISIS,
ONLY TO SUCCESSFULLY IMPLEMENT IT BELATEDLY IN 2001 AND 2003, AND SO
THE SITUATION BEGS THE QUESTION: WHAT TOOK BSP SO LONG TO IMPLEMENT
THE BADLY NEEDED LESS DISASTROUS ALTERNATIVES?
As can be observed, MEDIA--including the Philippine Daily Inquirer where Ms. Belinda Olivares-Cunanan writes a column--had dutifully reported the EVENTS that, if taken together with my repeatedly RECOMMENDED MEASURES to Bangko Sentral ng Pilipinas (BSP), but IGNORED or outrightly REJECTED by it--only to successfully IMPLEMENT the measures more than three years later--would show that indeed BSP mismanaged the crisis by NOT DOING what it was mandated to do at the time, to the irreparable injury of borrowers, the economy, and the people.
THE LONG EVADED
RECOMMENDED MEASURES TO BSP
As refresher, following are quotes from my June 30, 2001 and August 4, 2001 letters to BSP (personally transmitted to and stamped received by BSP on July 9 and August 7, 2001, respectively), as annexed to my past 5th email:
In general, (BSP should) strictly enforce the recommended integrated dollar speculation control scheme mandated under long standing BSP circulars and communicated earlier to BSP. It consists of CAP IN BANK DOLLAR HOLDINGS, DOCUMENTATION REQUIREMENTS for DOLLAR PURCHASES by end users, and FORWARD COVER (exchange rate hedging) for foreign obligations. If BSP authorities will pay enough attention to the proper enforcement of the scheme, significant dollar speculation cannot be undertaken without being detected and stopped by them…. (from June 30, 2001 letter)
From April 1998 up to June 2001, I repeatedly suggested to BSP the taking of CURRENCY SPECULATION CONTROL measures that can neutralize dollar speculation, such as the very first step of PROHIBITING it as economic sabotage, with severe punishment to violators; requiring PROOF of FOREIGN OBLIGATIONS for dollar purchases by the public, which will automatically disallow speculative purchases as these cannot be supported by the required proof--because there are none, these purchases are speculative precisely because these are merely for hoarding, there are no foreign obligations to be paid, therefore there are no available proof; as well as REDUCTION in CAP in BANK DOLAR HOLDINGS, which will nullify dollar speculation by banks and constrain them, instead of BSP, to unload resulting overbought dollar balances, thereby injecting LIQUIDITY into the foreign exchange market. After a long inaction, in its June 30, 1999 letter-reply, BSP rejected my suggestion
and condemned it as a CURE WORSE THAN THE DISEASE (Puzzlers/Economic Sting, pages 120 and 215).
AS REPORTED BY MEDIA,
THE PROOF OF EFFICACY OF REPEATEDLY RECOMMENDED
MEASURES, WHICH SERVES AS INDICTMENT OF BSP THAT
EVADED FOR SO LONG THE IMPLEMENTATION OF THE MEASURES
At Last, the Proof that BSP Had to Fight Dollar Speculation With High Interest Rates, Not Because it Lacked Enough Powers to Stop it, But Because it Did Not Know How--or it DID NOT WANT--to Really Use its Powers
BSP had repeatedly received the suggestion to run after and punish economic-saboteur dollar speculators—in other words, implement currency speculation control--such as that presented in my letters and papers dated as follows: April 1, July 20, August 22, and October 22 in 1998 (Puzzlers/Economic Sting, pp. 202, 209, 230); January 12, May 16, and June 24 in 1999 (pp. 208-209, 212); June 12, October 2, October 29, and December 18 in 2000 (pp. 222-224); and January 23, February 18, March 22, June 30, and August 4 in 2001 (pp. 120-122, 226-227); as well as that listed on page 8 (no. 17 letter c) of the July 27, 1998 report of the BSP Committee on Interest Rates. The need to act directly against dollar speculators was so obvious that even without being privy to the continuing suggestions and follow ups to BSP, its failure to go after speculators caused a veteran columnist to smell something fishy. “Bangko Sentral has been handling dollar
hoarders and speculators with kid gloves. For once let’s expose the ECONOMIC SABOTEURS, especially the operators of local banks, including foreigners, and BSP OFFICIALS.” (Jose L. Guevara, “Point of Order,” Manila Bulletin, July 29, 2001, p. 10).
Mr. Guevara suspected that some “BSP officials” were in conspiracy with economic-saboteur dollar speculators by being soft on them. He cannot be faulted for his suspicion, for when, due to confluence of events that would have pictured BSP as coddler of dollar speculators if it would still not run after them (p. 187), BSP did in August 2001 what it had evaded doing since 1997--acting directly against dollar-speculating banks by penalizing them as well as exposing their names to media and subjecting them to risk of public backlash—the PESO SUDDENLY RECOVERED from PhP53.05 to PhP51.85 to the dollar EVEN WITHOUT HIGH INTEREST RATES!
“A currency dealer of a local bank admitted that the peso appreciation was largely driven by the fierce warning of the monetary authorities to PURSUE SPECULATORS. ‘On fears that BSP really means business, banks, who are mostly long in dollars started to unload, causing a remarkable recovery of the peso,’ a currency dealer of a domestic bank said.” (Fil C. Sionil, “Peso rebounds to P51.85 from P53.05 to dollar,” Manila Bulletin, August 11, 2001, p. B-1).
“A trader pointed out that where sophisticated measures like the forward cover called Currency Risk Protection Program and other similar moves have failed…all the central bank had to do was shame the bankers’ lot and voila, the peso rose by P1.15…from P53…. It took only a two-page press statement, detailing each bank’s violation and fine…for the local currency to achieve some semblance of peace and quiet after two months of unrest” that SANK THE PESO TO THE DEPTH of P54.335 the previous month. (Clarissa S. Batino, “BSP cracks whip on ‘old boys’ club,” Philippine Daily Inquirer, August 13, 2001, p. C1). If shaming dollar-speculating or dollar-speculation-abetting banks worked wonders, how much more if BSP would expel and prosecute erring bank officials?
The recovery of the local currency was attained, sustained, and even improved further to less than PhP50 to the dollar as of first half 2002 while interest rates stabilized at one of the lowest levels in years. Even then, “economic sabotage is the biggest national scourge. Aren’t some of our BANKS the biggest SABOTEURS of our economy for DOLLAR SPECULATIONS which gave rise to soaring foreign exchange (rate)? Surely, a fine of P201,000 imposed on Citibank is a MERE PITTANCE for the crime vs. our economy that (it) has committed. How about bigger fines and if possible JAIL TERMS for some officers of the various banks engaging in dollar speculations?” (Jose L. Guevara, “Point of Order,” Manila Bulletin, August 12, 2001, p. 10).
Also, why was BSP so fast and reckless in subjecting productive investor-borrowers to high interest rates, yet so slow and restrained in acting against destructive currency speculators even when they were already caught in the act?
WHAT BSP SUCCESSFULLY DID IN 2001, IT REPEATED IN 2003,
MAKING THE PESO THE BEST PERFORMING CURRENCY IN THE REGION
In March 2003, or almost four years after BSP received on July 2, 1999 the earlier manuscript of the book (Puzzlers/Economic Sting) that proposed this repeatedly suggested measure--increase-decrease in CAP ON BANK DOLLAR HOLDINGS, which involves reducing the cap during times of crisis to provide dollar liquidity to the foreign exchange market out of the BANKING SYTEM’S dollar holdings, not out of BSP’s dollar reserves--BSP implemented it along with its already existing intensified drive to enforce DOCUMENTATION REQUIREMENT for DOLLAR PURCHASES beyond the $5,000 exempt limit. (Fil C. Sionil, “BSP limits banks dollar holdings, forward FX,” Manila Bulletin, March 14, 2003, p. B-1) As seen, the Philippine PESO achieved the rare feat of being the BEST PERFORMER among ASIAN CURRENCIES that appreciated against the dollar owing to the US-Iraq war. (Clarissa S. Batino, “Peso sustains rally, still Asia’s best performer,” Philippine Daily
Inquirer, March 28, 2003, p. B1) This feat was achieved by what BSP did, not by external events or what other nations did.
FROM AN AUTHORITY ON THE MATTER,
THE STILL UNRESOLVED QUESTION--“WHY ONLY NOW?”
Just as intriguing, what took BSP so long in running after dollar speculators when, since the Asian turmoil, it has time and again used dollar speculation as excuse for raising interest rates? As asked much later by one who knew whereof he spoke, a former BSP Governor himself, Jose L. Cuisia, Jr., “WHY ONLY NOW, AFTER ALL, THEY HAVE ALL THE TOOLS TO HAVE GONE AFTER SUCH SPECULATORS EVEN EARLIER?” (Jose L. Cuisia, Jr., “Putting words in his mouth,” Philippine Daily Inquirer, December 3, 2003, p. A16).
Mr. Cuisia’s question--which included a statement of fact--is an expert testimony that BSP could have simply run after dollar speculators during the crisis. When it instead raised interest rates to 30% “middle ground” rate (p. 76), it became the CULPRIT for the ensuing high incidence of BAD LOANS to banks--avoidable by means of alternatives but not avoided for REASONS BSP has to explain to the people.
However, BSP may have a thousand REASONS for all of its failures in the Asian crisis--but not a single EXCUSE. Thus, I don’t know to all of you, but, to me, BSP MISMANAGED THE ASIAN CRISIS.
MARCELO L. TECSON
San Miguel, Bulacan
October 6, 2008
Cc through separate emails:
Selected executive & legislative government officials,
Selected BSP officials,
Selected members of media and academe,
professional & think-tank organizations,
civil society groups, concerned citizens, etc.