Benjamin Diokno: from “Build, Build, Build” champion to “best central banker in the world”

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THE OUTSIDER WHO OUTPERFORMED Diokno did the heavy lifting for the economy amid the COVID-19 disruptions. —Photo added

Benjamin Diokno knows he knows the limits of monetary policy and says he knows he can’t solve all of the country’s economic problems.

Yet, from the actions of other policy makers in government and the private sector, it is clear that the Governor of Bangko Sentral ng Pilipinas (BSP) has taken on an outsized role in ensuring that the state has the necessary funds. to function, that credit continues to flow to the private sector and confined Filipinos can continue to pay for essential goods electronically.

At the start of the pandemic, Diokno took the initiative to loan more than half a trillion pesos to the national government for budget support, followed a few months later by additional billions in a similar transaction.

Critics initially raised eyebrows at the move, seen as the central bank printing money to fund the government’s budget. But any doubts about the policy were quickly dispelled after it became clear that the funds were essential for the smooth implementation of the state’s response to the pandemic.

Similarly, the central bank chief’s ultra-low interest rate policy has also been viewed askance by conservative analysts who have warned that the move will worsen the inflation situation in the country. Many were particularly uncomfortable with the monetary authority’s shift from its traditional anti-inflationary stance to one more supportive of economic growth.

But, after releasing more than 2.3 trillion pesos of liquidity into the financial system since the start of the COVID-19 crisis, critics have calmed down, seeing how Diokno’s unconventional moves appear to have worked.

External candidate

Everyone was surprised when Malacañang announced Diokno’s appointment in March 2019.

Although he had a good record on the fiscal side of government – having served as budget secretary in two administrations (he was the architect of the “build, build, build” infrastructure program) – no one had included him in their short list of bets to become the country’s next central bank chief.

But nearly three years later, President Duterte’s decision to appoint Diokno as governor, largely backed by Finance Secretary Carlos Dominguez III, proved inspired.

Diokno, 73, was recently named the world’s best central banker by The Banker, an international business, banking and finance magazine owned by the Financial Times.

“I think my experience on the fiscal front actually helped me a lot in doing my job as a central bank governor,” he says. “It gave me a holistic view of the economy, as I perform functions related to the conduct of monetary policy.”

He holds a Ph.D. in economics from Syracuse University in New York and is Professor Emeritus at the University of the Philippines School of Economics. His recognition as the best central bank governor in the world by The Banker is a first in the Philippines.

Diokno, who was also named Asia-Pacific’s Best Central Banker, was chosen by The Banker as the “Global Central Banker of the Year 2022” from a list of regional winners, which included the following central bank chiefs: Peruvian Governor Julio Velarde’s Central Reserve Bank for the Americas; the Governor of the Banque de France François Villeroy de Galhau for Europe; Governor of the Central Bank of Bahrain Rasheed M Al-Maraj for the Middle East; and Bank of Tanzania Governor Florens Luoga for Africa.

According to the publication, the annual awards honor public servants who “have been most successful in driving growth and stabilizing their economy” as the world continues to grapple with the challenges of the COVID-19 crisis.

The banker cites the BSP’s efforts under Diokno’s leadership that have earned him the highest recognition, chief among which is the central bank’s accommodative monetary policy to support economic recovery.

“After experiencing a 9.6% decline in gross domestic product in 2020, the economy rebounded in 2021, registering a 12% increase in the second quarter and a 7.1% increase in the third quarter of the year. ‘last year’, The Banker Notes.

The BSP kept its key interest rate at an all-time low even as inflationary threats loomed on the global horizon last year. He argues that, in the case of the Philippines, slightly high inflation is caused by factors that dampen supply rather than an increase in demand. This means that the best solution is not higher interest rates but administrative measures implemented by the national government.

out of the box

At the same time, the BSP has implemented measures to support the economic recovery, several of which are unconventional by central bank standards.

It counted bank loans to micro, small and medium enterprises as part of financial institutions’ compliance with the reserve requirement, which encouraged more loans to small businesses.

It also started buying government securities in the secondary market at the height of the pandemic, to ensure that liquidity in the financial system remains abundant.

But perhaps most importantly for the man on the street, the BSP has stepped up its efforts to transform the Philippines from a cash-rich to a digital-heavy one.

He has set two goals to achieve before his term ends in 2023: first, at least half of financial transactions in the country are done electronically; and second, at least 70% of Filipino adults have financial accounts.

Diokno believes that faster payment processes accelerate capital turnover and, therefore, revenue growth. At the same time, digitalization promotes greater financial inclusion and makes financial products and services accessible to more people.

So far, the Philippines is on track to achieve these goals. By the end of 2020, digital payments already accounted for 20% of total financial transactions in the country, up from just 1% in 2013. In the second quarter of 2021, the number of Filipino adults with financial accounts doubled to 41 million. , representing 53% of the adult population, up from just 20.9 million in 2019.

“With digitalization, we can unlock income and growth opportunities for the Filipino people,” says Diokno. “Aware of this, the BSP has put in place enabling regulations for financial digitization.”

Bold and fast execution

Many central bank insiders will point out that the reform measures put in place by Diokno over the past three years were the result of long-gestating projects that were being prepared by the institution over the past few years.

What surprised many was the speed with which he ordered the implementation of these plans, circumventing the cautious introductory measures that previous central bank governors favored for good reason.

“It’s good to be careful,” said a senior BSP official on condition of anonymity. “It’s important, especially in central banking, where the simplest decisions affect millions of Filipinos. But sometimes it takes someone outside to say, “Okay, enough research, let’s implement it.”

This, in essence, seems to be the story of Diokno’s unexpected success as Governor of the Central Bank of the Philippines.

Indeed, he may be right to say that a central bank governor cannot solve all of the country’s economic problems. But to the surprise of critics and even casual observers, it helped solve many of them.

And the lives of Filipinos are better for it.

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