THE EVOLUTION OF THE PHILIPPINE MONETARY POLICY
* The chief monetary authority of the Philippines is the Bangko Sentral ng Pilipinas or BSP. Bangko Sentral ng Pilipinas, established in June 1948, is considered as the main monetary authority of the Philippines because it acts as a policy guide to the direction of money, banking and credit. It is here to control operations of banks and implements administrative powers over non-bank financial institutions. It manages aggregate demand from growing fast causing high inflation, or from increasing too sluggishly that would result to high unemployment. The main aim of BSP is to stimulate price stability since it has power over the circulation of money in the economy.
The policy-making group of BSP was the Monetary Board in 1991. It comprises of the governor of the Central Bank as chairman, the secretary of finance, the director general of the National Economic and Development Authority (NEDA), the chairman of the Board of Investment, and three members from the private sector. BSP controlled the marketable banking arrangement and the country's foreign currency system to achieve its functions.
* Severe recessions occurred in the modern macroeconomic history of the Philippines. Especially in the 1980s and 1990s, the contemporary macroeconomic history of the Philippines has been manifested by periodic balance of payment dilemmas together with immense devaluations that result in high inflation. As a prerequisite for the discharge of emergency funds, severe monetary and fiscal programs were employed by the IMF that followed these issues.
* A supply gap, domestic saving averaged 25 percent of GNP which was about 5 points in percent less than the yearly gross domestic capital formation, was occupied with foreign capital from 1975 to 1982.
* On the average, GNP’s domestic saving proportion decline between 1893 and 1989. The weakening of domestic saving during this span was due to the effect of the economic dilemma on personal savings that progresses more because of poor government saving. This also led to the deterioration of investment, which only means that for three years span, gross investment was surpassed by domestic savings.
* BSP interfered widely in the country’s financial life starting from the moment it created operations until the early 1980s. When modified for inflation, interest rates on both bank deposits and loans were set negative. Through a widespread system of rediscounting, central bank was stretched to commercial banks. With BSP’s assistance in the 1970s, the banking system decided to choose foreign credit on agreements’ that in general, disregarded foreign-exchange risk.
The association of these factors alleviated against the expansion of financial intermediation in the economy, the increase of long-term saving in particular In 1980s, the contributing financial factors to financial chaos is the reliance of the banking system on funds from BSP at low interest rates.
* In the beginning of the 1980s, the government presented a number of monetary measures to augment the banking production's capacity to offer adequate amounts of long-term finance. Through promising mergers and consolidations, efforts were applied to increase the gap of capital base of banks. To augment the competence of the banking industry and to improve the inflow of long-term saving, unibanks or expanded commercial banks was established. Banks with a capital base exceeding P500 million were considered as qualifying banks which were allowed to develop their operations into a variety of new activities, merging commercial banking with activities of investment houses. This functional partition among other groupings of banks was condensed, wherein rural banks and thrift banks were eliminated.
* In the early 1980, the government implemented monetary and fiscal policies to subsidized huge intermediation margins that...
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