Confusion and clarity


Ben-KritzALTHOUGH I am generally impressed by the work the BSP does to maintain important components of the Philippine economy, there are times when I have to wonder if their heads are really in the game, so to speak, because of the confusing statements they issue.

For example, BSP Governor Amando M. Tetangco Jr. weighed in on the announcement that the US Federal Reserve would end its quantitative easing (QE) program on Thursday with a statement that had all the appearance of something he copied from the Bad Translator website.

“The Fed’s announcement of the end of taper was widely expected, and to the extent this confirms the underlying strength of the US economy, it should be positive for the emerging market economy trading partners, including the Philippines,” he said, adding, “This also takes out one aspect of uncertainty in the market.”

However, Tetangco seemed to contradict himself with something that sounds very much like uncertainty with his next thought, “language that the Fed could keep rates low for a considerable time could still keep market participants on the lookout and therefore still mean some market volatility before the actual lift happens.”

I think what he was trying to say was that since emerging market economies have known about the end of QE for quite a while and have had time to adjust to that eventuality, there is no real reason the formal declaration of the program’s end should have a negative effect, and instead would be a long-term benefit due to the “normalization” of the US economy.

What came across, however, was that the end of QE somehow signals an opportunity to sell more exports to the US, but that at the same time the Fed’s decision to keep its interest rates low for now would send a mixed signal to securities markets, resulting in their being somewhat unstable for a time, which by implication would be however long it takes for the Fed to finally raise interest rates.

Tetangco’s statement comes across as a stack of non sequiturs. On the face of things, it does not follow that the end of QE will result in increased trade activity between the US and emerging market economies like the Philippines, and it does not follow that local market volatility will be the result of low interest rates.

But, we have to remember Tetangco takes a central banker’s big-picture view of things.

Simple logic dictates that if an advantage for one partner in a transaction – in this case, the advantage enjoyed by US customers of emerging market exports due to the somewhat artificial economic boost of the QE program—is removed, the disadvantage for the other partner is eliminated. So in that sense Tetangco was correct; we might expect to see a short-term dip in trade until the US economy fully adjusts to the loss of QE, but taking that intervention out of the equation is a good thing in the long run, because now trade markets can behave naturally.

As for the markets, Tetangco was right as well, but only because most global markets have been expecting higher US interest rates; the longer that expectation is unmet, the more volatile the markets will tend to be. And we might well wonder if that really applies to the stock market in this country; one thing that could be argued is that certain knowledge that low interest rates will continue for some time—which is exactly what the Fed said—tends to boost markets because it frees up some investor spending. The Philippine Stock Exchange index seemed to confirm this latter conclusion the day Tetangco made his statement, posting a gain of a little more than one percent.

On the other hand, that could be a case of mistaking correlation for cause; the PSEi, given its tendency to substantially respond to things like “feeling a weird vibe,” and “I thought I saw something out of the corner of my eye” might have closed higher for reasons beyond the ken of the human mind. Or maybe somebody brought donuts to the trading floor that day. Who knows.

The real problem is not what Tetangco said but the way he said it, which could easily be misconstrued in some significant ways—for example, it could be taken as leading businesses to invest in export markets that aren’t there yet, or discouraging equity investors from putting more into the local stock market.

And that might ultimately be less his fault than it is the local media, which tends to be uncritical of any statement from government officials and seems to assume that making sure the quotes are accurately reproduced is the actual point of the media’s role in society. The media, however, has been around longer than Tetangco has, so its shortcomings should not really come as news to him. He could do himself and the rest of us a big favor by remembering that, and making at least an attempt to be a little less cryptic at times.

* * *

Clarity might have taken a vacation in the BSP press room this week, but was available by the truckload at The Manila Times Business Forum, “Business as Usual in Unusual Times,” held at the Dusit Makati this past Wednesday. Several people have asked me to write my impressions of the conference and its contents, and I suppose I will do that in more detail in one fashion or another over the next weeks and months, but the amount of knowledge gained was an impressive volume to try to absorb and process, so that will take some time.

There was, however, one broad takeaway from the forum that I believe should underpin the perspective and approach of everyone trying to solve, or find a way to live with or work around, or even to form an opinion of the Philippine-China maritime “dispute”: Almost everything that has been said or done about it by any party—that includes the Philippines, China, other Asean countries, Taiwan, Japan, the United States, and the United Nations—has been inadequate, too simplistic and unidimensional for what is not just a complex issue, but really a whole bagful of issues. Which is probably why, despite being embroiled in a disagreement that half a century ago would have had both sides mustering their military forces against each other, the Philippines and China are so eager to maintain and even expand their business and economic relationships.

China is not quite the enemy many people in this country have been led to believe it is. By the same token, it is not quite the opposite of an enemy; Chinese interests and its own national responsibilities do conflict with those of the Philippines in some critical ways, and that is a problem because both countries have every right to have their own. Understanding better what those “interests and national responsibilities” actually are on both sides is the best and really the only first step on the path to a mutually agreeable and mutually beneficial outcome.

I hope our forum provided for its delegates, if not the full understanding, at least a clearer direction towards gaining it; it certainly did for me. So quite apart from being pleased to have been associated with such a successful event—and a little amazed, frankly, at the herculean efforts demonstrated by a lot of people to pull it off in a manner that wildly exceeded the most optimistic expectations—it was one of the most incisive and purposeful events of the sort that I’ve seen in a long time. It seems the talented, hardworking people of The Manila Times—outnumbered but never outgunned—are really good at this, and my sincere thanks to them for letting me be a part of it is more than worthy of a public airing.
We’ll do it again. Don’t miss the next one.


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