President Duterte must not look outside the BSP for outgoing Governor Tetangco’s replacement.
WHEN BSP Governor Amando Tetangco Jr. steps down from the post he has held for an unprecedented 12 years in July, not only will the Philippines be losing the services of the best central banker it has ever had, the global quality of central bankers in general will diminish at least a little. Tetangco’s departure also will be coming at a potentially perilous time for the Philippine economy, a confluence of circumstances that will require his successor to be instantly confident in his new job, and prepared to act decisively.
This is not the time to hand over a key national post to a loyal friend or political ally, or elevate a maverick from the hinterlands for the sake of “shaking things up.” While President Rodrigo Duterte fortunately seems to understand his limitations when it comes to economic matters—he has on occasion candidly admitted he is neither particularly skilled nor interested in the topic—and choose competent managers to handle it, the position of BSP governor is so important right now that this point almost demands emphasis: There are only two acceptable candidates for the job, and both of them are currently Tetangco’s deputies. Even considering anyone else is unnecessary, and might even be considered irresponsible.
The next governor of the BSP will have to juggle four troublesome issues from the moment he sits down in his new office. In no particular order of importance, these are 1) inflation that is rising a bit faster than anyone anticipated, and doing so independently of 2) a depreciating peso, which has fallen to levels not seen in more than a decade and probably will decline further; 3) foreign reserves that, while still relatively healthy, have been gradually shrinking; and 4) a current account balance, which banking giant DBS this week forecast would slip into a deficit by year-end, and fall to about -1 percent of GDP by next year. Although DBS’ numbers differ somewhat, the Singapore-based bank is not alone in its outlook for the current account.
A couple of more mundane issues the next BSP head will also have to deal with are likely changes to the country’s anti-money laundering laws and regulatory structure, and, possibly as soon as the end of this year, the merger of the country’s stock and bond markets. Neither of those things will have a big impact on the macroeconomy if they are handled correctly, but could have grave implications if they are not.
As an institution, the BSP is starting the post-Tetangco era from a position of strength, and the need for continuity makes it imperative that either Deputy Governor Diwa Guinigundo, who currently oversees monetary stability, or Deputy Governor Nestor Espenilla Jr., who heads the Supervision and Examination section, be named as Tetangco’s successor.
Both Guinigundo and Espenilla have been with the central bank since it was actually called the Central Bank, each having about 35 years’ of service. Besides being appropriately educated—Guinigundo has a Master’s in economics from the London School of Economics, Espenilla has an MBA and a Master’s in policy science from Japan’s Graduate Institute of Policy Science—both have seen action in multilateral institutions. Espenilla was with the IMF for two years in the 1990s, and is the BSP’s representative to the G20 Global Partnership for Financial Inclusion as well as the Basel Consultative Group. Guinigundo, who also had a stint with the IMF, is co-chair (along with Bank Negara Malaysia) of the Southeast Central Banks (SEACEN) Experts Group on Capital Flows and chairs the SEACEN task force on membership.
The most important attribute both Guinigundo and Espenilla have is intimate familiarity with the people of the BSP and the way the central bank works as an organization. The country’s next central banker is not likely to have the luxury of time to learn everyone’s name and whom to call to get certain tasks completed; likewise, the organization will work more effectively because it will not have to “get to know” and develop trust in its new leader.
Between the two, Guinigundo may have an edge because of his current role in overseeing monetary stability, but neither would be the wrong choice. What would be the wrong choice is someone outside the organization.
Other names that have been floated as possible successors to Tetangco include former president Gloria Arroyo—a suggestion that Duterte rejected on Monday—and EastWest Bank president Antonio Moncupa, who apparently has the endorsement of Duterte’s PDP-Laban party. Arroyo, while universally recognized as a competent economist, is not a banker. Moncupa, although an experienced banker with a good reputation, is a politically motivated choice for a position that must be kept completely apolitical, and is unsuitable on those grounds even if no other.
While Duterte’s assertion in his Monday press conference that his eventual appointee must be a consensus choice, it’s still his call. He should make the right one, and promote one of Tetangco’s deputies to succeed him.