BSP launches book on financial system

Last Friday, the Bangko Sentral ng Pilipinas, led by BSP Gov. Eli Remolona Jr., formally launched a new book titled “Risk and Resilience in the Philippine Financial System,” with former Central Bank and BSP governors Jose Cuisia Jr., Amando Tetangco Jr. and Felipe Medalla in attendance, while Mrs. Tess Espenilla represented her late husband, former BSP governor Nestor Espenilla who had been a key participant and witness to the old Central Bank and BSP negotiations with key creditors during the Philippine debt crisis in the 1980s.

Members of the Monetary Board present during the book launch were led by Romeo Bernardo (who apparently was the proponent of the book project), Walter Wassmer and Jose Querubin. Not in attendance was Finance Secretary Frederick Go, who was part of President Marcos’ official entourage to Canada. I also did not see MBM Rosalia de Leon.

Retired Supreme Court Justice Artemio Panganiban, at a still youthful-looking 88 following his well publicized stem cell treatments,  was a special guest of honor, along with Securities and Exchange Commission chairman Francis Lim,  Philippine Deposit Insurance Corp. president Bobby Tan and top bankers including Bank of the Philippine Islands president T.G. Limcauco, who incidentally arrived in a gleaming and impressive black BMW Series 7, were there to personally get a copy of the book.

Gov. Remolona, who co-authored La Década Perdida Ensnares the Philippines - Chapter II of the book  with Justin Ray Angelo Fernandez, wrote in his foreword of the book that the  publication follows four decades of Philippine crises and how each reshaped the country’s sense of strengths and weaknesses, beginning in 1983 and how the debt story changed over time.

The book is  a compilation of seven chapters written by different authors and edited by Ramon Moreno and Veronica Bayangos. The authors are from within and outside the BSP. They include  Gov. Remolona, Justin Fernandez, Johnny Ravalo, former BSP Deputy Governor Diwa Guinigundo, Faith Cacnio,  Dante Canlas, Hazel Parcon-Santos, Jose Tancangco,  BSP Deputy Governor Zeno Abenoja, Dennis Lapid, Elisha Lirios and Benjamin Radoc.

Gov. Remolona pointed out “This book does not  just retell the causes and costs of these past crises. It asks what each crisis changed in how the Philippines faces risk, how it borrows, supervises banks and learns from mistakes. The story is one of resilience built slowly and unevenly, but deliberately.”

“None of these changes — from debt fragility to more resilient balance sheets, from vulnerable banks to a sturdier system and from a narrow view of crisis to a more forward-looking approach to risk — is an accident. They reflect decades of turning lessons into laws, institutions and habits. Yet resilience is not a fixed state. The challenge now is to sustain and deepen it while pursuing growth, inclusion and innovation, without recreating the weaknesses that past crises exposed,” he wrote.

In his opening remarks during the book launch, Gov. Remolona cited that “Nobel laureate Robert Shiller once said that narratives shape economic outcomes. So, it is not just the numbers we love to model, but the stories that people tell. Markets, after all, are made of people, and people do not respond to economic data alone.

“They respond to what they hear from friends, what they read in the news and increasingly, what they see on social media. That is why we wrote this book. It tells the stories behind some of the most important financial crises in our history, and those stories matter.

“Unless we understand how narratives spread, we cannot fully understand how crises unfold. Sometimes, the most dangerous narrative is the reassuring one. As (economist Hyman) Minsky famously observed, too much stability can create complacency and plant the seeds of instability.

“We have seen this over and over. We saw it in the Dewey Dee episode, we saw it in the Asian Financial crisis, we saw it in the global financial crisis, and we saw it in the pandemic.

“In every case, overconfidence allowed vulnerabilities to accumulate until, all of a sudden, confidence disappeared and gave way to panic and catastrophe.”

Gov. Remolona contributed to the chapter on “La Década Perdida,” or the lost decade. He explained that the term belongs to Latin America, but the Philippines was part of it.

“Indeed, Paul Krugman said the Philippines is part of Latin America, except that it is on the wrong side of the Pacific. So, the characters change, the details change, but deep down, the stories are the same. They teach an enduring lesson. Buffers must be built before a crisis, not during one.

“Capital must be strong before losses emerge. Supervision must be credible before confidence is tested. By understanding how these vast crises unfolded, we become better equipped to question optimistic narratives, detect risks earlier and respond more effectively when the next shock comes. The numbers will always matter, but so will the stories we tell about them.”

This book is a must-read for those interested in the Philippine financial system, but as Gov. Remolona pointed out, it is does not  retell the causes and costs of the past crises, as indeed those stories are much more revealing and perhaps shocking if they are ever revealed.

I had the privilege of starting my journalism career, particularly in covering the old Central Bank under then CB governor Jose “Jobo” Fernandez Jr. who was then villainized for his role in negotiating the country’s debt burden and keeping a lid on the country’s foreign reserves. I was totally naive then and basically believed the narrative that Gov. Jobo was an arrogant banker and bureaucrat. It was much later that I finally learned the truth from other members of the Philippine debt negotiating team, and those stories are worth knowing — if they will ever be publicly written and revealed.