Tetangco took his oath at Malacañang together with two new members of the Monetary Board — former finance secretary Juanita Amatong and former trade undersecretary Nelia Villafuerte.
A career central banker who started as a researcher at the former Central Bank of the Philippines (CB), Tetangco will serve a fixed term of six years as governor of the BSP.
Tetangco is taking over the BSP at a time when the Arroyo administration faces a crisis in credibility with the President herself being linked to fraud during the 2004 presidential elections.
Tetangco expressed optimism that the political uncertainties will not last long enough to cause serious damage to the economy although he admitted the market was reacting negatively.
"It is really a function of how long this uncertainty will last," Tetangco said.
Beyond the political noise, however, Tetangco said that the bigger concern was the suspension of the expanded value-added tax (EVAT) law, which could derail the government’s fiscal consolidation program.
"The E-VAT has been a major source of optimism," Tetangco said. "When it was passed, all our targets and expectations seemed possible. But the suspension of the law has definitely put a cloud over our expectations."
The economic spillover of the political crisis is already affecting the market, with the prices of Philippine bonds taking a huge four-percent hit in New York and causing major investor burn.
Tetangco said these factors put more pressure on the exchange rate, and aggravate the downward trend already present due to the strength of the dollar.
However, Tetangco is not new to economic crisis. He headed the international group at the CB’s Department of Economic Research (DER), which monitored the country’s balance of payments and made projections that were used by banks and creditors.
After the debt moratorium in 1983, the Philippines had been put under the program of the International Monetary Fund (IMF). "The DER was the department that negotiated the ceilings with the IMF and monitored these ceilings," he explained. "It was when I was associate director that we declared the (debt) moratorium."
The Philippines had missed two quarterly payments on its debts, sending its creditors into crisis mode. A bank advisory committee was created, consisting of the 10 major creditor banks that talked to the government on a regular basis.
Tetangco’s job was to estimate the gap between the country’s dollar reserves and its dollar requirements.
"This gap was the basis of the debt restructuring," he explained. "The restructuring was needed to extend the maturity of our debts so that we (wouldn’t) have to use up our foreign exchange and (could) instead use it for other more immediate requirements."
Tetangco recalled the debt restructuring period with a shudder: "We met every day and the decision-making process was down to the level of having to pick between milk and medicine."
As expected, following a debt moratorium, the country’s lines of credit were all cut. Importers could not open letters of credit in order to pay for their imports. Everything had to be paid for in cash so the banks had to set up a foreign exchange pool.
This pool, at the time, amounted to no more than tens of millions of dollars on a daily basis. In contrast, the country’s international reserves now stand at $15 billion.
"Every day we would meet and we had to prioritize payments," Tetangco said. "It came down to deciding which one we would import first: oil or medicine or milk. It was terrifying."
This time around, Tetangco expressed hope the country would not have to go through the debt crisis again. — Des Ferriols