Governor and FSCC Chairman Benjamin Diokno

Authorities must implement the necessary strategies to ensure the smooth transition of the Philippines’ financial system to the so-called new economy, according to a Financial Stability Coordination Council (FSCC) report released on Wednesday.

In its “Financial Stability Report” for the second half of 2020, the inter-agency council warned that there would be uncertainties on the road toward the new economy, saying “authorities need to address these… so that all stakeholders can make informed choices of their own transition.”

“With the damage that Covid-19 (coronavirus disease 2019) has already created, we believe that consumer preferences, risk behaviors and how things will be done in the new economy will be fundamentally different in key aspects,” Bangko Sentral ng Pilipinas (BSP) Governor and FSCC Chairman Benjamin Diokno said in the report.

One suggestion is for authorities to define the market landscape for the new economy as a prerequisite.

“The FSCC believes that the path ahead depends on how we define the future market landscape, so that we can create our own transition to that common destination,” Diokno said.

For instance, the council said, the landscape would be defined by a premium on physical space and an increased use of technology, largely to sustain that premium.

Authorities, it added, must decide the extent to which the new economy reflects fundamental changes in the behaviors and confidence of both households and businesses. This would then affect the way fiscal, monetary, banking and economic policies are currently framed and executed.

They must also institutionalize the interconnections between industries and between firms when assessing economic prospects and in managing unfolding credit concerns.

“Rather than look at each economic activity on its own, the authorities can generate a snapshot of the interlinkages across industries, based on the existing business connections already reported by firms,” the FSCC said.

According to the council, authorities must distinguish welfare support expenditures from conventional fiscal policy accounting; assess the viability of a multiyear perspective for fiscal policy stance; manage risk aversion by addressing the uncertainty premium by institutionalizing spot yields, which can be used in either credit or securities markets; and engage all stakeholders on emerging systemic risks, including the need for more timely and granular data, as well as the more frequent exchange of information.

Finance Secretary Carlos Dominguez 3rd said during the report’s release that it “highlights the importance of crafting responsive fiscal and monetary policies to support our recovery and help Filipinos return to their means of livelihood.”

He also urged policymakers to implement timely and effective monetary and fiscal policies as the pandemic continues.

“These policies are crucial to the management of evolving systemic risks during this period of general uncertainty. They are also the very tools we are using to build a new and more resilient economy,” Dominguez said.

The FSCC is composed of the BSP, Department of Finance, Insurance Commission, Philippine Deposit Insurance Corp. and Securities and Exchange Commission. It is the venue for financial market authorities to identify, monitor, manage and mitigate the build up of systemic risks in the Philippine financial system.


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