An (Imagined) Conversation With PBBM

(On Feb. 14, 2022 I conducted an imaginary interview with then Presidential candidate BBM where I predicted his victory. Today I speak with BBM as President.)

HL: Mr. President, wow, the last time we met you were running for office. Now here you are President of 110 million Filipinos. Congratulations. What does it feel like? 

PBBM: Yeah, I am so grateful and honored to be leading this great nation.

HL: Does it feel like a vindication?

PBBM: 36 years ago we left Malacanang rather hurriedly. It is good to be home again. Mom is so excited.

HL: Did VP Leni ever concede the race?  

PBBM: Leni did not Viber but maybe she is on WhatApp. She is a fine woman who was never given the chance to properly serve the country.

HL: The one year ban on Government positions for those who ran in 2022 is soon over. Would you offer Leni a Cabinet post? She may decline but it would be a master political stroke. It means you are truly a unity Government.

PBBM: Hmmm. Let me run it by the First Lady.

HL: Some other Cabinet changes? Gibo Teodoro (DOF, DND, ES)? You could use the new blood.

PBBM: Liza is preparing the memo.

HL: What do you say to “the yellows and pinks”?

PBBM: March with me or be left without me.

HL: You have a mandate from 32 million Filipinos, what have you done or want to do with it?

PBBM: I am aware of the high expectations for my Administration. I am working on it.

HL: Your economic team has been widely praised. What has that dream team accomplished so far?

PBBM: Let me think. The Maharlika Investment Fund?

HL: Why this obsession with the Fund?

PBBM: The Fund allows me to fast track our infrastructure without always having to run to Congress for the money. The Fund will allow me to write my own checks.

HL: Speaking of Cabinet appointments why is DOH still vacant?

PBBM: OMG, I totally forgot. Let me remind Liza.

HL: What about yourself. With all the problems in agriculture do you have time to be both President and DoA Secretary?

 PBBM: I want to show how much I care about agriculture.

HL: You realize you will be accountable for the corruption and inefficiencies in the department?

PBBM: Yes I do.

HL: But nobody can fire you so how does that work?

PBBM: Exactly. That is the privilege of being President.

HL: In your Inaugural Address you promised to hit the ground running. People say you have little to show for it.

PBBM: My Dad always said the best things in life are worth waiting for.

HL: For how long? In the meantime inflation is at a record high, we have a Php 14 trillion debt, over 20 million Filipinos live below the poverty line, we are the last in the world in science, math and comprehension, and then there is the corruption. You promised an economy on steroids.

PBBM: I can understand the frustration but I inherited this situation, not created it. We are working on our problems even if the public does not see it.

HL: Maybe you need to communicate better. All we seem to get from the Palace are Christmas, Valentine and Easter messages of love and kindness. Do you pen these personally or do you use ChatGPT? 

PBBM: Hahaha. You are funny.

HL: The criticism is this Government is all talk, a Government by Power Point.

PBBM: That is unfair. For example NEDA just completed a thousand page 5 Year Development Plan. I still have to read it but I am told it is a cliff hanger.

HL: The perception is your priority is to see the world.

PBBM: You know we live in an inter-connected planet. It is important I have face to face contact with the leaders of other nations in case we need their assistance or co-operation. Plus these foreign trips bring in billions of critical foreign investments.

HL: Yet the BSP announced that foreign investments fell by 23% in 2022 and again this year. 

PBBM: Maybe I should travel more. 

HL: What about the Formula One trip to Singapore?

PBBM: As they say all work and no play makes Jack a dull boy. 

HL: Should you not be promoting Philippine rather than Singapore tourism?

PBBM: My advisers were opposed to that trip but what is the point of being President if one cannot have a little fun? Liza and I deserved a break after a hectic campaign so give that to us.

HL: On foreign policy: You have made a reverse pivot to the U.S. America and its allies are erecting a wall against China stretching from S. Korea to Australia to Taiwan to Japan; anchored by a U.S. military presence in the Philippines. A private equity firm with State Dept. support has bought into Subic for use by the U.S. navy. EDCA has been re-launched in four sites. What are we getting out of all this? You have stated you want us to be neutral in the U.S.-China conflict.

PBBM: Subic was a private sector rescue following the Hanjin bankruptcy so it was a bail out for our banks that had lent money to them. Our military also wants to restore relations with the U.S. and what my generals want my generals get. I repeat, my foreign policy is to be friends with all.

HL: What will you tell Premier Xi when you see him on your next trip?

PBBM: We admittedly have a love-hate relationship with China. Maybe I should focus on the love.

HL: It does not help that we are hosting POGOs against the wishes of China.

PBBM: POGOs have contributed to our economy but I can understand China’s position. A compromise may be to relocate the POGOs in neutral territory like the Spratleys.

HL: Speaking of the military DOF Sec. Ben Diokno reportedly wants to downsize the pensions of our soldiers approved by President Duterte because it is unaffordable.

PBBM: Aargh. Why is Ben saddling me with this problem knowing how sensitive it is? Why did he not oppose the plan when he was on the Duterte team? He has been assuring me our debt load is manageable so he should go find the money and stop whining.

HL: Change subject because you are clearly upset: Will you be handing President Duterte to the International Criminal Court?

PBBM: The War on Drugs may have been overdone but PPRD meant well. There are other world leaders who are committing worse crimes.

HL: Local politics: People say you are getting set for a multi-generational family dynasty. You seem to already be grooming Sandro. The First Lady has been mentioned as a potential place holder until the kids come of age.

PBBM: You must be crazy if you think Liza wants the job.

HL: Even if she is said to be the power behind the throne?

PBBM: Do not believe those stories. Liza just wants to chill.

HL: What about your nephews or your sister Imee? Will they be given a crack at the Presidency in 2028?

PBBM: Let me talk to Liza.

HL: And Sara? It is said you gave her a graveyard job at the DepEd when she wanted Defense.

PBBM: I cannot speak for the VP but Sara will always have a special place in my heart. Her ROTC idea is brilliant.

HL: The two biggest problems of our country are poverty and corruption yet you rarely allude to them?

PBBM: I want to focus on the positives. 

HL: Is corruption and poverty improving?

PBBM: Let us not go there.

HL: How will you curb corruption?

PBBM: By making everybody happy.

HL: Do you worry about your reputation and legacy?

PBBM: People see others through the prism of their prejudices. Reputation is what people think of you, character is who you are. I am going with character.

HL: After 9 months you, Sir, are still an unknown quantity. Who is BBM?

PBBM: BBM is a man who showed up when 32 million Filipinos wanted him to show up.

HL: What is your message to the nation as we approach your Government’s anniversary?

PBBM: Be kind and love one another.

Questions You Have always Wanted To Ask

With the anniversary of this Administration quickly approaching here are multiple choice answers to questions you may have always wanted to ask:

1. How would you characterize the Marcos Presidency of the last 9 months?

• Well travelled.
• Busy, busy, busy.
• A stealth Government.
• What you hear is not what you see.

2. What is the greatest achievement of this Government so far?

• A 32 million electoral mandate
• A pivot back to the U.S.
• A Presidential couple so in love.
• Let me think.

3. Greatest failure?

• Wasting a 32 million mandate
• Not minding the store.
• Lethargy.
• Corruption.

4. What advise would you give this Administration?

• Stop aiming for home runs, focus on hitting singles.
• Good governance is not about good policy but the execution of good policy.
• Success is 99% perspiration and 1% inspiration. Do the hard and dirty work that goes into building a nation.
• Walk the walk, not talk the talk. Humanize our economic problems as in inflation is not an economic number, it is one less meal a day for many Filipinos.

5. What are the falsehoods of this Government?

• The Maharlika Investment Fund is the silver bullet that will save this nation.
• Presidential trips bring in billions to the country.
• A Php 14 trillion national debt is “manageable”. I estimate the interest on this debt is some 12% of our National Budget, larger than the budget allocations of all departments except possibly DepEd’s; and growing faster.
• Economic growth will wipe out our debt.

6. What are the memorable quotes of this Administration, (more or less)?

• “The Philippines will grow its way out of debt. There is no need to sell Government assets like PAGCOR and NAIA”- DOF Sec. Diokno when he assumed office (In 2022 we grew by 6% but so did our debt by almost Php 1 trillion).
• “The Maharlika Fund is the best thing since sliced bread and it is all the President’s idea.” – Our economic managers.
• “The Maharlika Fund presented by our economic team is a mess.” – Rep. Stella Quimbo, co-author of the revised bill, when presented with the first draft.
• “P20/kg rice is just around the corner.”

7. What have you always wanted to ask but never did?

• How has our economic growth helped the poor?
• What does the President’s Private Sector Advisory Council really think of the Maharlika Fund?
• What does the President do during and after office hours?
• Who is running the country?

8. What is the greatest risk to our nation?

• Climate change and drugs.
• A Presidential family dynasty.
• The Maharlike Investment Fund (MIF).
• The loss of our institutional  checks and balances; the politization of our economic managers.
• An uneducated population.

9. What will the Philippines look like in 2030?

• A nation of over 120 million barely educated, barely healthy Filipinos.
• A sovereign debt approaching P20 trillion equivalent to today’s GDP.
• A country with deadly heat and destructive storms.
• A nation where clean water could cost more than gas.

10. What does the Philippines need most now?

• Much less corruption.
• A more vocal private sector.
• A working leader with an economic strategy.
• A few people to be hung from a lamp post.
• Prayer.

11. What can our young look forward to?

• A call center job.
• A green card.
• Getting drunk on weekends.
• Not much.

12. What do we tell our children?

• Suck it up
• Choose your leaders well, be engaged.
• Care for your countrymen.
• Good luck

What Does the Silicon Valley Bank Have To Do With Us?

In March three medium sized U.S. banks got into trouble – Silicon Valley Bank (SVB), Signature Bank and First Republic Bank – sending financial ripples through the U.S. banking system and financial markets worldwide. These were followed by the overnight collapse of Credit Suisse, the 167 year old iconic Swiss bank. 

Fortunately the aforementioned banks were bailed out by their central banks through liquidation or shot gun marriages with stronger financial institutions. Unlike the 2008 crisis this one was quickly nipped in the bud and further failures should be contained.

There are some key take-aways from the U.S. mini crisis. One, unlike in 2008 when the collapse was due to bad mortgage credits, this one was precipitated by a liquidity crunch and failure by the banks’ management and regulators to spot the interest rate or duration risks on the bank balance sheets. The assets of SVB consisted mainly of excellent quality U.S. Treasuries and Mortgage Backed Securities (MBS). The problem was these were long duration securities whose value plummeted when interest rates rose. In SVB’s case the markdown was $1.8 billion which pretty much wiped out the bank’s capital. SVB was funding long term assets with short term deposits.

Two, the deposits of the three U.S. banks were chunky with many exceeding the FDIC insurable deposit of $500,000 so it did not take many depositors to flee to create a run on the banks. The Fed regulators failed to spot the risks in concentrated deposits particularly when coupled with the banks’ asset/liability mismatch.

Three, because the assets of the failed U.S. banks were below $250 billion, the banks were not subjected to the Fed’s stress test conducted on the bigger money center banks like JP Morgan, Bank of America and Citigroup. The stress tests are supposed to signal risks under various credit, market, duration, and interest rate scenarios.

Four, unlike years ago when bank runs would unfold over several days and even weeks, this one occurred literally within hours. SVB and Credit Suisse lost $40 billion and $10 billion respectively in deposits in one day alone. The chunkiness of the deposits was a factor in the rapid flight of money but with social media, the speed of information and easy mobile transfers, bank runs can happen even before management and regulators have time to step in. In the case of Credit Suisse all it took were two words from the Chairman of its biggest shareholder the Saudi National Bank (“Absolutely not” when asked if they would inject more money into CS) to cause panic withdrawals.

Five, unlike in 2008, the large private banks helped the FDIC contain the problem. A consortium of banks led by JP Morgan immediately deposited $30 billion into the First Republic Bank to shore up the latter’s liquidity and show the market they had confidence in the institution. UBS with the prodding of the Swiss National Bank salvaged Credit Swiss under duress preventing what looked to be a messy situation.

Six, the crisis highlighted the role of smaller regional and community banks in financing small businesses and commercial real estate. The fall of SVB & Co. will lead to a contraction of credit in these sectors and slow the economy deterring the Fed from further raising interest rates aggressively.

What is the impact of this last U.S. bank crisis on the Philippines?

The answer is almost none partly because by and large Philippine banks are strong and partly because the worldwide contagion was quickly snuffed by the rapid actions of the regulators. When they occur Philippine bank failures have been mostly among our rural and small development banks which are under-supervised.

However the U.S. crisis has some lessons for us:

One, it highlights the dangers of contagion and systemic risk in an economy. It is therefore relevant that Congress is poised to legislate the Maharlika Investment Fund which by its size, unconstrained mandate and lack of effective governance and accountability poses an existential danger to our economy and our banking system. When fully formed, the Fund will be larger than the Bangko Sentral, the PDIC, the Landbank and the DBP together. Should the Fund fail there is no lender of last resort big enough to contain the fall out. It will be a bunch of sailboats trying to rescue an aircraft carrier.

Two, the U.S. and Swiss crisis emphasized the importance of a robust central bank. Yet the Makarlika Fund is defanging the BSP by channeling funds originally allocated for the BSP’s capital; into a Fund that is left to its own economic and political devises.

Three, high interest rates have unintended consequences. We need to review the efficacy of raising the cost of money to contain inflation. The BSP just hiked its benchmark rate to 6.25% with Gov. Philip Medalla intimating that further hikes are in the offing. Despite over 400 basis points increase in interest rates in the last year prices continue to be elevated (when in other countries they are falling) suggesting our inflation is not principally due to excessive demand and liquidity but to factors like corruption and cartels in our food supply chain and housing shortages. In the meantime the escalating interest rates are hurting businesses and consumers slowing our economic recovery. Perhaps the BSP should consider options other than interest rates like decreasing the money supply through quantitative tightening where the collateral damage is more distributed and delayed.

Four, the BSP and the Treasury need the private sector in the event of a major Philippine financial crisis. The Government alone is unlikely to cope with a catastrophe given its limited fiscal space and borrowing capacity. Speaking of the latter despite DOF Sec. Diokno’s assurances that our sovereign debt is manageable and will organically decline with economic growth, our borrowings increased by almost a trillion pesos to P14 trillion in the last year even with a 6% GDP growth. 

Five, we need to examine the P500,000 limit on insured deposits. The latter is over 20 years old and has not kept up with inflation and the economy. It is equivalent to 2% of the U.S. limit of $500,000. The premium for the PDIC insurance is paid by the banking industry which will be the first to oppose any rise in the premium rate even as it will be the first to run to the PDIC when things get hairy.

Six, it is time to reassess the Philippine bank model. Banks are a unique industry in that, protected by a franchise, they are allowed to leverage themselves 10-15 times their capital mainly through deposits. This leverage has resulted in banks having some of the highest return on investment to shareholders compared to other businesses; while neglecting their role as intermediaries to the credit starved small businesses and agriculture. 

The U.S. crisis highlighted the role of regional banks in supporting small businesses. In the Philippines banks openly discourage small depositors for being unprofitable. Small accounts are charged disproportionate fees for deposits, foreign exchange and remittances. Recently my bank (which is among the top tier) offered to pay me 1.75% p.a. on a dollar time deposit even when others were offering 4-5%. When challenged, the bank agreed to double the rate. This example of banks taking advantage of unsuspecting depositors and borrowers is not unusual and they should be called out on it. Regulators and legislators should prescribe equal opportunity rules for small bank clients.

The growing distrust of bankers has spawned fintech settlement systems like GCash and PayMaya in the Philippines, Alipay in China and PayPal, Venmo and Square in the U.S.; which now offer shadow banking services like deposits, remittances, payments and loans to small clients. These alternative banking platforms are a growing threat to traditional financial institutions. The question is whether these fintechs should be subject to the same capital, reserve and liquidity requirements and BSP supervision as banks. In China shadow banking has become a problem.

The Government is set to merge the Landbank and the DBP to strengthen the combined finances and save on fixed costs with LBP the surviving entity. Yet the same Government is about to carve out over 50% of their capital or P75 billion to finance the Maharlika Fund. What the Government giveth it takes away. The merger will also muddle the mission of these two institutions – the LBP was originally mandated to support agriculture, the DBP industrialization. Legislators may want to review the merger in terms of its confusing mission, the consequent layoffs and the quality of their respective management. I recall a time when the LBP was said to have one of the worst management and balance sheets and was kept afloat largely by Government deposits. Is this a case of shoring up the LBP? We do not know but legislators may want to inquire.

The Philippine banking system is safe but this does not mean it is doing its job where most needed i.e. to intermediate monies fairly across economic sectors and classes. Like airlines serving mercenary routes, the banks should give back to the community.