‘Excessive public holidays hurt the economy and the financial system’

On more than one occasion, I have written about our holiday policies. I consider them anachronistic. Too many holidays are disruptive of the economy’s forward progress.

Cost of excessive holidays to the productive base. A reasonable set of holidays spread over the year gives the nation’s workers and businesses pause to observe dates of national significance and reverence.

When the holidays exceed this reasonable limit, as will be seen in the note on holidays of 2015 below, the nation’s productivity is likely to be adversely compromised. I have explained this in a reference to holidays and national development.

Today I discuss the potential adverse impact on the financial system.

Untoward effects on the banking and financial system. It is also not often understood that intermittent and unplanned holidays can cause damage to the efforts designed to make the country’s financial and capital markets catch up with global trends.

Our financial system handles a large amount of transactions that principally involve all the banks in the country – the commercial banks, thrift/savings banks, rural banks and all quasi banking institutions.

In turn these institutions facilitate the transactions of all economic agents like you and me – investors, savers, depositors, consumers, manufacturers, traders etc.

To handle the clearing and settlement of all these daily transactions, the Bangko Sentral (BSP) employs a system called PhilPass. This system of payment works because each of these banking and bank-like institutions maintains deposit accounts with the central bank against which claims on these deposits can be settled.

The PhilPass also handles the transactions of third party system providers such as the Philippine Clearing House, Megalink, Bancnet, and the Philippine Dealing Exchange. Thus, it also settles the transactions in the stock and bond exchanges of the country.

There is only one big problem. The PhilPass operates like it is a government clerk maintaining office hours. During weekends, it doesn’t work. During holidays, it is closed. When our banks are not operating due to holidays and PhilPass is also on holiday, global counterparties cannot transact with them. Large transactions are forced to wait.

Thus, when holidays are unpredictable, untold havoc is wrought on the clearing of important financial transactions.

Financial settlement as a function akin to a public utility. In a truly efficient financial system, settlements should be made in real time.

In our slower system, PhilPass takes a vacation. It will clear only after the banking day is open, and that is according to the time determined by the central bank.

There are prudential reasons why the central bank might use banking days and hours as helpful breaks in the settlement process to keep the nation’s financial system more safe.

But if we are to move forward more boldly into the future, some reality check needs to be exercised. Of course we make sure the fiscal and monetary authorities do their job of stabilizing the country’s macro-economy.

With a reasonable set of holidays and the usual weekends, it might be tolerable to keep pace even if somewhat slowly with modern banking. But in a country with erratic and large numbers of public holidays and non-working holidays, the nation’s financial growth could be stifled.

Think of our international transactions and foreign partners needing to conduct their business with the least possible delays. How can we truly say our country is global-ready?

In fact, we can think water or electricity, We get water when we turn on the faucet. Should PhilPass and the BSP be a little more modern and behave more like a public utility?

A note on the holidays of 2015. According to Presidential Proclamation 831 issued on July 17, 2014, the following were announced as the holidays for 2015 (So as to be clear, I provide a number for each holiday):

Regular holidays: (1) New Year’s day - Jan. 1; (2) Maundy Thursday; April 2;  (3) Good Friday - April 3; (4) Araw ng Kagitingan [Day of Valor] - April 9; (5) Labor Day - May 1; (6) Independence Day - June 12; (7) National Heroes Day - Aug 31, last Monday of August; (8) Bonifacio Day - Nov. 30; (9) Christmas Day - Dec. 25; (10) Rizal Day - Dec. 30.

Special non-working days.  (11) Chinese New Year - Feb. 19; (12) Black Saturday - April 4; (13) Ninoy Aquino Day - Aug. 21; (14) All Saints Day - Nov. 1; (15) –Jan. 2; (16) – Dec. 24; (17) – Dec. 31; Special Holiday for all schools: (18) EDSA Revolution Anniversary - Feb. 25; (19) July 17 - Eid’/Fitr (Ramadan feast); (20) Eid’ul Adha

More non-working holidays announced later. During the year of 2015, many new holidays were declared. These “surprise” holidays are non-working holidays of two kinds, announced from the Office of the President.

First are local holidays to commemorate the foundation day of that locality. Except for Manila, these holidays had benign effects on the economy: (21) Rizal Province Day - June 11; (22) Manila Day - June 24 - Foundation Day; (23) Batangas Day - Sept. 8.

The second types are public holidays (affecting only government services) and special non-working holidays (affecting both government and private sector) which are listed below: (24) - Jan. 15; (25) - Jan. 16; and (26) - Jan. 19. These three public holidays took place in Manila during the visit of Pope Francis.

Four public holidays were recently announced to accommodate the APEC Summit meeting, namely: (27) - Nov 17; (28) Nov. 18; (29) Nov. 19; and (30) - Nov. 20.

All in all there are 30 holidays so far. Of the total, there are 10 regular public holidays listed in the original proclamation for 2015. All other holidays are “non-working holidays”, “Public (sector) holidays, or local holidays. There are 20 of these non-working holidays. Of the three local holidays, only that of Manila had some significance.

The President uses the discretion to declare holidays more than the regular holidays defined for him by Congress!

My email is: [email protected]. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

Reference:

“Holidays and National Development,” pp. 178-180 in G.P. Sicat, Weighing In on the Philippine Economy and Social Progress, Anvil, 2013.