Looking Out for Number One

Sometime in the not too distant past, political observers cynically claimed that this title could well have referred to Paeng’s attitude and his supposedly strained relations with the present Administration. An appointee of former President Estrada, it was then widely held that his was a sensitive position that President Macapagal-Arroyo may want to fill with her own choice. But Paeng dismisses such talk, and demurs that that was all "another time, another place". Along with the key members of the current government, they’re all now on the same page, and Number One can now only refer to us, the country, the Philippines.

The time for excuses, for ifs and buts, for dissembling, for scratching our heads or burying it in the Pinatubo sand is over. Take a trip to Thailand or Singapore, and you’ll know exactly what I mean. There’s progress and prosperity etched on the landscape, such that you can practically touch and feel them. When you come back to Manila, you sense that things may be happening here, but it’s at a level of growth and intensity that pales in comparison. And to complicate matters further, the terrorist attacks on New York and Washington and the uncertainty over the fate of the "world as we know it‚ puts the hopes of substantial direct foreign investment in this country for the near future at a pretty dismal not likely".

When I pushed him to give an overview of the situation given the succession of events after the terrorist attacks, Paeng says, "While there is still confusion as to exactly what will transpire, we can now say that if there was a suspicion that a recession in the United States was forthcoming, the events of the past week have pointed to a certainty of that happening for the short term. There are selective defense-related stocks that moved up and public sector spending will rise; but consumer confidence, which buoyed the American economy, will decline. And while an initial reaction for the countries whose currencies are dollar pegged may have been to go elsewhere, when you look around there really is no viable alternative. The dollar remains the best possible option. The currency fluctuations we have been subjected to come from globalization at one level, coupled by and exacerbated by the domestic problems we are experiencing."

When I visited Paeng at his office, he was in the midst of conferring with both Houses to pass the Anti Money Laundering Bill. It was then a situation that held dire consequences for the local banking system. With the Houses then on recess, the urgent nature of the work meant that Paeng had to ensure that the matter would be acted upon immediately upon resumption, in no case later than September 30th.

This was the deadline set by the Financial Action Task Force (fatf), and which, as events proved, was duly met. As to whether the bill passed met the stringent standards of the fatf is still to be seen. "Original intent of the fatf was set up in 1988 to stop drug money from becoming legitimized. Eventually, this was expanded to other criminal activities such as kidnapping. In the year 2000 we were identified as a country without anti-money laundering laws. We tried to address that with administrative circulars, telling banks they had to know their customers. Then, we put in place mechanisms for reporting suspicious transactions. We sponsored, through some members of the legislature, bills which would have criminalized certain activities, and allowed the Central Bank access to deposits, to investigate accounts. But fatf insisted we still had excessive bank secrecy, to the point where you could hide or launder money. Realize that Switzerland, Singapore and even Russia have passed muster with the fatf.

"So now we stand at a point where the danger of sanctions are imminent unless we can show that an effective anti-money laundering law is in place. It’s a matter of balance–we have to protect confidentiality, while satisfying the fatf. With the sanctions, the banking system here would be in disarray. So much of what we take for granted as part of the service the banks can offer its clients will be delayed or eliminated while sanctions are in place."

Asked if there were still far reaching changes he would like to institute in our local system, Paeng replies, "Greater transparency, greater disclosure. This is in order to discourage some unscrupulous owners and managers from hiding behind the law. Whether it’s the secrecy of deposits or the inability of the Central Bank to effectively prosecute some of the illegal activities. That’s why the imf and the World Bank have criticized our banking reform as inadequate. Look, you have the case where we investigated, found just cause to close a bank and then we get sued! Who is the law protecting or favoring? The estafador or the regulator? In other countries, examiners are granted immunity. Also, when the government comes in to bail out a bank with government money, it has the ability to take over. Dito, hindi. The legal process is so tedious, you end up compromising."

Having just returned from the trip to Japan with President Macapagal-Arroyo, Paeng expresses cautious optimism. "One bright spot is the official development assistance (oda) that Japan continues to assist us with. If used properly and maximized, this can go a long way in spurring economic growth. If we can grow domestically for the next 18 months, waiting for the global economy to perk up, we should be okay. Infrastructure, services, market driven factors that can boost domestic growth, these have to be the priorities. In the long run though, we will have to attract foreign direct investment from countries besides Japan. But to get to this Point B, we first have to attend to Point A."

He continues. "Remember, Japan has an aging population, so they look to us as a pool of skilled labor, able to provide manufacturing and services. They were very impressed with the President, and look very warmly towards us. All they ask, as with any country in the region, is security and guarantee of protection for their people who come over. Well, this is something we have to work at."

Countering that these salient points all seem pretty obvious and yet we never get our act together, Paeng had to admit that we keep wasting our time. It does seem that we, as a nation, take some guilty pleasure in continuously shooting ourselves in the foot, perhaps even in the head. "We just have to grow up. This government is certainly trying its best. We have very competent economic managers. I just hope the global problem we have now with terrorism does not affect us too badly."

If there’s presently one area of finance that Paeng is more than ready to expound on, it’s micro-finance. "Looking for a way that the Central Bank can contribute towards poverty alleviation; we felt that it was by providing credit to the marginalized society. Let’s face it–all traditional lending is collateral-driven; so we had to find an alternative scheme. We looked at successful grameen-type lending institutions that had been implemented globally. In India, Pakistan, Bangladesh, former Soviet states, it’s been done, getting rid of the 5-6. Charge people market rates but no collateral and limit the amounts lent to any one individual. We work closely with rural banks, NGOs and commercial banks. There’s a formula for successful micro-finance and the CB plays a role by providing training and systems implementation to these establishments that will lend. The information system has to monitor the lendings daily. This is going to the poor who want to start a small carinderia or shoe repair shop–you lend them P2,000 to P5,000. The most you’d lend to any one borrower is around P100,000. And mind you, the ones that have started it here, for example, in Laguna, their collection efforts reach up to 98 percent. In other words, the poor can be good credit risks, if handled properly. You don’t charge them exorbitant interest rates and you utilize peer pressure within the community of borrowers."

In a way, it’s Paeng and the Central Bank playing a role in creating development from within. President Macapagal-Arroyo has made self-reliance and poverty alleviation two of the central themes of her administration, and however the Central Bank can comply, its Governor is ready to lead.

Life as Central Bank Governor has not diminished his love for the game of golf. It’s time now that has become so precious and makes those 18 holes and maintaining his 17 handicap a wistful dream. In order to improve on the time he can spend with his loved ones, Paeng and Marivic (Rufino) try to get away on weekends. He turns the cellphone to silent mode and checks regularly on whose calls or messages he should return. Otherwise, it would be a barrage of calls at odd hours, requesting for comments on this or that finance-related issue.

The Central Bank has always been proud of their art collection and justifiably so. Paeng’s years with Marivic, who’s an artist, have given him a deeper appreciation of the collection. He recounts that Marivic even tried to get him to take up the brush and use Chinese painting as a meditative or therapeutic exercise. He jokes, "She had to give up on the idea after a few attempts, and believe me, I don’t think the CB will be acquiring my ’works‘ in the future!"