OF SUBSTANCE AND SPIRIT By DIWA C. GUINIGUNDO Diwa C. Guinigundo Last 6 February 2020, the International Monetary Fund (IMF) issued a press release on the completion of the Philippines’ 2019 Article IV Consultation. Under Article IV of the Articles of Agreement, member countries are required to undergo the Fund’s surveillance process where a team of economists visits a member country to assess its economic and financial developments. The team consults with National Government, central bank officials, some members of Congress, business and banking groups and other members of civil society. The assessment is presented before the Fund’s Executive Board which represents the entire Fund membership of 189 countries. A debate may take place at the Board between the staff and any member of the Board including the representative of the authorities of the subject member country. The debate could be on any key issue which could pose special concern to the Fund as part of its global and regional surveillance. At the end of this process, a press information notice is issued. The staff report is uploaded on the IMF website and may be accessed by the public. I am quite familiar with this process, having had the opportunity to serve as a member of the Board representing the Philippines during many of similar assessments. From 2001-2003, I was seconded by the BSP as alternate executive director of the Australian constituency where the Philippines was grouped with Korea, New Zealand, Mongolia and some Pacific island economies. That particular period was most significant. This was the period of 9/11, the Jamaican sniper, SARS, the second Gulf War, the Argentinian default of December 2001, the beginning of a serious review of the Fund’s unprecedented number of conditionalities and prolonged use of Fund resources. My baptism of fire started several weeks after my arrival in Washington DC in January 2001, right after the three-day second EDSA revolt. While welcoming both the peaceful transition of power from President Estrada to President Macapagal-Arroyo, and the progress shown by the passage of the General Banking Law, Securities Regulation Code and Retail Liberalization Act, the Fund expected more. Still on the back burner were the power sector reform, BSP charter amendments, rehabilitation of then government-owned Philippine National Bank, and measures to strengthen tax administration. The Anti-Money Laundering Act (AMLA)of 2001 was yet to be approved in July. I was armed only with statistics and assurances of my counterparts in the National Government that policy reforms will be pursued at all costs. Then BSP Governor Paeng Buenaventura, on my last day before I flew to Washington DC, cautioned me that he would find it difficult to convince Congress to pass all the key components of AMLA and therefore, we should be non-committal on congressional support. At the IMF, I highlighted the significant outturns in economic performance since the Asian Financial Crisis (AFC) of 1997-99 and several congressional achievements. I had to be generous with my hyperboles in describing the unrelenting efforts of authorities in having the remaining structural reforms passed by Congress. It was important to stress that since Congress is an elected body, appointed officials like us could not commit them. To assuage the Fund’s concern, we argued that majority in Congress belonged to the Administration party. Of course that did not prevent some members of Congress from posing challenges to Governor Paeng on his advocacy for combatting money laundering, which later on, encompassed terrorist financing following the September 11 events. The battle at the Executive Board was half won because of the emerging economic scenario. The macroeconomic picture, to the Fund staff, was at best, mixed even as it recognized that the economic outlook had improved. Looking back, of course, 2000 was the second year of the next 18 years of sustained economic growth of the Philippines. Even today, these reforms contribute to significant economic and social gains such as our fairly recent credit upgrade to investment category and the prepayment of all the country’s obligations with the IMF in 2006. At that time, inflation was a non-issue partly because of stable food prices. The Executive Board was supportive of the prevailing monetary policy stance but it was not fully convinced that the shift to inflation targeting could be done in mid-2001. They argued that fiscal consolidation was necessary to avoid fiscal dominance; that the BSP charter needed to be amended to ensure an independent central monetary authority; and the peso had to demonstrate an independent float to attain autonomous monetary policy under inflation targeting. Twenty years today, we are wiser. Fiscal consolidation has been successful. Several phases of tax reforms have been launched and implemented. As a result, our tax effort has improved significantly, our fiscal deficit is the envy of many, and our debt to GDP ratio has been better compared to many global metrics. Of course, last year, the BSP charter was amended, giving the BSP greater powers, fiscal autonomy, and stronger basis for implementing monetary policy. This development notwithstanding, during the Article IV consultation of 2000, the Board duly noted that even without these amendments, the BSP has been firm in ensuring its independence from National Government while strengthening its partnership and collaboration through the NEDA and the DBCC. And finally, the peso after the AFC and the Global Financial Crisis (GFC) of 2007-2009 has truly become more market-based in its independent float. Some Directors actually cautioned the BSP against potential tightening of the FX regime. Today, the IMF recognizes that even at the height of the GFC, the BSP started to liberalize its FX regime without significant backlash from increased capital flows following the global financial turmoil. The BSP has also widened its coverage of data shared through the Fund’s Special Data Dissemination Standard. The BSP shifted to inflation targeting at the beginning of 2002. The Executive Board also expressed the need for more policy reforms in the areas of taxation and in the corporate, power, banking and labor sectors.  The Board advised these would be fundamental to reduce the country’s high unemployment rate. For the next 20 years, these reforms were all undertaken.  The macroeconomic picture showed a vast sea of change and unemployment significantly came down, with our unemployment rate showing even better levels than those in advanced economies especially after the GFC. Fast forward to 2020. The Executive Board concluded the 2019 Article IV Consultation with the Philippines by considering and endorsing the staff appraisal without meeting “on a lapse of time basis.” This means that unlike 20 years ago and thereafter with the exception of the last two years or so, there has been no major economic or financial issue that warranted a full discussion at the Board. This means that while still raising concern on the need for bolder implementation efforts to ensure stronger footprints of reforms including those on infrastructure, foreign investment, poverty reduction, climate change adaptation and bank secrecy, the Fund has sufficient confidence there will be strategic convergence between policy and implementation. Onwards on the Road to A!