Guinigundo: Senate credibility issues may affect economy

Added: 2026-06-02

[00:00:00]The Senate crisis, [music] the AI corridors, governance demands, and the need for BSP tightening all hinge on whether institutions [music] discipline or distort policy. Our next guest has, over the [music] past month, published opinion pieces on the Senate crisis, the nation's state of energy emergency, [music] the Luzon AI corridor, and the Banco Central's dilemma. In each of these, a singular hard truth binds, [music] that the real danger is not that the Philippines lacks policy tools, but that power [music] is often used in ways that deepen systemic risk. Let's ask him why and how. Former Banco Deputy >> [music] >> uh Secretary General Governor and current Global Source Partners Principal Advisor Diwa Guinigundo joins us live.

[00:00:44]It's good seeing you again, DG Diwa.

[00:00:45]Welcome back to the program. [music] >> Thank you very much, uh Cathy, and uh again, thanks for this invitation.

[00:00:52]>> I know, very big issues to tackle. Uh what is a bigger threat now to the economy? Is it external shocks like oil, AI, or the way our own institutions are behaving?

[00:01:04]>> With respect to external shocks, we have very little control. But with respect to domestic issues, particularly uh political issues, I think uh we have better latitude in terms of uh control and uh and management. And for me, you guessed it right, it's institutional uh it's institutional uh uh issues and credibility of our political institutions.

[00:01:31]I think those are the issues today.

[00:01:34]>> And that's uh such a huge assessment coming from a former central banker uh using systemic risk in a different way, as we all know, uh from a central bank perspective, but what exactly do you mean uh the Senate is now putting at risk in that context?

[00:01:52]>> Well, the Philippines Senate is uh perceived to be a pillar of stability and uh you know, and strength of the um of the political uh the political institutions.

[00:02:06]However, when the Senate is uh perceived to be inconsistent with certain principles of the Constitution, issues about uh credibility would actually crop up. So, credibility as well as uh loss of confidence may be an issue and it is becoming an issue. And that could also extend to the Philippine economy in terms of issues about governance. Can the Philippines uh expect or provide uh stability and long-term viability uh to investors? And therefore, in the process, investor sentiment is also uh affected. Uh social cohesion is also affected and that is a an important uh consideration in the calculus of our foreign investors as well as uh domestic uh investors. So, bottom line, uh are we looking at uh a long-term um economic uh viability of the of the economy of the Philippines uh itself? So, those are important uh issues. So, when uh your political uh instability and uncertainty become an important factor in the viability of the economy itself, I think uh systemic risks are generated in the process.

[00:03:27]>> You raise a lot of risks there, uh Deputy Governor, and one that bleeds through to the economy. Let's pick on some metrics and the concrete economic risks. Let's say the peso. I mean, we've seen that fall to record lows, that the borrowing costs now on a steepening trend. And on those very investment decisions uh that your clients are now making.

[00:03:51]>> Well, three weeks ago, when the Senate drama started, the peso was doing at about 60 61 pesos.

[00:04:00]And as the drama unfolds in the next 2 weeks, we saw the significant depreciation of the Philippine peso. So, on that basis alone, we see the strong correlation between politics and even the the the movement of the peso itself. And you you also see that in terms of the risks assigned to Philippine global bonds. And that is shown in the international capital markets. So, those are important considerations, Cathy.

[00:04:37]>> So, what then and how then are you approaching clients overseas when when they ask you what's going on? And what are we supposed to do right now given all the unanswered questions?

[00:04:50]>> Well, what makes the situation different is that the issue goes beyond personalities or partisan disagreements.

[00:04:57]And they are bound to be they are bound to continue for the moment. However, the situation is not is not exactly beyond repair or beyond resolution.

[00:05:12]Because if we look at if we look at some of the proposal precisely to make sure that the Senate is able to restore credibility. I think there are there are there are possible solutions for for the Senate to be able to restore its credibility. And it should do it fast. For example, the Senate can always reaffirm constitutional independence. And that is we we we we we have yet to see that that today or perhaps in the next few days in the way the Senate conduct itself. Uh Number two is to ensure transparency, no? in their leadership. Transparency and consistency with established rules.

[00:06:04]I think they the the Senate can also avoid actions that could create perceptions of uncertainty and volatility. In other words, if these reforms are undertaken by the Senate itself, that could have positive impact on the economy, on perceptions of risks, perception of instability by both business entrepreneurs as well as investors from foreign as well as from from from the Philippine economy itself.

[00:06:36]>> Yeah, as you say, it's not beyond repair, but that window is narrowing. If we take a look >> fast closing in.

[00:06:44]>> It's fast closing in.

[00:06:46]>> Yes.

[00:06:46]>> If we take a look at monetary policy as a lever, I know that in your column, and this one goes way back 3 weeks ago, converging evidence for monetary policy tightening, you did say that the cost of acting late will exceed the cost of acting now, and you called for a rate hike. But how much harder is it for the Banco Central to to anchor inflation expectations now when Congress, particularly the Senate, is sending signals of institutional fragility?

[00:07:18]>> The the work of the Central Bank is even harder today because while the BSP can provide very decisive forward guidance with respect to interest rate as well as the exchange rate, the other um factors pulling it uh apart is the political noise that we hear uh from the Senate.

[00:07:42]So, yes, uh the uh BSP should continue anchoring inflation expectations and even the movement of the Philippine peso much depends on what the BSP is saying or is telegraphing to the markets. Uh it it it it it will it has little control over what the Philippine Senate is doing at this point. But, if the BSP will just continue anchoring expectations and trying to increase public confidence in public policy, particularly on monetary policy, I think it can do its share in helping stabilize the situation.

[00:08:18]>> Well, what does anchoring expectations mean at this point, Deputy Governor, if if it delivers a jumbo hike? What What kind of a message is that going to send the markets if not maybe fear or maybe uncertainty?

[00:08:34]>> Well, you got it right, um Cathy. Uh the BSP should have started doing it last week last year. Uh I think my my columns would evidence uh that argument because even last year there were also there were already signs of uh of risks, upside risks, particularly in the external markets. Um the policy rates could have been uh jacked up as early as last year. But, instead, what we saw was uh another uh another um decrease. Uh another reduction in the policy rate in January. In the February, there was a pause because there was there was an upcycle meeting, but there was a pause.

[00:09:20]Um an upcycle meeting uh is expected to show either an increase or a or a decrease of policy rate. But, a pause is something that the markets have has difficulty understanding, okay? And then there was an increase in the subsequent meeting.

[00:09:37]But, at that time uh you know, as early as February, the forecast already shows uh that uh the average inflation for the year 2026 and 2027 are uncomfortably close to the target already. So, in other words, it could have the the the BSP could have taken a more decisive action much earlier. But, at this time late it may be, but I think the BSP should just uh forge on and continue to provide uh decisive forward guidance that it will take whatever it takes to ensure that uh by 20 end of 2026 or 2027, the uh you know, the average inflation rate will be restored to the original target.

[00:10:26]>> But, that's only half the solution, Diwa. I mean, there's the fiscal uh policy, uh the fiscal spend that we've been waiting for, the catch-up spend.

[00:10:36]Where now and what? And uh what role, given the institutional crisis that you're seeing in government?

[00:10:45]>> Yeah, you are right there, um Cathy, but uh the fiscal policy is beyond the BSP.

[00:10:52]Uh what can be done, of course, is uh you know, coordination of the public of public policy in terms of monetary and fiscal policy at the DBCC, uh Development Budget Coordinating uh Coordination Committee. Um yes, [clears throat] uh the fiscal space is getting narrower and narrower by by the months because fiscal deficit continues to mount, and um public indebtedness continues to increase. And uh not only that, as we were explaining earlier, the the systemic risk actually um comes from another political uh political institution like uh the Philippine Senate. And the you know, the the the criticism, constructive principle criticism can provide the Senate the basis for self-correction.

[00:11:47]And when they when the Senate decides to correct itself and yields to a political political opinions or public opinion, then we have some some hope that democracy is not is not dead in the Philippines, you know? And that could also provide additional hope for investors.

[00:12:08]>> I'm going to latch onto that word hope.

[00:12:11]Diwa, I know you've called the Luzon AI corridors possibly our last chance for leapfrogging as supply chains and technology shift.

[00:12:20]But how realistic really is that leap if our political institutions are in your own words eroding their credibility at the same time?

[00:12:29]>> Well, that is the biggest challenge, governance, Kathy.

[00:12:33]But the framework is there.

[00:12:36]The possibilities and the opportunities are there.

[00:12:40]It is up to the Philippines to take the challenge and provide order and provide the actual action on the framework that already exists.

[00:12:52]If we are able to do that and if the government is able to do that and show investors, okay, that it is serious establishing those AI economic corridors from Luzon down to Southern Luzon and on to the Visayas and Mindanao, I think we would be able to leapfrog the economy. If we continue to adhere to the traditional industries without the benefit of AI, without the benefit of innovation, it will take us many, many years if not decades to be able to catch up with Vietnam, to be able to catch up with the rest of the ASEAN five. What we need is to what what they what what people called we have to break the mold and allow innovation to be the next layer of industrial policy in the Philippines today. There's no other alternative, you know? If we continue to adhere to the old ways of doing things and pursuing industrial policy, we will continue to be in the category of low middle-income countries for the last 38 years.

[00:14:07]>> All right, I'm going to hold on to those screenshots and the the positives in what you just said, the constructive criticism. Former BSP Deputy Governor Diwa Guinigundo of Global Source Partners, thank [music] you.