Regional financial regulators believe the economic downturn resulting from the pandemic could warrant “unconventional interventions” from governments beyond the normal toolkit for dealing with crises, which in themselves could also be sources of future financial instability.
Benjamin E. Diokno, governor of the Bangko Sentral ng Pilipinas (BSP), co-chaired a meeting Tuesday of the Regional Consultative Group for Asia (RCGA), during which participants sought to map out likely scenarios for the economic crisis moving forward.
The participants recognized the need for “unconventional interventions” that could affect market conditions over time.
“What is clear is that there remain systemic risks, both risks to the financial system and risks by the financial system itself,” Mr. Diokno said in a statement, without elaborating.
Regulators typically deal with crises with monetary and fiscal tools that raise the supply of money in the system through various means of policy easing, or else make life easier for businesses by relaxing the tax regime to stimulate growth. The danger of excessive easing is that too much money could end up circulating in the financial system, generating asset bubbles and stoking inflation. An overly lax tax regime could impact government revenue and make it less capable of meeting obligations.
The RCGA members said a balance needs to be struck between the response to the current needs of the market while guarding against any possible longer-term implications.
“The questions have sharpened as we now see clearer, but apparently more divergent paths in front of us,” Mr. Diokno said.
“Knowing how these different paths affect each one of us will require a lot of discussion to fully appreciate its holistic interactions,” he added.
The meeting was attended by representatives from 17 Asian economies.
The FSB was established in 2009 to organize the reform of the financial system after the 2007-2009 global financial crisis. The RCGA is one of six regional committees created by the FSB in 2011. — Isabel B. Celis