CENTRAL BANKING FOR SOCIO-ECONOMIC DEVELOPMENT

A central bank is a premier financial institution. As a central monetary authority, it

supervises the banking institutions and regulates the non-bank financial institutions. It’s
very familiar function is the granting of loans to the government and to the banking
community. "Through its various monetary policies and monetary tools, a central bank
plays a major role in helping the national economy move towards higher levels of
stability, employment, and growth.

However, in the pursuit of such economic goals, a central bank should tailor its
development approaches to the changing and increasing needs of the economy as
well as that of society. Otherwise, its existence has no social relevance. Such central
bank cannot effectively respond to the real needs of the people.

Under the present conditions, inflation, unemployment, economic recession, and

population explosion are not only the major problems. A more deep-rooted problem is
the widespread social injustice. It is most evident that economic opportunities are not
open to all. The distribution of the productive resources of the economy is not fair. The
delivery of the most basic social services- housing, health and education- has not
touched many poor people.

The main thrusts of the new government are rural development and agricultural
development. These are relevant to our socio-economic development because most
of the people live and work in the rural areas. The roots of poverty are deeply
penetrated in such areas where agriculture is the main source of livelihood. With more
dedication and sincerity from the Ramos government, our own Bangko Sentral should
discharge its social responsibility because it is the right thing to do.

THE RIGHT TO DEVELOPMENT

Development is a dynamic process which involves the interaction among various

economic, social, cultural, political, and religious factors. The result of such process is
growth which is visible and tangible like factories, houses, cars, crops, schools, and
hospitals. However, in a poor country, development assumes a more specific and
relevant meaning. It means a sustained effort at the elimination of hunger, disease,
ignorance, injustice, and inequity. This does not only mean the betterment of the
economic welfare of the poor but also the promotion of their inherent human dignity.
One of the most precious gifts of God to man is human dignity. Without it, man is
useless.

The central purpose of all economic and social development programs is to meet the
human needs. Participants of the 1977 International Conference on Human Needs
declared: "The satisfaction of human needs is indeed the whole purpose of growth,
trade and investments, development assistance, the world food system, population
policy, energy planning, commodity stabilization, ocean management, environment
protection, monetary reform, and arms control."
It is very unfortunate that poor countries cannot even satisfy the most basic needs of
their peoples. Basic human needs refer to those which are required for survival, such as
enough food, clean water, decent shelter, and access to health services and
educational opportunities. Every man must have the freedom and opportunity to satisfy
his needs. And the society where he belongs has also the responsibility to help him help
himself. Such freedoms and opportunities are basically linked to the right of man to live.
The President of Senegal Supreme Court, Keba Mbaye, said:

The right to development is a human right because man cannot exist without
development.

TWO DIFFERENT WORLDS

We live in two different worlds and the disparities between them have been increasing.
These are the fruits of inequities in the global system. It has created two worlds. One is
the world of the rich; the other is the world of the poor. A curtain of poverty separates
the two worlds. One world is literate, the other mostly illiterate; one industrial and urban,
the other largely agricultural and rural. In the world of the rich, goods and services, are
abundant. Their only concern is the betterment of their quality of life. They are busy in
pursuing their higher needs. On the other hand, in the world of the poor, they are
painfully striving for sheer physical survival. Their lives have been destroyed by hunger,
disease, and ignorance.

Believe it or not, two-thirds of mankind exists on less than 30 cents a day. There are
about one billion illiterate people all over the world despite the presence of the tools of
education. There are about 70 percent of the children in the Third World who are
suffering from malnutrition. In fact, 40,000 children die every day due to malnutrition.
And yet the world has the resources to feed them. On the other hand, the rich countries
spend several billions of dollars every year for the food supply of their favorite dogs. In
the arms race, the superpowers spend more than $900 billion a year. Such huge
amount is more than enough to erase global poverty from the face of the earth.

Furthermore, we have an unjust distribution of the world's resources. The rich countries
consume about 20 times more of the resources per capita than the poor countries. In
the case of the United States, it consumes about 40 percent of the goods and services
of the world. Also, in the Third World, millions of people work under the heat of the sun
from morning to dusk in exchange for miserable wages. Such condition is unfit for the
dignified existence of man. He has become a beast of burden.

THE PROMOTION OF HUMAN DIGNITY

Development is not only the abundance of food, clothing and shelter. It is more than
the passage from poor to rich, from agricultural to industrial economy. It includes justice
and equity. Above all, development is primarily concerned with the promotion of
human dignity. Without human dignity, man is just like an animal. He can be insulted,
exploited, maltreated, or even killed. Slaves have no human dignity. This has been
taken away by their masters. The United Nations fully supports the social philosophy that
the development process must promote human dignity. In addition, the United Nations
declares:

1. The aim of development should be the constant improvement of the well-being

of the peoples on the basis of their full participation in the process of
development and a fair distribution of its benefits;
2. Each country has the right and responsibility to choose its means and goals of
development, such as the implementation of progressive economic and social
reforms; and
3. All countries have the duty, individually and collectively, to cooperate in
removing the obstacles that the hinder mobilization and utilization of resources.

The UNESCO Director-General has stated:

The social reality of development is something much more than material well-being.
Human dignity is at least as important a part of it as happiness, and that dignity is
meaningless except in relation to those values which make life worth living and of which
culture is both the custodian and the critic, the repository and the originator.

DEPRIVATIONS OF THE RURAL POOR

In the less developed countries, like the Philippines, a great majority of the population
live and work in the rural areas. Agriculture has been the principal source of their
incomes. Since the productive resources of agriculture are unjustly distributed, and
these are not very productive, most of the rural folks are extremely poor. Moreover, the
seasonal activities in agriculture only provide part-time jobs to the rural residents. The
few commercial, industrial and service sectors in the rural areas cannot employ the
millions who are jobless.

Aside from basic economic deprivations, the rural people have not experienced
adequate social services, especially primary health care. The only available option
open to them is the services of the quack doctors and faith healers. Even school
facilities are inadequate in remote villages. Agriculturists and other extension
technicians seldom visit such areas. Thus, they have been bypassed by modern
development, and therefore, have missed the fundamental opportunity to participate
in the march to progress.

RURAL AREAS - ROOTS OF POVERTY

Employment opportunities are extremely few and far between in the rural areas. The
fruits of agriculture- the biggest source of incomes belong to very few rich families. Most
of the rural folks are tenants, laborers, or sharecroppers. Rural poverty has been deep-
rooted in unjust social, economic, and political structure. Such deprivations of the rural
poor are conspicuous in the villages of Asia, Africa and Latin America. The physical
appearances of their villages obviously show that modern civilization has not touched
them.
In view of the apparently hopeless situations in the rural areas, not a few rural folks go to
the cities in search for a better life. Evidently, they are aware of the very dim chance of
getting jobs in the cities. But still they prefer to take the risk rather than chain themselves
in eternal poverty. Such large-scale escape from rural poverty has caused very rapid
urbanization. By the year 2000, more than 50 percent of the population of the world will
reside in the cities. And most of this influx of people will occur in the less developed
countries. As a consequence, the big cities have been experiencing economic and
social problems which are beyond their control to solve. These are problems directly
related to employment, housing, education, health, and sanitation.

SMALL FARMERS - "BOAT PEOPLE" OF AGRICULTURE

In urban societies of the world, the poorest of the poor are called "boat people." They
have no lands of their own. They live in their small boats. They also use their boats as the
principal source of their livelihood. A good example of these landless groups are the
boat people of Hong Kong. Likewise, in agriculture most of the tillers of the land are
landless. By any social standard, this situation is devoid of social justice. According to
Thomas Jefferson, real democracy does not exist if there are slaves of agriculture. In the
case of our country, the land reform program under the Marcos rule has been a failure.
It has only succeeded in benefitting the suppliers of agricultural inputs- fertilizers,
pesticides, insecticides, tools, and so forth. Dr. Ernest Feder, agricultural consultant of
the United Nations, claimed that the land reform program of the Marcos government
has only promoted the substantial profits of the multinational corporations who have
been supplying the inputs of agriculture. And this has been made possible through the
manipulations of the United States and the World Bank.

The small farmers who are landless are the poorest of the poor. They are exploited by
their landlords. In spite of their starvation compensation for their hard labor, they are
forced to render humiliating services to their landlords and their families. Of course, it
was worst during the early medieval times. Farm workers were not even allowed to
leave their villages. If the daughter of a peasant decided to be the wife of a man
outside the land of his lord, the latter would give his consent only if he received
payment. Peasants could not hunt and fish without permission of the landlord, who got
the biggest fish, wild pig or deer as his share. In Austria, at the height of feudalism, every
bride was required to sleep - as a matter of cultural tradition with the landlord during
the first night of her wedding.

The Miseries of the Urban Poor

Urbanization is a symbol of economic growth. However, this is only true in developed

economies. People from the countryside go to the cities because jobs are waiting for
them. When more factories and other business industries are established, more workers
and employees are needed. Such expansion of the industrial and commercial sectors
paves the way to urbanization. Housing and other essential social services are
simultaneously developed to serve the needs of increasing urban population. On the
other hand, urbanization in the less developed countries is never a sign of economic
prosperity. Extreme rural poverty has forced the people of the villages to move into the
cities in the hope of improving their economic conditions. Such huge urban migration
from the rural areas has generated enormous economic social and political problems
for the big cities. The biggest cities of the world face a population explosion of
unprecedented proportions. By 2000, more than half of the projected world population
of 6.1 billion will live in the cities. Mexico, with a population of 18 million, is the biggest
metropolis in the world.

Here are some scenes of the miserable plight of the urban poor:

 In Cairo, squatters have set up their houses in rich men's tombs.

 The bottom quarter of the urban population in most African and Asian cities
cannot afford even minimal housing.
 People put up their shanties in steep hillsides, river banks or in swamps despite the
threat of landslides and floods.
 In Mexico City, 1.5 million people live on the drained bed of a Salt Lake be
devilled by dust storms during the dry season and floods during the rainy season.
 In some of the favelas (slums) of Sao Paulo, Brazil- the largest industrial society in
Latin America- infant mortality is over 100 per thousand live births.
 Urban dwellers are rapidly becoming a majority of the population. Most of them
live in the developing countries. Most of the most populated cities in the world
are now in the developing countries.
 Makeshift settlements can be found on the outskirts of almost every city in the
less developed countries. They live in abject conditions: lacking water,
sewerage, and solid waste disposal facilities, electricity, and paved streets.

THE JOBS OF CENTRAL BANKING

As the central monetary authority, the Bangko Sentral ng Plipinas does not only control
the volume of money supply but also the allocation of available credit facilities.
Through the' banking system and the government, the Bangko Sentral channels its loans
to the various sectors of the economy. Such sectoral allocation is based on the priorities
set by the government. Under the Ramos government, the major program priorities are
food production, housing, employment, education, and health. Nevertheless, the main
focus of the economic recovery strategy is on the development of agriculture and the
countryside.

Moreover, the Bangko Sentral, through its various monetary tools, can mobilize savings.
Such capital information provides funds for production of goods and services. The
principal target of the Bangko Sentral is domestic financial mobilization. Heavy reliance
on foreign loans has been discouraged due to our mountain of debts from foreign
sources whose interest payments consume 50-percent of our export earnings. Also, the
Bangko Sentral extends loans -either from domestic or foreign sources- to the
government for its various socio-economic programs and projects.
Rural Development Programs and Projects

Rural development is primarily concerned with optimum utilization of resources human,

economic, social, and physical based on self-reliance. It is planning from- the bottom. It
involves the active participation of the people not only in planning but also in decision-
making and implementation of their own programs or projects. The role of the
government is to extend technical and financial assistance. Such development
approach is likely to ensure the success of rural development undertakings for the poor.
Communities which have adopted such principle of rural development have greatly
improved the socio-economic conditions of their rural poor, such as the communes of
China.

In the Philippines, many of our major rural development program and projects have
been funded by the United States, Japan, Australia, and other rich countries. These
include roads, bridges, irrigation, electrification, water supply, communication, health
and school facilities. The World Bank and the Asian Development Bank have granted
substantial loans for our rural development which is the main focus of their
development assistance program.

Aside from the promotion of small and medium-scale industries, our rural development
program is basically - in a given area through a systematic manner agricultural
development program. Such emphasis on this area is its great capacity for generating
jobs. Through the rural banks, Philippine National Bank, Land Bank of the Philippines and
the Development Bank of the Philippines, a large amount of Bangko Sentral funds has
been flowed into the rural areas. Here are some of the agricultural credit facilities of the
Bangko Sentral:

- Orchard
- Masaganang maisan
- Cotton
- Gulayan sa kalusugan
- Barley tobacco
- Ipil-ipil
- Expanded yellow corn
- Backyard piggery
- Cooperative marketing project
- Backyard poultry
- Food quedan
- Duck
- Cottage industry
- Goat (backyard)
- Kalabaw ng barangay.
- Cattle (backyard)
- Integrated rural financing
- Biyayang dagat
- Integrated agricultural financing
Housing the Urban Poor

During the arrival of Spanish colonizers, Manila had only about 2,000 people. There were
only 40 Chinese. The colonial administrators encouraged Chinese immigration to
expedite the development of many sectors of the country. In 1903, Manila had about
220,000 residents. At present, it has about 7 million populations. Such massive influx of
people has been brought about by rural people who have been constantly chasing
fame and fortune in the cities. The rural population movement has created slums and
squatters in the urban communities. The millions, who have been unlucky in their
desperate search for decent jobs, employed themselves as street or sidewalk vendors,
scavengers, pickpockets, snatchers, hostesses, and prostitutes.

The population of Metro Manila at present is about 12 million. By 2000, it will be about 15
million people. This simply means more demand for jobs, houses, schools, hospitals,
electricity, water, and other essential social services. Most families live in rooms and
apartments which are unfit for human habitation. Because of the law of supply and
demand, rentals for bed spaces, rooms and apartments have greatly escalated. Those
who cannot afford to pay put up their shanties along river banks, railroads and
seashores. Others erected their makeshift houses in vacant public lots. The poorest
groups sleep in Rizal Park, under the bridges and in underpasses.

Housing program of the government

Our urban development program- which is primarily a housing program- is largely

funded by the World Bank. It has been noted that the housing program of the previous
government was beyond the reach of the poor. Under the present government, it has
envisioned a housing program which is affordable even to the poorest of the poor.
Such program is also funded by the World Bank. Nevertheless, the Bangko Sentral can
also participate in the housing program for the poor by extending soft loans for housing
projects through the government and the banking system. The urban poor can avail of
such housing credit facilities to be able to own their houses and lots on very easy
installment scheme.

Here are the concepts and approaches in sheltering the urban poor:

1. Housing is seen as a whole process of development, embracing all the needs

important to man, his community and the place he lives in;
2. Majority of the housing programs must be for the poor since they have the
largest need for decent shelter and deserve government assistance;
3. The residents must actively participate in improvement of their communities;
4. Housing benefits, designs, and costs are planned according to the ability to pay
of residents;
5. Investments must be recovered either directly from beneficiaries or indirectly
from other sources to sustain the efforts of the government to provide shelter to
the urban poor;
6. Housing is the concern of everybody, thus every sector of society must contribute
to the solution of the housing problem;
 7. All agencies of the government, both local and national, must participate in the
total housing program; and
8. Private resources must be mobilized to satisfy the housing need.

The Social Responsibility of Central Banking

The main function of central banking is the management of money. The proper
management of money can lead to price stability, more jobs and better economic
growth. With the vast resources and powers of the central bank of any country, it can
greatly influence the direction of the financial system towards the attainment of major
economic goals.

However, in a society where hunger, disease, ignorance, squalor, injustice and inequity
are rampant, a central bank has a greater responsibility to such society. It is an exercise
in futility for a central bank to stabilize the financial system within a sick society. Banks
and other financial institutions cannot possibly operate profitably under such
unfavorable environment. A central bank, therefore, must not only pursue price stability
and economic growth if these do not touch the lives of the poor masses. Price stability is
useless if most of the people are jobless. Economic growth is meaningless if the fruits of
development do not seep down to the level of the poorest of the poor.

Credit is the key factor in accelerating rural development. It provides funds for
productive projects that can create products, jobs and incomes for the rural poor.
Unfortunately, financial institutions extend their credit facilities more to the rich
borrowers and to urban projects. In fact, Dr. Ernest Feder Wrote in his book Perverse
Development that the credit system of the less developed countries has not been
designed for the poor.

By and large, the rural credit program in the Philippines is a failure. A great majority of
the rural poor farmers, fishermen and small businessmen - still heavily depend on
informal money lenders for their credit needs, in spite of high interest rates. Senator
Alberto Romulo said in his speech before bankers that banks funnel their resources
which are generated from rural savings to urban projects which do not benefit the
poor. He claimed that only 5 out of 22 banks with branches in all regions of the country
have complied with the Central Bank Circular No. 1226 (dated January 31, 1990) to
lend 75 percent of their deposits in their areas of operations.

The rationale for the financial system- through the leadership role of a central bank - to
assume a broader social responsibility has been based on the. Social Contract of
Rousseau. Each institution- individual, social, political and economic- depends on one
another. Such interdependence requires unity and cooperation which are vital to the

growth of the whole. Thus, it is the responsibility of financial institutions to engage in

social credit. They must directly participate in the urban and rural development
programs of the government by extending soft loans for the poor.

Society must not only have economic abundance and modern technology, but more
important, it must have a heart for the less fortunate members. Central banking must
help blaze the path towards the attainment of social justice. This is the only way for man
to live with human dignity.

Summary

1. Development is a sustained effort to eliminate hunger, disease, ignorance, and

injustice. It is not only concerned with economic betterment but also the
promotion of human dignity. The right to development is a human right.
2. We live in two different worlds. One for the rich and another for the poor. In the
world of the poor, there is widespread hunger, disease, and ignorance. In fact,
40,000children die every day due to malnutrition. The gap between the two
worlds is very wide.
3. Development is primarily concerned with the promotion of human dignity. This is
the priceless gift of God to man. Without human dignity, man is no better than
an animal.
4. The roots of poverty are the rural areas. The poorest of the poor are found in such
places. Hoping against hope, they go to the cities for a possible better life. This
influx of rural poor to the urban centers has created slums and squalor. Not a few
of them live under the bridges and along river banks.
5. The central bank of any country has the social responsibility to help the poor help
themselves. It should actively participate in eliminating or reducing poverty,
ignorance, disease and injustice.
6. Economic abundance and modern technology become only meaningful if
these touch the lives of the poorest of the poor. So, it can be said that there is
social justice. This is the only way for man to live with human dignity.