MAPping the Future

4. Depoliticize Monetary Policy—But Don’t Stop There

 

The fourth lesson is about the importance of central banking. In the 1970s, weakly independent central banks, heavy wage indexation, and strong political pressure to accommodate inflation led European countries to experience stagflation—high inflation with low growth. Only in the late 1980s and 1990s, with stronger central bank independence and clear inflation-targeting regimes, did Europe manage to anchor expectations and control inflation; ASEAN reforms in these areas came much later.

 

Indeed, in 2026, ASEAN central banks are, in several respects, ahead of where Europe once stood decades ago: most have explicit or implicit inflation targets, operational independence, and experience in managing capital flows and commodity shocks. This is a significant advantage.

 

However, monetary policy alone cannot resolve the problems caused by oil shocks. Energy price spikes are supply-side shocks: while raising interest rates can suppress demand and prevent secondary effects, it cannot generate new supplies of oil, gas, or electricity. Relying solely on central banks to “solve” such crises risks unnecessary economic sacrifices and social tension.

 

Why ASEAN Needs a Broader Policy Mix

 

To manage extended oil-shock conditions in the modern era, monetary policy must be supplemented by at least three additional pillars: fiscal policy, structural competitiveness, and human capital.

 

Fiscal policy : Avoid blanket subsidies; use targeted fiscal support.

1. Protect the vulnerable through targeted cash transfers or lifeline tariffs, instead of across-the-board fuel subsidies that distort prices and strain public budgets.
2. Invest in efficiency and alternatives, such as public transport, building retrofits, and industrial energy-efficiency programs, so that every unit of GDP requires less imported fuel.
3. Use fiscal tools to crowd in private investment in renewables, storage, and grids, rather than locking the region into continued fossil-fuel dependency.

 

Structural competitiveness: Reform to keep energy markets efficient and prices transparent.

1. Avoid monopolistic practices, inefficient state-owned enterprises, and closed markets since oil shocks expose and worsen rigidities.
2. Make firms more resilient to price spikes through competition policy, transparent regulation, and regional market integration that can lower structural energy costs.
3. Deepen energy integration (AEMI), harmonize standards to create a larger and more flexible energy market for businesses.

 

Human capital: Build the skills/ knowledge plus values/ attitudes for a resilient energy system—from engineers, regulators, financiers, entrepreneurs, to politicians and diplomats.

1. A resilient energy system ultimately depends on such people, especially those with the values/ attitudes required for transparent 21st C. public and private governance systems for higher realized standards of ethical public service; for the latter, domestic work vs. overseas employment to be more attractive for family conditions to be socially tenable.
2. Investing in STEM education, vocational training, and energy-sector skills will enable ASEAN to adopt new technologies—such as smart grids, hydrogen, and advanced storage—rather than just importing them.
3. Joint ASEAN–EU R&D and training programs can accelerate progress, echoing Europe’s own history of collaborative technology development after the 1970s.

 

Central banks can stabilize expectations better through a whole-of-government and whole-of-economy strategy to transform an oil shock from a crisis into a catalyst for positive change.

 

A 2026 Opportunity

 

The 2026 Philippines leadership of ASEAN comes at a time when energy security, climate transition, and geopolitical fragmentation are intersecting. Europe’s history from the 1970s to the 1990s demonstrates the right policy combinations for ASEAN to survive the next oil shock—but only if matched with smart fiscal choices, competitive markets, and strong human capital in ASEAN.

 

To avoid geopolitical and geoeconomic traps, it is time for regional leaders and diplomats to creatively strategize ASEAN’s vision as a Zone of Peace, Freedom, and Neutrality.

 

(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is Philippines’ Undersecretary /Acting Secretary of Foreign Affairs in the 1990s, chaired the preparatory Senior Officials Meetings for the 1996 APEC Economic Leaders’ Meeting in Manila/Subic, and is now active with the MAP. Feedback at <map@map.org.ph> and <fmmacaranas@gmail.com>).