After Indonesia, Philippines does the same.
To test my understanding:
- Government issues record debt, for fiscal spending in peso (budget)
- Half of it was bought by “private capital” (managed to borrow half)
- The other half bought by the Central Bank (printing money)
- This increases money supply (more peso) and push down interest rates (less incentive to put foreign money to peso)
- More supply of peso, peso depreciates.
- Lower foreigner capital coming in, less demand of peso, peso depreciates.
- Nett impact, peso devalues, local bond interest rates go down.
- Debts issued in foreign currencies (USD) becomes more expensive to service.
- Interest expense leads to higher debt servicing cost by enterprises.
- Together with covid, this reduced revenue and thus tax collection.
- The reinforce the reason why the government issued more debt.
Update: 14 Aug – Seems I am not the only one noticing this. But a point they didn’t consider was lack of strong institutions as check and balance in emerging economies. If unchecked the temptation would be too huge.