Will this end well? 🇵🇭

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.

Philippine Central Bank Buys Almost Half of Government Borrowing

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.

Once Upon a Time, Debt Monetization Sounded Crazy