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 pushes 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 goes up.
  • Debts issued in foreign currencies (USD) becomes more expensive to service.
  • Interest expenses lead to higher debt servicing cost by enterprises.
  • Together with covid, this reduced revenue and thus tax collection.
  • This reinforces 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

Update: 20 Nov – Lower interest rates to be even more stimulative by opening credit to locals, by lowering local interest rates. Currency will continue to go into competitive devaluation.

Indonesia, Philippines cut rates to record lows