Steady economic policy failures over a prolonged period create lack of confidence in government. This is followed by an “out with the old; in with the new” action. Unfortunately, bad economic policy reaches far into the future, and like a mammoth supertanker, cannot change course quickly.
Bad decisions, whether by a government or a person, eventually reach a tipping point where everything goes to hell. Over the course of these cycles, we can throw in a few wars—shooting or trade—several major global natural disasters, and as we are going through now, a once in several lifetimes pandemic.
However, the pandemic is only the immediate catalyst of the economic chaos that will eventually lead to a “reboot” of the global economic system. As I have said before, both the US and Chinese economies were in deep trouble before anyone—except maybe for Chinese bio-warfare scientists—had ever heard of Covid-19.
In 2019, China had the most number of corporate debt defaults in history. Chinese economic growth —even with creative bookkeeping—has been in a downtrend since 2012. US economic growth has been in a downturn since January 2018 and US Federal Debt to gross domestic product has been in the ICU since 2014.
Notice though the economic suffering has been much less in Europe than the US. The reason is that unlike the Europeans, Americans immediately increase their credit card limit by $10 for every $1 increase in their income.
In the Philippines, some firmly believe that if Duterte is not the president, the Covid-19 pandemic would never have happened. But the blame for the greatest economic problem now facing the Philippines goes back decades. During the term of then President Fidel Ramos, overseas Filipino workers were called modern day heroes of the Republic. That is true on an individual basis. But collectively, overseas Filipino workers (OFWs) are the “Disgrace of the Republic,” with employment abroad being encouraged and facilitated by every administration since Ramos.
It is impossible for the economy to employ these returning OFWs in the foreseeable future. This fact in itself is going to cause an economic reboot in the Philippines. Globally, the economic reboot will come from the next part of the economic cycle— the sovereign monetary crisis.
The amount of government debt can be an issue. But other debt factors are more important. Unfortunately, certain “experts” on Philippine government debt cannot put their political agenda back in their pants long enough to understand why the Philippines will not be a part of the coming crisis.
Are the lenders foreign or domestic? How much of the debt is denominated in foreign currency or local currency? What is the average tenor of the debt and how much is short term? Is the debt being used to keep the government solvent, short-term emergency spending (like your own medical bills), or for economically advantageous projects?
In April, the Philippine government sold $2.35 billion in a double tranche of 10-year and 25-year Global Bonds. “The transaction was able to achieve the Republic’s lowest ever coupon for a 10- and 25-year benchmark issuance amid no less than an environment gripped with pandemic fear,” said the Bureau of the Treasury.
That is why since that bond offering, governments and agencies have been offering to lend the Philippines money, knowing there is not going to be any sovereign debt crisis from Philippines. But if you enjoyed 2020, you are going to love 2021. Keep your seat belt fastened.
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