Untimely austerity

19 March 2013 By Andy Mukherjee

Manila is on a low-debt diet as it pursues an investment-grade sovereign rating. But with foreign money pouring in, the government needs to sell more bonds to mop up excess liquidity. Mistimed austerity creates the risk of mispriced bank credit and asset bubbles.

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The Philippines government will fulfill most of its borrowing needs from the domestic market in pesos this year to limit appreciation in the local currency, Finance Secretary Cesar Purisima said in Manila on March 18, according the Financial Times report.
The government will raise 150 billion pesos by selling bonds and bills in the second quarter, compared with 40 billion pesos so far in the first three months of 2012, according to a March 13 borrowing calendar.
The target for the Philippines national government debt this year is 48 percent of GDP, Purisima said in a Feb. 13 presentation, titled “Good governance is good economics: Achieving investment grade.” The debt-to-GDP ratio was about 51 percent at the end of 2012.
The central bank cut the annual 3 percent interest on special deposit accounts by half a percentage point on March 14 for all maturities, following a 1-1.2 percentage point reduction in January. The central bank uses these deposits to remove excess liquidity from the banking system for 1 week to 1 month.

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