The Philippine government will be applying Keynesian measures of “euthanasia of the rentier” and the “socialization of investments” to prop up economic “growth” (permanent quasi-booms)
The euthanasia of the rentier as reported by the Bloomberg
The Philippines cut interest rates for the first time since July 2009, joining emerging markets from Thailand to Indonesia in easing monetary policy as a deteriorating global economy threatens growth.
Bangko Sentral ng Pilipinas lowered the rate it pays lenders for overnight deposits by a quarter of a percentage point to 4.25 percent, according to a statement in Manila today. The decision was predicted by 13 of 17 economists in a Bloomberg News survey, with the rest expecting no change. The central bank maintained the reserve requirement ratio at 21 percent.
“The Philippine economy is likely to face external headwinds in 2012,” Governor Amando Tetangco said in the statement. “The benign inflation outlook allowed some scope for a reduction in policy rates to help boost economic activity and support market confidence.”
Asian policy makers are under mounting pressure to protect growth after the World Bank cut its global economic forecast this week, saying a recession in the euro region could exacerbate a slowdown in countries such as India and China. Lower borrowing costs and slowing price gains may aid Philippine President Benigno Aquino’s efforts to boost expansion as he increases spending and seeks investment for roads and airports.
Socialization of Investments, again from the Bloomberg
President Aquino is increasing spending this year to a record 1.83 trillion pesos ($42 billion) to help bolster growth to as much as 8 percent annually. The government also plans to offer as many as 16 projects to investors this year, compared with one contract awarded in 2011.
Ayala Corp., leading a consortium that won a contract last month to build a four-kilometer, four-lane paved toll road leading to provinces south of the capital, may bid for two road projects and a contract to run an airport, Managing Director Eric Francia said Dec. 15.
Aquino has won sovereign-rating upgrades from Fitch Ratings and Moody’s Investors Service after intensifying efforts to narrow the budget gap from a record 314 billion pesos in 2010.Standard & Poor’s raised its outlook on the country’s debt rating last month.
Chart from Danske Bank
So the Philippine government via the BSP will push real interest rates deeper into negative territory (left window) that will punish the saving public and the average fixed income investors. This represents a policy which redistributes resources from creditors (again savers) to borrowers (I would guess would be mostly cronies), that benefits the politically privileged banking system (as intermediaries), aside from encouraging the public to take on speculative activities (stock market boom as previously predicted) and a misdirection of capital towards long range investments. Such policies also will promote consumption activities which will likely lead to trade deficits.
These are composite ingredients to the business cycle or boom bust cycle.
The BSP’s adapted measure rhetorically represents an appeal to the popular that has been ensconced by the herding or bandwagon effect, as central banks of major economies has embarked on a similar easing cycle. As earlier pointed out, global interest rates are now in 2009 levels. The other way to see the current global easing cycle is that central banks could be in coordination with one another, and or that this represents as the central bankers dogmatic approach in dealing with any perceived threats to statistical growth.
In addition, consumption of capital will only be amplified by the massive fiscal spending of the Aquino administration ($42 billion) which would mostly end up in inefficient use, wastage and in the pockets of politicians and bureaucrats and their cronies.
I would further that the BSP’s easing process could have been synchronized with the prospective fiscal policies, aimed at providing funds to cronies, who will undertake most of the private-public partnerships, and to the government whom will be requiring these funds that will probably be obtained from the local markets, as earmarked for boosting growth.
And I would propound a political spectrum in these actions—these could be meant to shore up the public’s support for the administration who currently has pushed for an impeachment trial of the Supreme Court Chief Justice.
Public support for the administration means pressure for the Senate, whom has been adjudicating the impeachment trial, to deliver a verdict that is favorable to the administration.
Nevertheless, while this would have temporal benefits for the stock market, and for the economy as measured by spending based statistics, the evil effects of high inflation and malinvestments point to an eventual bust sometime ahead (I can’t determine the exact frame, but we can observe this via interest rates).
For now profit from political folly.
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