“I think they've [Labour Government] made the biggest financial mess that any government's ever made in this country for a very long time, and Socialist governments traditionally do make a financial mess. They always run out of other people's money. It's quite a characteristic of them. They then start to nationalise everything, and people just do not like more and more nationalisation, and they're now trying to control everything by other means. They're progressively reducing the choice available to ordinary people”—Margaret Thatcher
Yields of Philippine 10-year and 25-year ROPs and T-Bills Soar! Has Credit Risk Emerged from the War on Boracay???
Wow. Aside from shifting from the USD-Php to the ROP market, liquidity strains have escalated!
The ROP 10-year yield spiked to 7%, a level last reached in 2011! And the 25-year ROP yield has rocketed to the same level!
Even more interesting, yields of ROP bills, the 1-month, 3-month and 6-month bills have spiraled to similar levels!
Interestingly, the 1-month and 6-month yield has breached the BSP’s ceiling (O/N Lending rate) on its corridor system!
Money has been tightening on its own!
Soaring short-term yields could have most been likely about stubbornly rising inflation expectations.
For the long end tenors, aside from the combo of inflation and more supplies, I’d add credit risk to it.
Statistics is the principal tool used by the National Government in formulating policies for implementation. Scarcely has the economy been seen as a dynamic and complex process reflecting the human action
These soaring yields are manifestations of tightening liquidity.
I think that the NG has not appraised the liquidity aspect from its war on Boracay and or its war on Tourism
The government estimates that there would be some Php 20 billion in lost revenue. They see these statistics and then stopped thinking.
They have taken for granted people’s response in the context of the complex interlocking latticework of the demand chain, the supply chain and credit flows
Boracay doesn’t operate in a vacuum
Lost revenues will transmit not only as losses in earnings, rents, wages and jobs but as diminished consumption. Hence, demand will fall not only on Boracay but on where its stakeholders usually spend their income.
Boracay doesn’t operate in a vacuum
Supplies for the island’s commerce usually emanate from within the Western Visayan Region or its neighbors from Region 6 (Aklan, Antique, Capiz,
Thus, the initial blow from Boracay’s repression will be in the demand and supply chains of the region.
And the subsequent ripple should spread around the country. Perhaps by the end of the year, the effects should be evident nationally.
Boracay doesn’t operate in a vacuum
Bank credit growth has been booming in the hotel and food industry. The BSP doesn’t provide detailed distribution on the banking’s system’s loans
Nevertheless, given the vibrant credit growth nationwide, certainly Boracay’s economy have gorged profusely on credit as well
And by closing the island, Mr. Duterte may have pricked the nation’s credit bubble.
The island’s business losses will now segue into loan delinquencies or bad debts that will slam banks and other creditors. Bad debt will most likely rise first in the Western Visayan Region and then spread elsewhere.
Surging long-term yields could be the emergent manifestation of the credit risks!
Mr. Duterte’s attack on commerce (capitalists) from different angles will exacerbate on this.
Curiously, Mr. Duterte first denied knowing about plans to construct a casino. He also claimed Boracay will be distributed as land reform.
The bizarre part from this has been that Mr. Duterte entertained the entourage of the Chinese casino investor last December. And media reports say that there are no farms in Boracay.
These are smokescreens meant to divert the public
I end this outlook with a sullen excerpt from a publicly listed company with substantial exposures in Boracay
Friday’s Holdings, Inc., owner and operator of Friday’s Boracay Beach Resort, despite 100% full DENR/DILG compliant is affected by theimpulsive pronouncements by the government to close Boracay for six months effective 26 April 2018.
1) The closure and prior threats in the press are right in the middle of our summer high season; and this has caused almost Php 22 million in advanced deposit cancellations from places like China and Germany.
2) Total estimated losses due to fixed costs and expenses to be incurred representing utilities, maintenance, repairs, depreciation, personnel costs for engineering, housekeeping, accounting and other general expenses would be around Php 35 million with an estimated monthly foregone revenues of Php 6.5 million for seven months from April to October 2018.
3) Our poor staff of 80 receiving 15k to 20k per month will mostly be laid off.
4) Of our people only 15 to 20 will be transferred to the new hotel, Friday’s Puerto Galera Beach Resort, a 100% full environmentally compliant structure in that tourist destination which soft opened in December 2017. We lament and cry for what the other 60 employees of 12 years avg. loyal service told us yesterday: they will go home to Roxas, Kalibo, and Iloilo; and raise vegetables and live off the plants at home until Boracay is re-opened.
5) This 6-month closure came suddenly and whimsically, without rigorous thinking. Maybe it could be shortened as suddenly by the government at least for non-violators like our heavily invested Fridays Boracay Resort at the current market price of 120k per sq.m. without the value of the building, the hotel’s 1.5 hectare prime beach frontage parcel is valued at Php1.8 billion, and it will soon not be yielding anything good to support BHI's livelihood. BHI and its people will be living on razor thin earnings because of the close of our crown jewel.
Mr. Duterte’s grand socialist projects will be jeopardized if liquidity continues to evaporate
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