2026 Opens with USDPHP at Record Highs: The Peso Is the Symptom, Policy Is the Disease

  

With the exception only of the 200-year period of the gold standard, practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people. There is less ground than ever for hoping that, so long as the people have no choice but to use the money their government provides, governments will become more trustworthy—Friedrich August von Hayek 

In this issue 

2026 Opens with USDPHP at Record Highs: The Peso Is the Symptom, Policy Is the Disease 

I. 2026: The Peso at Record Lows, BSP’s Contradictory Stance

II. The USDPHP’s Suppressed Volatility

III. Media Agitprop and Be Careful of What You Wish For

IV. Lindy Effect: USDPHP’s  56-year Uptrend

V. Gold’s Rising Role in the GIR: Serendipity Saved Incompetence

VI. Inflation: Same Story, Different Mask

VII. Self-Poverty Ratings, Sentiment, and the Limits of Macro Optics

VIII. Employment Optics vs Labor Reality

IX. Deficits, Debt, and the Entropic Drift

X. PSE’s January 2026 Boom: Liquidity First, Fundamentals Later

XI. Conclusion: Record USDPHP A Symptom, Policies The Disease 

2026 Opens with USDPHP at Record Highs: The Peso Is the Symptom, Policy Is the Disease 

Gold-inflated FX reserves, suppressed USDPHP volatility, and the slow collapse of the BSP’s soft peg—symptoms of a deeper political problem.

Nota Bene: 

For new readers, this post extends our earlier analysis and projections on USDPHP; please see the reference sections for our previous works. 

I. 2026: The Peso at Record Lows, BSP’s Contradictory Stance 

2026 opened with USDPHP printing its fourth record high, touching 59.355 on January 7, placing the peso at an all-time low. This comes after the pair decisively breached the 59 level in October 2025—a threshold that, in practice, had functioned as a de facto boundary since late 2022, or roughly three years. 

Almost immediately, the Bangko Sentral ng Pilipinas (BSP) went public, stating it would not defend the peso, despite what it described as “tremendous pressure” to do so. 

This posture echoed its statement following the October breakout, where the BSP asserted that it merely “allows” market forces to determine the exchange rate. 

As we noted in a November 2025 post, such phrasing implicitly presupposes central bank supremacy over the market, implying that exchange-rate movements occur only at the BSP’s discretion—an assertion belied by the data.

II. The USDPHP’s Suppressed Volatility 

Figure 1

Absent official confirmation, one is reminded of Bismarck’s dictum: never believe anything in politics until it has been officially denied. Circumstantial evidence points strongly to prior intervention. In the seven instances when USDPHP approached or touched 59 before October 2025, both trading volume and realized volatility consistently compressed—a pattern difficult to reconcile with a freely clearing market. (Figure 1, topmost and middle panes) 

The same pattern has persisted after the breakout. 

While the BSP has ostensibly “allowed” USDPHP to violate its three-year boundary, average daily trading volume has trended downward since mid-2025, and by early January 2026 had fallen back to levels last seen in late 2024. Combined with a persistently narrow intraday trading range, this has produced a marked decline in day-to-day price changes. Put bluntly, suppressed volume has translated into suppressed volatility—a classic signature of administrative smoothing. 

III. Media Agitprop and Be Careful of What You Wish For 

Predictably, much of the self-righteous media attributed the peso’s latest record low to a “strong” US dollar. Yet the DXY remains broadly range-bound near its 2022 levels, despite a modest rebound from its mid-2025 trough. (Figure 1, lowest chart) 

The divergence is telling: USDPHP has been rising steadily since May 2025, even as the broad dollar index failed to make new highs. 

Yes, the dollar strengthened this week, appreciating against seven of ten Asian currencies tracked by Bloomberg, and USDPHP—up roughly 0.7% on the week—was among the largest movers. But context matters. 

Be careful what the establishment wishes for. Such agitprop risks becoming self-fulfilling. 

The US dollar may indeed be attempting a cyclical rebound. Should that occur, it would likely coincide with a tightening of global financial conditions, making dollar funding scarcer and more expensive. 

A stronger DXY would not cause domestic weakness—but it would expose internal fragilities that have been obscured by global easing. 

This pattern is consistent with Minsky’s financial instability hypothesis. Repeated suppression of exchange-rate volatility creates the illusion of stability, encouraging leverage, fiscal expansion, and balance-sheet risk. The eventual adjustment does not arrive as a shock—but as accumulated fragility ventilated through the peso.

Figure 2

As we argued last November, USDPHP spikes rarely occur in a vacuum. Historically, they coincide with periods of economic stress. Using BSP end-of-quarter data: (Figure 2) 

• 1983 debt crisis: +121% over 12 quarters (Q1 1982–Q1 1985)
• 1997 Asian Financial Crisis: +66.2% over 6 quarters (Q1 1997–Q3 1998)
• Dot-com bust (1999–2004): +30.6% over 20 quarters (Q2 1999–Q1 2004)
• Global Financial Crisis: +17.0% over 5 quarters (Q4 2007–Q1 2009)
• Pandemic recession: +22.6% over 7 quarters (Q4 2020–Q3 2022) 

The current breakout, now coinciding with weakening growth momentum, fits this historical pattern uncomfortably well. 

IV. Lindy Effect: USDPHP’s  56-year Uptrend 

More importantly, the breach of the 59 level reinforces the USDPHP’s roughly 56-year secular uptrend. This can be viewed through Nassim Taleb’s Lindy Effect: not as a property of the exchange rate itself, but of the political-economic ideological regime that governs it. The longer a depreciation bias survives—across crises, cycles, and administrations—the more robust and persistent it proves to be. 

This trend is therefore measured not merely by age, but by repeated survival—by the durability of the policies, incentives, and fiscal behaviors that continually reproduce it.

V. Gold’s Rising Role in the GIR: Serendipity Saved Incompetence 

This context is essential when evaluating the BSP’s reported December 2025 Gross International Reserves (GIR) of $110.872 billion. 

Figure 3

All-time-high gold prices played a decisive role in both the monthly and annual GIR outcome. Remarkably, the valuation gain on gold alone accounted for more than 100% of the roughly $4.6 billion year-on-year increase, while declines in foreign exchange investments exerted a drag on the headline figure.(Figure 3)

Figure 4

As a result, gold now represents its highest share of GIR in over a decade. This is especially striking given that the BSP was the largest net seller of gold in 2024, a move justified at the time as opportunistic monetization of high prices—and, more pointedly, on the argument that gold was a “dead asset.” (Figure 4, topmost and bottom graphs) 

Ironically, the BSP has since been incrementally rebuilding its gold position at higher prices than those at which it sold. 

As in 2020, gold once again served as a leading indicator. Then, large-scale gold sales—alongside increased national government’s external borrowing—were used to finance peso defense under a quasi-soft-peg regime. Once the proceeds were exhausted, borrowing constraints tightened, and usable FX reserves were drawn down, markets ultimately forced an adjustment: a weaker peso. (Figure 4, middle image) 

Briefly, BSP gold sales foreshadowed the 2020 USDPHP spike—and a rerun appears to be unfolding. 

Gold, however, is not equivalent to FX. It is less liquid in crisis: politically sensitive to mobilize, slower to swap into dollars, and volatile in mark-to-market terms. Markets understand this distinction—even if headline GIR figures do not.

Viewed counterfactually, had gold prices fallen in 2025, GIR would have declined materially, reserve-adequacy ratios would look materially worse, and narrative control would have been far more difficult. None of the reported strength reflects improved external competitiveness, durable capital inflows, or enhanced peso credibility. 

Gold did not validate policy. It rescued the optics. 

In that sense, the 2025 reserve story reveals something uncomfortable to the mainstream but unmistakable: serendipity saved incompetence. 

VI. Inflation: Same Story, Different Mask 

The government’s inflation narrative should feel familiar by now. 

Last week, sections of the mainstream media began warning—belatedly—about the impact of peso depreciation on electricity prices. This is hardly new. 

The Philippines’ recent inflation history has unfolded in distinct waves, each closely intertwined with the USDPHP.

Figure 5

During 2013–2018, the steady rise in USDPHP coincided with the first wave of inflationary upswing, which began building from 2015. The second wave in USDPHP (2021–2022) overlapped with the second inflation shock spanning 2019–2022, driven by global central bank easing, supply disruptions, energy prices, and domestic pass-through effects. (Figure 5, topmost image) 

What distinguishes the two episodes is not the inflation spike—but the disinflation phase that followed. 

From September 2018 to June 2021, USDPHP declined by roughly 11%, while CPI fell sharply from 6.7% to just 0.8%. As discussed previously, this period coincided with the BSP’s increasing reliance on Other Reserve Assets (ORA)—including derivatives, repos, and short-term FX borrowing—to manage the exchange-rate regime, a shift clearly visible in the GIR composition. 

In the current episode, the adjustment mechanism has been fundamentally different. 

Since first testing the 59 level in 2022, USDPHP has remained range-bound between 55 and 59, with no sustained appreciation. Yet headline CPI retraced materially—not because of currency relief or market forces, but due to a combination of: 

• Demand destruction, now evident in slowing GDP growth
• Administrative price controls, including ₱20 rice programs and mandated MSRPs
• Distortions arising from these interventions, masking underlying pressures
• Composition and measurement effects, aligned with political incentives for easing—particularly amid ongoing bailouts of the energy sector, banks, and real estate 

It was therefore no coincidence that a day before the October 2025 59-level breakout, the administration announced renewed price freezes, citing natural calamities as justification. 

Despite these measures, December CPI rose to 1.8%, well above consensus expectations, lifting quarterly inflation from 1.4% in Q3 to 1.7% in Q4. Disinflation, it appears, has already begun to fray. 

This erosion is further reflected in liquidity conditions. Bailouts in the energy sector coincided with an 8.26% year-on-year expansion in M3 in October, the fastest since September 2023. (Figure 5, middle diagram) 

November data remain unpublished. 

More broadly, the BSP has either delayed, discontinued, or reduced the frequency of several previously standard statistical releases—ranging from Bank’s MSME lending to stock market activities (transactions, index, and market capitalization) and more. Whether this reflects capacity constraints or political narrative sensitivity remains an open question. But opacity rarely improves credibility. 

VII. Self-Poverty Ratings, Sentiment, and the Limits of Macro Optics 

While headline CPI surprised to the upside, food inflation for the bottom 30% of households turned positive for the first time since March 2025—a critical inflection point historically associated with rising hunger and self-rated poverty. (Figure 5, lowest visual)

Figure 6

Consistent with this, the SWS Q4 survey showed self-rated poverty rising to 51% of households, with another 12% on the borderline—a combined 63%. (Figure 6, upper chart) 

This deterioration in sentiment persists despite record consumer credit, near-full employment headlines, slowing CPI, pandemic-scale deficit spending, and still-positive GDP growth. 

This is not an anomaly. Improvements in self-rated poverty reversed as early as 2017, spanning two administrations and coinciding with a sustained surge in deficit spending. 

What is rarely discussed is that this reflects the redistributive and extraction effects of crowding out—the attenuation of the private sector in favor of the state and its preferred private sector intermediaries. 

Households have responded predictably by leveraging their balance sheets to sustain consumption amid eroding purchasing power, refinancing debt rather than building resilience through savings. 

This divergence between headline indicators and lived experience is a classic case of James Buchanan’s fiscal illusion. By diffusing costs through inflation, deficits, and administered prices, the state masks the true burden of adjustment—until it reappears in household balance sheets and public sentiment.

VIII. Employment Optics vs Labor Reality 

The government reported improving employment data last November. Less visible is that labor force participation has been declining since late 2022, while employment momentum shows signs of plateauing (via rounding top formation). (Figure 6, lower graph) 

More troubling is the quality of employment. Functional illiteracy remains widespread, MSMEs and informal work dominate job creation, and household income growth remains structurally dependent on OFW remittances. 

This combination explains why sentiment remains depressed—and why slowing GDP risks morphing into a more pernicious mix of rising NPLs, renewed inflation pressures from deficit monetization, or outright stagflation.

IX. Deficits, Debt, and the Entropic Drift 

Despite the rhetoric surrounding corruption and reform, the administration has signed a Php 6.793 trillion 2026 budget, ensuring that the entropic forces dragging on growth remain firmly in place.

Figure 7

Public debt rose to a record Php 17.65 trillion in November, up 9.7% year-on-year, defying the Bureau of the Treasury’s September projection of year-end declines. (Figure 7, middle and topmost images) 

Domestic debt expanded by 10.95%, while foreign debt rose 7%, continuing its gradual upward share since 2021.(Figure 7, lowest diagram) 

As we have repeatedly argued, expanding deficits mechanically imply rising debt and servicing burdens. Whether domestic or foreign, this accumulation heightens balance-sheet and duration risks. 

No amount of propa-news or fiscal newspeak alters that arithmetic. 

Eventually, these imbalances surface—in the exchange rate, inflation, interest rates, asset prices, and real activity. Not abruptly, but gradually, through a boiling-frog dynamic—a process that markets ventilate over time. 

As Mancur Olson warned, mature systems accumulate distributional coalitions that extract rents while resisting adjustment. The result is slower growth, rising inequality, and a political preference for redistribution over reform—precisely the conditions now reflected in peso weakness and declining household sentiment.

X. PSE’s January 2026 Boom: Liquidity First, Fundamentals Later 

Unsurprisingly, liquidity-driven rallies continue to propel global equity markets, with the effect especially visible in Asia. The Philippine PSEi 30 gained 3.47% week-on-week (WoW), ranking fourth in the region. As evidence of speculative mania, nine of nineteen Asian indices closed at or near all-time highs for the first time, delivering unusually strong market breadth.

Figure 8

Yet the Philippine rally remains highly concentrated, with a handful of brokers and heavily traded issues generating most of the volume. The largest-capitalization stock, ICTSI, surged 12.5% WoW, almost single-handedly driving the PSEi 30, flanked by Jollibee (+12.32%) and AEV (+11.35%). (Figure 8, topmost visual) 

Weekly breadth within the PSEi 30 favored gainers (19 of 30), while the broader PSE recorded its best two-week breadth since January 2023—ironically, the PSEi 30 still closed 2023 down 1.77%. (Figure 8, middle window) 

Although the number of issues traded daily spiked to 2022 highs—often read as a sign of rising retail participation—main-board turnover averaged just Php 6.25 billion per day, a curious outcome amid New Year euphoria. (Figure 8, lowest chart) 

As with prior easing-driven rallies, such liquidity pumps tend to have short half-lives.

XI. Conclusion: Record USDPHP A Symptom, Policies The Disease 

The November break of USDPHP 59 marked the unraveling of the BSP’s soft peg and exposed underlying economic fragility. December’s record highs made clear that this was not a transient overshoot, but the manifestation of deeper fault lines—fiscal bailouts, and mounting financial stress—expressed as widening bailouts initially at the energy sector 

January 2026 merely confirms the trajectory. What appears as resilience in the BSP’s foreign reserves has largely been valuation-driven. What looks like disinflation is increasingly administrative maneuvers. What passes for growth is the rising use of leverage, mounting deficits, and liquidity injections rather than productivity or competitiveness. 

In this sense, the peso’s decline is not an accident of global conditions. It is the byproduct of a political-economic regime that repeatedly socializes losses, crowds out private adjustment, favors centralization, predisposed to asset bubbles and substitutes newspeak for balance-sheet repair. 

The exchange rate is not the problem. It is the messenger. 

____

References

Friedrich von Hayek, Choice In Currency, A Way To Stop Inflation, The Institute Of Economic Affairs 1976 

Prudent Investor Newsletters, The USD-PHP Breaks 59: BSP’s Soft Peg Unravels, Exposing Economic Fragility, Substack, November 02, 2025 

Prudent Investor Newsletters, USD-PHP at Record Highs: The Three Philippine Fault Lines—Energy Fragility, Fiscal Bailouts, Bank Stress, Substack, December 21, 2025 

Nassim Nicholas Taleb An Expert Called Lindy January 9, 2017

Why the PSE Failed in 2025: Engineered Markets and Broken Policy Transmission

 

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today—Laurence J. Peter 

Wishing you an exciting 2026: record highs, easy money, and all the risks that come with it. 

In this issue: 

Why the PSE Failed in 2025: Engineered Markets and Broken Policy Transmission

I. The Echo Chamber of Optimism

II. Institutional Conflicts of Interest: Agency Problem and the Information Asymmetry

III. Global Euphoria vs. Local Fragility: A Market That Failed to Respond—Despite Every Attempt to Boost It

IV. Engineered Rallies and the BSP’s Easing Cycle Elixir

V. Mounting Concentration Risk and the ICTSI Distortion

VI. Foreign Selling, CMEPA, and the Gaming Bubble

VII. From Equities to Energy: Bailouts Without Calling Them Bailouts

VIII. A Lone Divergence: Mining and the War Economy

IX. The Philippine Treasury Market Confirms the Diagnosis

X. Conclusion: When Policy Loses Its Grip

XI. Epilogue: The Façade of January Effects 

Why the PSE Failed in 2025: Engineered Markets and Broken Policy Transmission 

Why the PSEi 30 underperformed despite rate cuts, engineered rallies, and unprecedented policy support 

I. The Echo Chamber of Optimism

Figure 1

Does the public even remember the barrage of starry-eyed headlines and sanguine projections that dominated discourse from late-2024 through 2025? (Figure 1) 

From Goldman Sachs’ overweight upgrade on Philippine equities (November 2024), to the relentless amplification of projected PSEi 30 returns by the mainstream echo chamber, to a business media outfit hosting a Pollyannish stock market outlook forum in February 2025, optimism was not merely expressed—it was drilled into the public consciousness. 

Strangely, at the forum, Warren Buffett’s aphorism—“be greedy when everybody is fearful”—was cited ironically at a time when virtually every expert was advocating optimism. Even “cautious optimism” emerged as the most defensive stance. 

All told, media and institutional narratives throughout 2025 projected rising equities anchored on a strengthening GDP—an assumption that would soon have the rug pulled out from under it.

Figure 2

In hindsight, the establishment’s posture resembled a classic denial phase in a deflating PSEi 30 bubble cycle. (Figure 2)

II. Institutional Conflicts of Interest: Agency Problem and the Information Asymmetry 

The fundamental problem lies in the structural conflicts of interest between financial institutions and the investing public. 

This dilemma reflects classic agency problem and asymmetric information. The objectives of buy- and sell-side institutions—fees, commissions, deal flow—diverge materially from those of retail investors seeking risk-adjusted returns. 

As a result, sales pitches camouflaged as institutional research or news are designed to attract savings/capital, not to interrogate risk–reward tradeoffs. The information disseminated to the public is therefore shrouded in adverse selection and biased framing. 

Despite serious unintended consequences from excessive interventions—easy money distortions, fiscal crowding-out, regulatory interference, capital controls, bailouts, and capital-market price manipulation—this savings-depleting dynamic receives scant acknowledgment. 

III. Global Euphoria vs. Local Fragility: A Market That Failed to Respond—Despite Every Attempt to Boost It 

There is also little recognition that the Philippine Stock Exchange has vastly underperformed, despite extraordinary efforts to support it.

Figure 3 

As global central banks embarked on a historic easing campaign and global equities posted a third consecutive year of double-digit gains, the PSEi 30 closed 2025 as the second-worst performer in Asia, ahead of only Thailand. (Figure 3, topmost pane) 

Of 19 national bourses tracked by Bloomberg, 16 ended the year higher, averaging a striking 19.22% return—led by South Korea, Pakistan, Sri Lanka, and Vietnam. The Philippines, alongside Bangladesh and Thailand, stood out as an underperforming outlier. (Figure 3, middle graph) 

This flagrant underperformance—despite substantial engineered pumps in Q4—laid bare the market’s internal fragilities. 

IV. Engineered Rallies and the BSP’s Easing Cycle Elixir 

In December, a series of price-distorting late-session “afternoon delight” and pre-closing “rescue pumps” lifted the PSEi 30 by 0.51% MoM. 

These were concentrated in banks and property stocks, echoing the mainstream narrative that rate cuts should disproportionately benefit them. (Figure 3, lowest table) 

Additional support came from ICTSI, following its powerful October–November advance. Although the rally peaked on December 12 before a mild pullback, ICT’s surge drove the services sector up 10.5% and lifted the headline index by 1.67% in Q4.

Figure 4

For context, the BSP’s first rate cut in August 2024 was initially sold as an elixir, propelling the PSEi 30 up by a remarkable 13.4% in Q3 2024. Yet a surprise weak Q3 2024 GDP print (+5.2%) triggered a sharp reversal: –10.23% in Q4 2024 and –5.33% in Q1 2025. After another significant setback in Q3 2025 (–6.46%), the index fell –4.9% in 2H 2025. (Figure 4, topmost window) 

Despite repeated interventions, the PSEi 30 closed 2025 down 7.29%. 

V. Mounting Concentration Risk and the ICTSI Distortion 

Since peaking in 2018, the PSEi 30 has recorded six negative return years out of the last eight—an unmistakable sign of a debt-trapped, late-cycle economy. (Figure 5, middle chart) 

The index’s internals underscore this bearish backdrop: 24 of 30 constituents ended 2025 in the red, averaging a –6.87% decline. (Figure 4, lowest image)

Figure 5

Yet again, ICTSI—the PSE’s largest market-cap stock—nearly single-handedly prevented a deeper collapse. Its 46.9% full-year gain pushed its free-float weight to a record 17.8% in mid-December, ending the year at 16.5%. (Figure 5, topmost diagram) 

Consequently, the combined free-float weight of the top 5 heavyweights to a record 53% but closed at 52.16% still proximate to an all-time high. (Figure 5, second to the highest visual) 

Adjusted for the peso’s 1.6% YoY depreciation to a record low, the PSEi 30 fell 8.78% in USD terms—its seventh year of decline since 2017. (Figure 5, second to the lowest image) 

The dollar index DXY fell by about 9.6% in 2025. 

VI. Foreign Selling, CMEPA, and the Gaming Bubble 

The broader PSE fared no better. Outside a handful of names, most issues declined and market internals remained weak. (Figure 5, lowest chart) 

While synchronized “national team” pumping supported headline levels, it was largely offset by persistent foreign selling—a dominant force since 2018.

Figure 6 

Foreign participation rose to 49.18% of gross volume in 2025, the highest since 2021. (Figure 6, topmost window) 

That said, under globalization and financialization, “foreign selling” does not necessarily imply foreign fund liquidation. Many elite-owned firms operate through offshore vehicles and could be part of the ‘foreign’ trading activities. 

In the meantime, gross and main board volume (MBV) rose 14.64% and 19.13% in 2025, but most of this activity peaked around the CMEPA rollout in July and slowed materially thereafter. Ironically, the capital-consumption effects of the law generated unintended consequences: asset bubbles, negative returns, and corroding liquidity. (Figure 6 middle image) 

For example, as the government cracked down on digital gambling, the PLUS gaming bubble accounted for a staggering 11.65% of main board volume in Q3 2025, revealing how speculative excess merely migrated into the PSE—absorbing retail savings in the process. 

In 2025, concentration activities intensified: the top 10 brokers averaged 63.44% of Q4 main board volume; the top 20 accounted for over 82% both in Q4 and full-year 2025 MBV. 

VII. From Equities to Energy: Bailouts Without Calling Them Bailouts 

Engineered rescue rallies are not cost-free. They amplify concentration risk, intensify late-cycle fragility, and expose deeper balance-sheet stress driven by debt-financed asset support and misallocation. 

This pattern extends beyond equities. 

Authorities initiated a soft bailout of the energy sector—first indirectly via the SMC–AEV–MER asset-transfer triangle, and later through Real Property Taxes (RPT) waivers favoring elite-owned IPPs. This was followed by another buy-in: Prime Infrastructure’s acquisition of a 60% stake in FGEN’s Batangas LNG project, alongside higher consumer charges via GEA-All layered on top of FIT-All. 

VIII. A Lone Divergence: Mining and the War Economy 

For the first time, the mining sector not only outperformed but diverged meaningfully from the PSEi and broader market. Its performance reflects exposure to global commodity dynamics—finance, geopolitics, and the war economy—rather than domestic demand. (Figure 6, lowest graph) 

While retracements are possible given overbought conditions, current signals suggest any correction may be cyclical rather than trend-reversing. 

IX. The Philippine Treasury Market Confirms the Diagnosis 

The warning signs extend to Philippine treasury markets.

Figure 7

By end-2025, the Philippine BVAL curve had clearly steepened relative to the flattish 2023–2024 profile, though it remained less extreme than the pandemic-era 2022 BSP rescue year. This shift points less to growth optimism and more to rising risk premia. (Figure 7, upper diagram) 

While short-dated T-bill yields have not fallen back to 2022 levels—despite policy rate cuts, aggressive RRR reductions exceeding pandemic-era easing, and the doubling of deposit insurance—long-term yields remain materially higher than in 2023–2024, signaling mounting market concern over fiscal conditions, debt supply, and credibility. 

The resulting mixed yield configuration, occurring alongside slowing GDP growth and persistently elevated bank lending rates, reflects not selective liquidity management but a failure of monetary transmission: BSP sought genuine easing, yet impaired bank balance sheets, malinvestment, and fiscal overhang have rendered markets far less malleable than policymakers expected. 

X. Conclusion: When Policy Loses Its Grip 

Taken together, the events of 2025 expose a Philippine financial system increasingly governed by intervention rather than price discovery—and increasingly constrained by balance-sheet fragility rather than cyclical weakness. 

Despite aggressive policy easing activities, engineered equity support, regulatory inducements, and explicit and implicit bailouts, markets failed to respond as expected. Instead, concentration deepened, liquidity thinned, and monetary transmission weakened. 

The underperformance of the PSEi 30 was not an anomaly but a symptom. Equity pumps masked deterioration; index ‘strength’ concealed internal decay. 

The peso weakened, bond yields re-priced fiscal risk, bank lending rates remained elevated, and savings were quietly consumed through speculation and policy distortion. What appeared as support increasingly functioned as stress transfer—from institutions to households, from balance sheets to prices, and from the present to the future. 

In this sense, 2025 was not merely a bad year for Philippine equities. It was a year in which markets signaled—clearly and repeatedly—that policy credibility, strained by diminishing returns and collapsing transmission/tightening effective liquidity, had become the binding constraint. 

Until balance-sheet repair, fiscal discipline, and genuine price discovery are restored, further intervention may sustain appearances—but not balance-sheet health or durable confidence. 

XI. Epilogue: The Façade of January Effects 

January has historically been a strong month for the PSE, often reflecting the so-called ‘January effect’—seasonal inflows driven by year-end cash balance surpluses, portfolio reallocations, and tactical positioning. 

Using the January 2018 peak as the reference point, the PSEi 30 has posted January gains in five of the past eight years (62.5%). Yet over that same post-2018 cycle, full-year returns have been negatives/deficits in six of those years (75%). The implication is clear: early-year strength has repeatedly failed to translate into durable annual performance. (Figure 7, lower chart) 

Even so, institutional cheerleading is likely to intensify. Seasonal rallies will be framed as confirmation of recovery, even as stimulus-driven activity continues to deepen debt-led imbalances and erode household savings. 

This is not to suggest that the PSEi 30 must necessarily close 2026 in negative territory. Rather, when façade substitutes for structure—when form is elevated over substance—market fragility increases. 

Under such conditions, for the general market, the probability of risk and loss continues to outweigh potential gains, regardless of how loudly institutions beat the drum for a bull market. 

Meanwhile, the risk of a meltdown looms. 

____

Select References 

Prudent Investor Newsletters, The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy, Substack, December 07, 2025 

Prudent Investor Newsletters, Inside the SMC–Meralco–AEV Energy Deal: Asset Transfers That Mask a Systemic Fragility Loop, Substack, November 23, 2025 

Prudent Investor Newsletters, PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth, Substack, November 30, 2025 

Prudent Investor Newsletters, The Philippine Q3 2025 “4.0% GDP Shock” That Wasn’t Substack, November 16, 2025 

Prudent Investor Newsletters, The Philippine Flood Control Scandal: Systemic Failure and Central Bank Complicity, Substack, October 05, 2025 

Prudent Investor Newsletters, June 2025 Deficit: A Countdown to Fiscal Shock, Substack, August 3, 2025 

Prudent Investor Newsletters, The CMEPA Delusion: How Fallacious Arguments Conceal the Risk of Systemic Blowback, Substack, July 27, 2025 

Prudent Investor Newsletters, The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble Substack, July 6, 2025 

Prudent Investor Newsletters, How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series), Substack, April 02, 2025 

 

 

 

 

 

 

 

USD-PHP at Record Highs: The Three Philippine Fault Lines—Energy Fragility, Fiscal Bailouts, Bank Stress

 

The pretended solicitude for the nation’s welfare, for the public in general, and for the poor ignorant masses in particular was a mere blind. The governments wanted inflation and credit expansion, they wanted booms and easy money—Ludwig von Mises

In this issue:

USD-PHP at Record Highs: The Three Philippine Fault Lines—Energy Fragility, Fiscal Bailouts, Bank Stress

I. USDPHP Record, BSP Rate Cuts, and Banking-Fiscal Fragility

II. Strong US Dollar Narrative Debunked

III. BSP’s Easing Cycle, Data vs. Narrative

IV. Cui Bono? (Redux)

V. More Energy Bailouts: Prime Infrastructure-First Gen’s Batangas Energy Buy-in Deal

VI. Political Redistribution: Consumers to Subsidize Debt-Heavy, Elite-Owned Renewables

VII. Averch–Johnson Trap and Public Choice Theory in Action

VIII. Elite Debt vs. Counterparty Exposure, Bank Centralization of Financial Assets

IX. Bank Liquidity Strains Beneath the Surface

X. The Wile E. Coyote Illusion of Stability, Bank’s Strategic Drift to Consumer Lending

XI. Keynesian Malinvestment and Policy Distortions

XII. AFS Losses and HTM Fragility

XIII. Banks Compound the Crowding Out Dynamics

XIV. The Biggest Borrower Is the State

XV. Public Revenues Are Collapsing

XVI. A Budget as Bailout

XVII. The Sovereign–FX–Savings Doom Loop

VIII. Conclusion: The Real Story: Bailouts Everywhere

XIX. Encore: From “Manageable Deficit” to Crisis Trigger 

Notice: This will likely be my last post of 2025 unless something interesting comes up. Have a safe, relaxing, and enjoyable holiday season! 🎄🎅

USD-PHP at Record Highs: The Three Philippine Fault Lines—Energy Fragility, Fiscal Bailouts, Bank Stress 

From peso weakness to systemic unraveling: energy and fiscal bailouts, malinvestment, and the illusion of stability. 

I. USDPHP Record, BSP Rate Cuts, and Banking-Fiscal Fragility 

On December 9, the USDPHP surged to a new record high—its third all-time highs since crossing the BSP’s 59-level “Maginot Line” on October 28. Yet despite the historic print, the pair has traded within an unusually narrow range—depicting active BSP intervention to suppress volatility 

This suppression of volatility has continued to date, with USDPHP retreating to the 58 level. The pair closed at 58.7 on December 19, roughly 0.9% below the record high of 59.22. 

Media outlets swiftly attributed the move to expectations of a BSP rate cut. Others defaulted to the familiar refrain of a “strong dollar.” 

II. Strong US Dollar Narrative Debunked 

Let us address the latter first. 

On the day the peso set a new record low, the US dollar weakened against 24 of the 28 currency pairs tracked by Exante Data. The Philippine peso stood out as one of only four Asian outliers—during a week when Asian FX broadly strengthened.

Figure 1

Moreover, the USDPHP has been on a steady ascent since May 2025, while the dollar index (DXY) peaked in September and has since shown signs of exhaustion. There is zero empirical basis to attribute this peso collapse to dollar strength. (Figure 1, topmost pane) 

But attribution often follows convenience—particularly when political patrons prefer comforting narratives. 

III. BSP’s Easing Cycle, Data vs. Narrative 

Now back to the first premise: interest rates as tinder to the USDPHP fire. 

Two days after the peso hit its latest record, the BSP announced its fifth policy rate cut of 2025 on December 11, the eighth since the easing cycle began in August 2024. This was accompanied by two reserve requirement (RRR) cuts—in September 2024 and March 2025—the latter bundled with a doubling of deposit insurance coverage. 

Why this aggressive easing? 

Like a religious incantation, the establishment rationalized BSP’s actions as growth stimulus. As the Inquirer noted, the BSP acted "as concerns about weakening economic growth outweighed the risks of peso depreciation." 

The BSP claims data-dependence. But has it examined its own history? 

Instead of catalyzing growth, repeated easing cycles have coincided with GDP deceleration— from 2012–2019, and again during the post-pandemic banking system rescue from Q2 2021 onward, even after interim rate hikes. (Figure 1, middle window) 

The much-cited “flood control” episode only emerged in Q3 2025, long after the damage was done. 

So the question remains: cui bono? 

IV. Cui Bono? (Redux) 

Certainly not MSMEs. 

The beneficiaries are balance-sheet-heavy incumbents with preferential access to credit, regulatory relief, and FX protection. 

Bank compliance rates for MSME lending fell to historic lows in Q3 2025 as headline GDP slowed to pandemic levels. (Figure 1, lowest chart) 

The post–Global Financial Crisis easing playbook produced the same result: banks found it cheaper to pay penalties than lend to MSMEs. 

Most tellingly, the BSP removed the MSME lending compliance data from its website last week. 

And why now?

Because the data exposes the failure of both the Magna Carta for MSMEs and the BSP’s easing doctrine: liquidity was created, but it never reached the productive economy—the transmission channel broke down. 

This is not a failure of transparency. 

The peso is not reacting to rate cuts as stimulus. It is repricing a regime in which monetary easing now functions as fiscal accommodation and elite stabilization—diverting and diminishing productive credit. 

Removing an indicator does not eliminate the risk factor—it merely eliminates early-warning signaling 

And elite debt is one of the central forces driving this policy response. 

V. More Energy Bailouts: Prime Infrastructure-First Gen’s Batangas Energy Buy-in Deal 

As we have previously noted: “In the first nine months of 2025, the 26 non‑bank members of the elite PSEi 30 added Php 603.149 billion in debt—a growth rate of 11.22%, pushing their total to an all‑time high of Php 5.979 trillion. This was the second fastest pace after 2022.” (see reference, PSEi 30 Q3 and 9M 2025 Performance, November) 

And that’s just the PSEi 30. 

Financial fragility has intensified to the point that authorities have begun instituting explicit and implicit bailout measures. 

The regulatory relief via the suspension and forgiveness of real property taxes (RPTs) for independent power producers (IPPs) provided circumstantial—but powerful—evidence that the SMC–AEV–Meralco triangle was not an isolated deal, but part of a phased continuum: transactional camouflage, regulatory condonation, financial backstopping—ultimately leading to either socialization or forced liberalization. (see reference, Oligarchic Bailout—December) 

Crucially, the asset-transfer phenomenon in the energy sector is not confined to the SMC–AEV–MER axis. (see reference Inside the SMC–Meralco–AEV Energy Deal—November) 

Prime Infrastructure, controlled by tycoon Enrique Razon, acquired 60% of Lopez owned First Gen’s Batangas assets for Php50 billion. This occurred alongside broader liquidity-raising measures by the Lopez Group, including the sale of roughly 30,000 square meters of its ABS-CBN headquarters in Quezon City for Php 6.24 billion, and the termination of the ABS-CBN–TV5 partnership due to financial disagreements. 

VI. Political Redistribution: Consumers to Subsidize Debt-Heavy, Elite-Owned Renewables 

At the same time, regulatory support has extended beyond asset transfers. 

The Energy Regulatory Commission (ERC) approved the collection of the Green Energy Auction Allowance (GEA-All) on top of the existing Feed-in Tariff Allowance (FIT-All), explicitly allowing renewable developers to recover costs directly from consumers. These mechanisms institutionalize tariff pass-throughs as balance-sheet support.

Figure 2

Aggregate data underscore the scale of the problem. As of 9M 2025, the combined debt of major listed renewable firms—AP, ACEN, FGEN, CREC, SPNEC, and ALTER—surged from Php Php490.1 billion in 2024 to Php 682.2 billion in 2025, a 39.2% increase! (Figure 2, topmost table) 

The sharpest percentage increases came from SPNEC, ALTER, and CREC. 

Taken together, debt is the common thread now binding the Philippine energy sector’s restructuring. 

Beyond the SMC–AEV–Meralco triangle, leverage stress is visible across ownership groups. First Gen’s heavy debt load, the Lopez Group’s asset disposals, and Prime Infrastructure’s acquisition of operating assets all point to balance-sheet defense rather than expansion. These are not growth reallocations but late-cycle capital triage. 

The Prime Infra–First Gen transaction fits the same pattern seen elsewhere: risk is being relocated, not resolved. Mature energy assets migrate toward entities best positioned to manage regulatory and political risk, while leverage remains embedded in the system. Market discipline is deferred, price discovery suppressed, and time is bought—without reducing aggregate debt exposure and systemic malinvestments

These are not M&A events. These are distressed-asset reallocations under sovereign protection. 

Renewables exhibit the same logic through a different channel. 

VII. Averch–Johnson Trap and Public Choice Theory in Action 

Under FIT-All and GEA-All, tariff pass-throughs convert private leverage into consumer-backed cash flows. 

This is the Averch–Johnson trap in practice: capital intensity and debt are rewarded, inefficiency is preserved, and default risk is implicitly backstopped—reaffirming public choice theory in action: concentrated benefits, dispersed costs; privatized gains, socialized losses. 

Firms such as SPGEN, ALTER, and ACEN are not anomalies. They are rational actors responding to a regulatory regime that socializes balance-sheet stress through electricity prices. 

All these said, asset transfers in conventional power and tariff-embedded support for renewables show that the sector is no longer allocating capital for efficiency or growth. It is preserving leverage. Whether through strategic transactions or regulatory pass-throughs, losses are being deferred and dispersed—into consumers, banks, and ultimately the sovereign—confirming that the energy sector has entered a late-cycle rescue phase rather than a genuine transition. 

In the Philippines, ESG is not a financing premium—it has become a political guarantee of revenue recovery. 

In essence, these bailouts are not energy policy. They are rent-seeking protectionism.  

VIII. Elite Debt vs. Counterparty Exposure, Bank Centralization of Financial Assets 

But elite debt isn’t the only problem. 

For every borrower is a creditor—a counterparty. And banks are heavily exposed. 

Total financial resources (TFR) rose 6.76% to Php 35.311 trillion, with bank assets expanding faster at 7.2% to Php29.21 trillion last October. (Figure 2, middle image) 

Both sit at the second-highest nominal levels on record. Banks now hold 82.74% of TFR, and universal/commercial banks (UCs) account for 76.8% of that. UC banks make up 92.87% of total bank assets. 

The Bank-UC share of TFR has risen steadily since 2007—and the pandemic recession accelerated that centralization trend. 

Fundamentally, bank centralization of financial assets means:

• They dominate credit allocation and distribution.
• They generate and circulate most liquidity and money supply.
• In a low-volume, savings-deprived system, they are the dominant players in capital markets (stocks and bonds).
• They command the financial-intermediation process. 

A BSP-driven concentration of financial assets therefore escalates concentration risk. Yet almost no mainstream analysts address this. 

IX. Bank Liquidity Strains Beneath the Surface 

Even less is said about the intensifying liquidity strains in the banking system. 

Despite supposedly “manageable” NPLs, banks’ cash-to-deposit ratio hit all-time lows last October. Liquid assets-to-deposits plunged to 47.44%— a level last seen during the March 2020 pandemic outbreak—essentially erasing the BSP’s historic Php 2.3 trillion liquidity injection. (Figure 2, lowest graph) 

This signals that tightening bank cash reserves mirrors tightening corporate liquidity. 

And the pressures are not just from the elite portfolios—they span bank operating structure. 

X. The Wile E. Coyote Illusion of Stability, Bank’s Strategic Drift to Consumer Lending

Figure 3

NPL ratios have been propped up by a Wile E. Coyote velocity race: NPLs are near all-time highs, but their growth is masked by faster loan expansion. The 3.33% gross NPL ratio in October reflects gross NPL growth of 2.43% YoY versus 10.7% TLP growth. As long as credit velocity outruns impairment, the illusion of stability persists. (Figure 3, topmost visual) 

Yet NPLs also remain strangely “stable” even as GDP momentum breaks and unemployment rises—an inversion of normal credit dynamics. In a normal cycle, deteriorating growth and labor markets should push impairments higher; the fact that they don’t suggests suppression, rollover refinancing, and delayed recognition rather than genuine asset quality. 

Consumer credit cards illustrate the spiral—receivables at Php 1.094 trillion, NPLs at Php 52.72 billion, both at record highs. (Figure 3, middle diagram) 

Since 2020, the BSP’s rate cap and the recession pushed banks toward a consumer-credit model—where consumer credit growth now outpaces production loans. That dynamic amplifies inflation: too much money chasing too few goods. 

The consumer-loan share of UC lending (ex-real estate) hit a record 13.73% in October, while production loans fell to 86.27%—an all-time low. (Figure 3, lowest chart) 

XI. Keynesian Malinvestment and Policy Distortions 

This reflects Keynesian stimulus ideology—the belief that consumers can borrow and spend their way to prosperity. Its Achilles heel is the disregard for balance sheets and malinvestment risks. 

Banks have now wagered not only on elites but a widening consumer base—including subprime borrowers. And because participation in consumer credit remains limited, concentration keeps rising. 

Pandemic-era regulatory relief still suppresses benchmark NPL recognition.

XII. AFS Losses and HTM Fragility 

Simultaneously, banks accelerated balance-sheet leverage through Available-for-Sale (AFS) assets—another velocity game.

Figure 4

Losses in financial assets have slowed earnings. AFS exposure surged from 3Q 2023 to today, closing the gap with Held-to-Maturity (HTM). As of October, AFS and HTM made up 41.04% and 51.21% of financial assets, respectively. (Figure 4, topmost diagram) 

Financial-asset losses climbed from Php 16.94 B (1Q 2023) to Php 41.45 B (3Q 2025), which capped profit growth—banks earned just 2.5% more in 3Q 2025. (Figure 4, middle image) 

HTMs act as hidden NPLs and suppressed mark-to-market losses, worsening liquidity drought. Cash ratios peaked in 2013 and have declined ever since—mirroring the rise of HTM.

It’s no coincidence that record-high HTMs accompany the surge in banks’ net claims on central government (NCoCG). In October, NCoCG hit Php5.663 T (2nd-highest on record), and HTMs reached Php4.022 T (also near a record). (Figure 4, lowest graphs) 

Siloed government securities—rationalized under "Basel compliance"—combined with NPL overhang (consumer and likely under-reported production) and asset losses help explain slowing deposit growth. 

Velocity masking is inherently pro-cyclical. When velocity slows, NPL truth appears—all at once 

XIII. Banks Compound the Crowding Out Dynamics 

Banks are now forced to compete with elites and the government for scarce household savings.

Figure 5

Bank bonds and bills payable stood at Php1. 548 trillion in October 2025, down 3.44% YoY but still hovering near record highs. (Figure 5, topmost pane) 

To meet FX requirements and even assist the BSP in propping up Gross International Reserves (GIR), banks have increasingly tapped global capital markets. BSP data show the banking system’s external debt rose 0.3% to $28.97 billion in Q3 2025—its third‑highest level. BDO itself raised US$500 million through five‑year fixed‑rate senior notes in November 2025. (Figure 5, middle graph) 

Meanwhile, BSP’s Net Foreign Assets climbed 2.12% YoY, driven by a 26.3% surge in Other Deposits Corporation (ODC) FX assets—a growth spiral over the last three months that underscores a rapid FX-liquidity build-up outside deposit funding and a scramble for offshore liquidity. 

When banks become the transmission channel for fiscal deficits, corporate rescues, consumer support, and green‑subsidy pipelines, the endgame isn’t stability—it is deposit fragility, duration risk (asset‑liability mismatch), and the erosion of market discipline. These are the seeds of a balance sheet crisis, with BSP backstops looming ominously over a weak peso. 

XIV. The Biggest Borrower Is the State 

The biggest borrowers are not only the elites and the banks—the government itself stands at the center. 

Last September, the Bureau of Treasury signaled that public debt would ease toward year-end through scheduled amortizations and a slowdown in issuance. 

We warned that without genuine spending restraint; any dip would be a temporary statistical blip. 

And so it was. After two months of declines, public debt surged 9.6% YoY to Php 17.562 trillion in October—just Php1 billion shy of July’s record Php17.563 trillion. Local borrowings climbed 10.6%, outpacing external debt growth of 7.53%. 

Why would debt slow when deficit spending remains unchecked? 

XV. Public Revenues Are Collapsing 

Authorities and media largely ignored the mechanics behind October’s seasonal surplus (Php 11.154 billion), driven by a reporting artifact (the shift from monthly to quarterly VAT). 

They fixated on the headline numbers: a spending dip linked to the flood-control scandal, and 6.64% shrinkage in collections. 

The bigger picture was ignored: BIR’s 1.02% growth was its weakest since December 2023; Bureau of Customs fell 4.5%; non‑tax revenues collapsed 53.3% 

The 10-month numbers confirm structural decay: revenue growth slid to 1.13%, the weakest since 2020. Tax revenue growth of 7.45% is also at post-pandemic lows. BIR’s 9.6% is a four-year trough; BoC’s 0.9% has drifted toward contraction; non-tax revenues collapsed 36.7%—the weakest since at least 2009. 

A narrow decline in the fiscal deficit (Php1.106 trillion—third-largest on record) provides no comfort. With two months remaining, the deficit can surpass 2022’s Php1.112 trillion and approach 2021’s Php1.203 trillion—entirely dependent on tax performance. (Figure 5, lowest visual) 

Since GDP drives revenues, these numbers reaffirm the dynamic: slowing growth, rising unemployment, yet oddly “stable” NPLs—a contradiction sustained by velocity illusions. 

Expenditure growth may remain muted by political scandal, but revenue weakness is decisive. 

XVI. Debt and Debt Servicing Is Crowding Out Everything Else 

Record public debt now drives record servicing. As of October, Php1.935 trillion in debt payments has nearly breached the Php2.02-trillion 2024 record—a gap of barely 4.3% with two months to go. 

The identity is mechanical: (as discussed last August, see reference)

• More debt → more servicing → less for everything else
• Public and private spending are crowded out
• Revenue cannot keep pace with amortization
• FX depreciation and inflation risks accelerate
• Higher taxes become inevitable

This process is becoming more apparent by the month. 

XVI. A Budget as Bailout 

Yet ideology prevails. Despite weakening revenues and slowing nominal GDP, Congress has passed a record Php 6.793‑trillion 2026 budget. 

Figure 6 

The headline implies “just” a 7.4% increase from 2025, but because spending targets for 2025 were revised downward, the 2026 expansion is far larger once fully implemented. (Figure 6, topmost window) 

The cut to DPWH—politically expedient after a corruption uproar—was simply reallocated to entities like PhilHealth. No discipline, just reshuffling. 

Record spending in the face of a deteriorating economy is not stimulus—it is a fiscal bailout in progress. 

XVII. The Sovereign–FX–Savings Doom Loop 

An economy with an extreme savings-investment gap and a quasi-‘soft peg’ to the USD must fund deficits externally. Public sector foreign debt reached USD 90.6 billion in Q3—up 11.7% YoY, with a record 61% share of the total. (Figure 6, middle image) 

Every peso the state cannot fund through revenue must be sourced from bank balance sheets—through deposits, government securities, or offshore borrowing. The sovereign becomes a debtor to the banking system, and the banks become debtors to households. That is the sovereign–bank–household doom loop. 

This external financing occurs despite a stretched fiscal capacity: the Q3 deficit-to-GDP ratio of 6.63% was the fourth-widest on record, achieved at the expense of households via  intensifying financial repression and crowding-out. (Figure 6, lowest chart) 

Despite mainstream optimism about “manageable” fiscal health, current dynamics risk unraveling into fiscal shock. 

Monetary loosening—locally and globally—is masking fragility. When that cover fades, the peso absorbs the shock. 

VIII. Conclusion: The Real Story: Bailouts Everywhere 

While the public fixates on the corruption scandal, bailouts continue in real time—implicit and explicit, fiscal and regulatory. 

• The SMC–AEV–Meralco and Prime Infra–First Gen transactions are political rescue operations transferring assets among leveraged elites. 
• Direct relief has been delivered through taxpayer-funded suspensions (e.g., Real Property Taxes for IPPs) and electricity price hikes to sustain overleveraged “green” portfolios. 
• Record fiscal outlays shift resources toward the state, elite firms, and banks. 
• BSP’s easing cycle provides the monetary channel to accommodate the whole structure. 

This is not reform—it is redistribution upward. 

The great economist Frédéric Bastiat’s "legal plunder" describes the mechanism; Acemoglu-Robinson’s extractive institutions describe the outcome: enrichment of incumbents, depletion of the real economy, and accumulation of malinvestment. 

A fourth fault line left to be discussed: The Philippine real estate bubble. 

XIX. Encore: From “Manageable Deficit” to Crisis Trigger

2025 already saw GDP pull the rug out from under the institutional optimists. 

The next phase is simpler:

• Rising debt
• Weakening revenues
• Record spending
• External borrowing
• Peso strain
• Price pressures
• Monetary accommodation
• Banking-system transmission

This is how sovereign balance-sheet stress becomes a macro-financial shock.

The question is no longer whether debt climbs. 

It is whether the system can finance it without a solvency event. 

Will 2026 be the year national finances follow Ernest Hemingway’s arc—gradually, then suddenly? 

And when the adjustment comes, does the peso simply slip past 60—or does something in the system fracture before it gets there?

Because the endgame of fiscal ochlocratic social democracy isn’t fairness—it’s insolvency masked as compassion. 

_____

References: 

Prudent Investor Newsletter, PSEi 30 Q3 and 9M 2025 Performance: Late-Stage Fragility Beneath the Headline Growth, Substack, November 30, 2025 

Prudent Investor Newsletter, The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy, Substack, December 7, 2025 

Prudent Investor Newsletter,  Inside the SMC–Meralco–AEV Energy Deal: Asset Transfers That Mask a Systemic Fragility Loop, Substack, November 23,2025 

Prudent Investor Newsletters, June 2025 Deficit: A Countdown to Fiscal Shock, Substack, Substack, August 3, 2025