The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy

 

Uncertainty should not bother you. We may not be able to forecast when a bridge will break, but we can identify which ones are faulty and poorly built. We can assess vulnerability. And today the financial bridges across the world are very vulnerable. Politicians prescribe ever larger doses of pain killer in the form of financial bailouts, which consists in curing debt with debt, like curing an addiction with an addiction, that is to say it is not a cure. This cycle will end, like it always does, spectacularly—Nassim Nicholas Taleb 

In this issue 

The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy 

I. Drowning in Debt: Philippine Government Bails Out the Energy Industry!

II. What the RPT Relief Confirms; The Four Phase Bailout Template

III. Phase 1 — Transactional relief: Chromite–San Miguel deal

IV. Phase 2 — RPT Cut: The Regulatory Relief

V. Phase 3 — Financial System Backstopping

VI. Phase 3a — The Policy Trap or the Escalating Systemic Risk Phase

VII. Phase 4 — Political Resolution: Socialization

VIII. Phase 4a – Socialization vs. Forced Liberalization

IX. Why This is s Late-Cycle Phenomenon

X. Conclusion: This Episode Was Never About Electricity Prices 

The Oligarchic Bailout Everyone Missed: How the Energy Fragility Now Threatens the Philippine Peso and the Economy 

The four phases of the SMC–AEV–Meralco rescue reinforce the logic of late‑cycle fragility

I. Drowning in Debt: Philippine Government Bails Out the Energy Industry! 

In the third week of November, we noted: 

The triad of San Miguel, Aboitiz, and Meralco illustrates deepening centralization, pillared on a political–economic feedback loop.  

Major industry transactions, carried out with either administration blessing or tacit nudging, function as implicit bailouts channeled through oligarchic control. (bold original) 

That thesis was quietly confirmed weeks later. 

Buried beneath the torrent of daily headlines was a development of first-order importance.

Figure 1

GMANews, December 3, 2025: President Ferdinand Marcos Jr. has ordered the reduction and pardon of all interest and penalties on real property taxes (RPTs) levied on independent power producers (IPPs) for 2025. In a statement, Malacañang said the cut in RPT liabilities of IPPs is "to prevent defaults and economic losses that could affect electricity supply and the government’s fiscal stability." (bold added) (Figure 1, upper news clip) 

Bullseye! 

This was not a routine tax adjustment. It was an explicit admission that private-sector leverage—specifically within the power industry—had crossed into systemic risk territory. 

It bears noting that the five largest power firms by market position are San Miguel, Aboitiz Power, First Gen, PSALM, and ACEN (Mordor Intelligence, 2024). 

The sector is tightly concentrated, politically franchised, and structurally shielded from competition. 

Aggregate 9M debt for the proponents of the Batangas LNG–Ilijan–EERI triangle—the SMC–AEV–MER troika—soared 16.4% YoY, reaching a record Php 2.254 trillion. Financing charges likewise jumped 8.3% YoY, hitting Php 101.17 billion, an all-time high. (Figure 1, lower chart) 

In that same November post, we asked what this meant for 2025–2026. The answer was already embedded in the corporate balance sheets: 

• cash liquidity is tightening
• banks are approaching risk limits
• debt has become the default funding model
• headline GDP growth is increasingly sustained by inter-corporate transactions rather than productive capex
• large conglomerates are supporting one another through balance-sheet swaps 

According to the Inquirer.net, this marks the third time (2023, February 2025 and December 2025) the incumbent administration has forgiven or reduced RPT-related financial charges. That pattern matters. 

Because this bailout arc pushes leverage toward the public balance sheet, the Philippine peso becomes the pressure valve of last resort 

II. What the RPT Relief Confirms; The Four Phase Bailout Template 

This latest RPT condonation has four critical implications: 

1. Political brokerage: Confirms the deal was arranged and brokered politically—a backstop to buy time, not reform.

2. Elite rescue: The energy sector operates through de facto monopolistic political franchises; relief accrues to incumbents, not consumers.

3. Late-cycle marker: Preemptive default prevention reflects an economy drifting into business-cycle exhaustion, where failures are no longer politically tolerable.

4. Counterparty contagion: Because creditors to IPPs are also elite-controlled, counterparties will need support—expanding the bailout perimeter. 

What we are now observing is a four-phase bailout arc in the Philippine energy sector:

Transactional Relief → Regulatory Relief → Financial System Backstopping → Resolution by Socialization/Forced Liberalization. 

III. Phase 1 — Transactional relief: Chromite–San Miguel deal 

The opening move comes disguised as a "strategic partnership." 

In reality, AEV/Meralco—through Chromite Gas Holdings—absorbed San Miguel’s stressed LNG and Ilijan assets (SPPC, EERI, related industrial estate and terminal exposure). Balance-sheet pressure is eased without declaring stress; earnings volatility was suppressed, and leverage was redistributed rather than reduced—in the interim. 

This phase is intentionally ambiguous. No one calls it a rescue. There is no emergency language, no fiscal line item. The objective is clear: prevent immediate balance-sheet failure without triggering market discipline, buying time before the state is forced to intervene. 

It sets a crucial precedent—private leverage can be quietly transferred and restructured under the guise of efficiency. 

This is a classic late-cycle hallmark: defaults become politically unacceptable, but overt bailouts are still premature. 

IV. Phase 2 — RPT Cut: The Regulatory Relief 

The next phase shifts from private camouflage to public condonation. The RPT cut is decisive. 

Malacañang’s own justification—"to prevent defaults and economic losses that could affect electricity supply and fiscal stability"—reframes private leverage as a public-interest problem. That line is the SMOKING GUN! 

At this stage, the bailout is no longer implicit; it is simply reframed as stability policy. 

Fixed costs are reduced, cash flows are protected, local governments (including Special Education Fund allocations) lose revenue, and political risk is shifted from firms to the sovereign. 

Concentrated gains, distributed costs—the political rent-seeking model, public choice theory in action. 

Bluntly, profits remain privatized while costs are socialized—a political free lunch and textbook oligarchic capture.

This phase entrenches moral hazard: elites learn leverage will be accommodated, not disciplined. Smaller players and consumers are sidelined; political-economic imbalances mount, fragility escalates.

Crucially, previous rounds of subsidies have failed to repair balance sheets or deliver durable consumer relief. The evidence is clear: these measures stabilize optics, not fundamentals.

These two phases are ex-post. We now turn to the potential ex-ante stages. 

V. Phase 3 — Financial System Backstopping 

This phase is partly in process and could intensify. 

Why issue such a justification unless there is a clear and present danger? 

The fact that this is the SECOND time in 2025 that authorities have subsidized IPPs through RPTs speaks volumes about the underlying problems 

Despite the BSP’s aggressive easing cycle—rate cuts, reserve‑requirement reductions, doubled deposit insurance, and record public spending that has pushed deficits back toward pandemic levels—liquidity stress persists. This signals a supply-side balance-sheet problem, not a demand shortfall. 

The stress point is becoming unmistakable: elite-owned leverage, particularly in capital-intensive sectors like power—amid slowing growth. 

Figure 2

According to the BSP’s Depository Corporations Survey, as of October the private sector’s share of domestic claims rose to 64.7%, while the combined financial and private sector share of M3 climbed to 80.63%. In Q3, domestic claims reached 77.6% of GDP, nearly matching the pandemic highs of 77.7% in Q1 and Q4 2021. By contrast, M2 and M3 shares of GDP—though still elevated since the pandemic recession—have been slowing, a clear departure from their previous synchronous trajectory during 2006–2020. (Figure 2) 

This divergence underscores the core problem: systemic leverage has risen through domestic claims, concentrated among elite firms, yet its transmission to real economic activity has weakened. 

This is the reason for the rescue mission.

VI. Phase 3a — The Policy Trap or the Escalating Systemic Risk Phase 

As unproductive leverage persists and economic growth slows, bank balance sheets deteriorate. Liquidity tightens, lending slows, and stress migrates from corporates to the financial system. 

The BSP will likely respond with escalating use of its pandemic playbook:

• Deepening easing: policy-rate and RRR cuts
• Implicit injections through BSP facilities.
• Explicit support: direct infusions (e.g., the Php 2.3 trillion precedent).
• Regulatory forbearance: capital relief and provisioning leniency.
• Soft-peg defense: attempts to stabilize USD/PHP. 

Yet contradictions mount.

Figure 3

Monetary easing is constrained by inflation and FX risk; tightening risks amplifying bank stress.  Domestic liquidity and external liabilities have been key drivers of the USDPHP’s rise. (Figure 3) 

As domestic claims rise without generating real-sector activity, liquidity hoarding intensifies, weakening the monetary transmission mechanism and amplifying FX vulnerability. 

The USD/PHP soft-peg becomes fragile—defense drains reserves, while abandonment risks inflation and capital flight. 

Policy enters a trap: support the system and weaken the currency, or guard the currency and fracture the system. 

Diminishing returns begin to cannibalize monetary and economic stability. 

VII. Phase 4 — Political Resolution: Socialization 

When liquidity support and regulatory masking can no longer hold, losses are formally absorbed by the state:

• Nationalization: partial or full state control of critical assets.
• Recapitalization: government injections into systemically important institutions.
• Bad-bank vehicle: a ‘Freddie Mac’–style structure to warehouse distressed assets while preserving legacy ownership. 

Losses are socialized; control is recentralized. 

The public balance sheet expands sharply while elite actors exit with preserved equity, retained assets, or negotiated upside. What began as a "strategic deal" ends as systemic capture, with nationalization the final stop in a late-cycle rescue arc. 

VIII. Phase 4a – Socialization vs. Forced Liberalization 

Late-cycle bailout arcs bifurcate. 

If the state retains fiscal and monetary capacity, losses are socialized through nationalization or resolution vehicles. If capacity is lost—via reserve depletion, inflation, or debt saturation—the system drifts toward forced liberalization. Market discipline is not restored deliberately; it re-emerges violently. 

In this scenario, incumbent protections collapse, policy support evaporates, and asset values are repriced downward. It may resemble "liberalization," but it is not reform—it is involuntary liquidation triggered by exhausted savings and unsustainable balance sheets or by unsustainable economics—resulting in disorderly transitions, and heightened political instability. 

Ideology shapes the preferred response. 

The populist embrace of social democracy, with its preference for top-down conflict resolution, skews the political response toward socialization. 

But ideology is not sovereign and cannot override economics: real savings and fiscal capacity, not preference, ultimately determines which path the cycle takes. When the state can no longer absorb fragility, liberalization is not chosen—it is imposed. 

IX. Why This is s Late-Cycle Phenomenon 

These phases occur when:

• Leverage is high.
• Political tolerance for defaults has collapsed.
• Asset extraction has run its course.
• The state becomes the residual risk holder. 

In early or mid-cycle, failure disciplines excess. 

In late cycles, failure is deferred, masked, and ultimately absorbed by the public—after market discipline has already broken down. 

X. Conclusion: This Episode Was Never About Electricity Prices 

This episode was never about electricity prices. 

The Philippine energy-sector rescue is not a single policy choice but a phased continuum: transactional camouflage, regulatory condonation, financial backstopping, and ultimately either socialization or forced liberalization. Each phase follows the same late-cycle logic—fragility is too politically costly to reveal, so it is deferred, disguised, and transferred away from the firms that created it.

What began as a "strategic partnership" now stands exposed as a systemic bailout, with the state increasingly positioned as the residual risk holder. 

This is the defining feature of a late-cycle economy: leverage is high, defaults are politically intolerable, and oligarchic control ensure that private losses migrate toward the public balance sheet. Consumers and taxpayers ultimately bear the burden. 

The real question is not whether the cycle ends in public absorption of losses, but how much fragility will be socialized before a reckoning becomes unavoidable. 

Crucially, not all late-stage bailouts climax in outright socialization. When fiscal capacity collapses—through reserve depletion, inflation pressure, or debt saturation—the path can shift toward forced liberalization or selective deregulation and privatization. 

This is not genuine reform but an involuntary unwind: protection collapses, policy support recedes, and assets are repriced downward. It looks liberal but functions as disorderly liquidation, with distributional costs shifted onto households while elites regroup. 

Ideology shapes the state’s instincts. Populist social democracy, market‑averse and reliant on top‑down resolution, leans toward socialization. Liberalization, by contrast, rests on cooperation, division of labor, property rights, and rule of law — mechanisms that can resolve conflict without central command. 

Yet ideology alone does not decide the path: fiscal capacity and real savings ultimately determine whether fragility is absorbed by the state or forced back into the market. 

Thus, the endgame bifurcates: 

1. Resolution by Socialization – nationalization, recapitalization, or bad-asset vehicles that warehouse losses while preserving incumbent control. 

2. Resolution by Forced Liberalization – selective deregulation, privatization, and asset sales driven not by ideology but by incapacity, where the state abandons protection because it can no longer sustain it. 

Both paths are late-cycle responses to the same underlying condition: systemic fragility accumulated over years of leverage, political accommodation, and institutional rent-seeking capture. 

They differ not in purpose, but in the mechanism through which risk is transferred—and in both cases, the public ultimately shoulders the cost. 

In late cycles, the currency becomes the final referendum on the system’s accumulated fragility 

Caveat emptor.

____ 

References

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

June 2025 Deficit: A Countdown to Fiscal Shock

In the final analysis, it’s just central banks printing money, reducing its value and causing inflation as they support dishonest governments that refuse to be fiscally responsible and continually run massive deficits. Such policies flow from the “elite’s” greed and their insatiable thirst for power, benefiting themselves at the expense of the middle class and working poor… When a society loses its moral foundation, it’s only a matter of time before the economy and currency deteriorate and the wealth gaps between the rich and poor increase dramatically—Jonathan Wellum  

In this issue

June 2025 Deficit: A Countdown to Fiscal Shock 

I. A Delayed Reckoning: Anatomy of a Fiscal Shock

1. Easy Money–Financed Free Lunch Politics

2. The Political Cult of Spending-Led Ideology: Trickle-Down by Government Fiat

3. Chronic Policy Diagnostic Blindness

4. Econometric Myopia: Forecasting the Past

5. Behavioral Fragility: The Psychology of Denial

II. Countdown to Fiscal Shock: The Hidden Story of June’s Blowout

III. Q2 Slowdown, Q1 Surge: Anatomy of the Half-Year Blowout—From Past Binge to Present Reckoning

IV. Technocratic Overreach, Authorized Expenditures, Congressional Irrelevance

V. Deficit Forecasting: Averaging Toward a Crisis

VI. Financing Strain and the Debt-Debt Servicing Spiral

VII. Tax Dragnet, CMEPA’s Forced Financial Rotation: The Economic Asphyxiation Tightens

VIII. Bank’s Fiscal Complicity, Liquidity Strains, Treasury Market’s Mutiny

IX. Mounting USDPHP Exchange Rate Tension

X. Conclusion: The Structural Fragility of Deficit Philosophy 

June 2025 Deficit: A Countdown to Fiscal Shock 

When deficits become destiny: the fiscal countdown accelerates—a convergence of easy money and political overreach

I. A Delayed Reckoning: Anatomy of a Fiscal Shock 

A fiscal shock rarely emerges from a single misstep. It crystallizes from compound misalignments across policy, ideology, and behavior. It’s the law of unintended consequences—unfolding in real time. Where economic orthodoxy meets political convenience, stability is hollowed out. And just as critically, it’s a delayed consequence of systemic denial. 

Here are the five pillars of this reckoning: 

1. Easy Money–Financed Free Lunch Politics 

A regime of entitlement—fueled by populist spending and post-pandemic ultra-low rates—fostered a seductive illusion: 

Deficits don’t matter. Debt is painless. 

Years of stimulus, subsidies, and politically popular transfers hardened into fiscal habit— habits that now resist restraint, and are rooted in beliefs that are difficult to dismantle. 

2. The Political Cult of Spending-Led Ideology: Trickle-Down by Government Fiat 

At the heart of the Philippine development model lies a flawed political-economic ideology: that elite consumption and state expenditure will "trickle down" to the broader economy. 

Massive infrastructure programs, defense outlays, and subsidy-heavy welfare budgets may deliver short-term optics—but they also crowd out private investment, misallocate capital, and accelerate savings erosion. 

The result: an economy that becomes top-heavy, brittle, and structurally vulnerable. 

This heavy-handed, statist-interventionist, anti-market bias is what Ludwig von Mises called "statolatry"—the worship of the state. 

3. Chronic Policy Diagnostic Blindness 

In the social democratic playbook, populist tools dominate. And with them comes a dangerous neglect of structural realities:

• Crowding out is ignored
• Balance sheet mismatches are waved off
• Price distortions go unexamined
• Resource misallocations are dismissed
• Economic trade-offs are neglected 

Intervention becomes the default—not the diagnosis. The result? Mispriced assets, distorted capital structures, and risk narratives untethered from fundamentals. 

The same statolatry—elevating state action above market signals—undergirds this blindness. It promotes interventionist reflexes at the expense of incentive clarity and institutional coherence. 

Fragility escalates—masked by the optics of populist-driven fiscal theatrics. 

4. Econometric Myopia: Forecasting the Past 

The establishment clings to econometric models built on frangible assumptions—historical baselines, linear extrapolation, and trend mimicry. These tools overlook what matters most: 

• Nonlinear disruption
• Inflection points
• Complex feedback loops
• Tail risks and structural breaks 

With ZERO margin for error, fragility festers beneath the surface. 

That fragility was laid bare by a maelstrom of paradigm shifts: 

• The pandemic rupture
• Deglobalization and trade fragmentation
• Raging asset bubbles
• Debt overload
• Mountains of malinvestments
• Hot wars and geopolitical shockwaves
• Inflation surges
• Financial weaponization 

This isn’t noise—it’s a new architecture of global and domestic uncertainties. And econometric orthodoxy isn’t equipped to model it. 

5. Behavioral Fragility: The Psychology of Denial 

Heuristics shape policy—and not in ways that reward foresight. Beyond populist signaling and econometric hindsight, cognitive distortions rule: 

• Recency bias
• Rear-view heuristics
• Political denialism masked as institutional confidence 

Years of perceived “resilience” dulled vigilance: 

• Every deficit was shrugged off
• Every peso slide deemed temporary
• Every fiscal blowout “absorbed” by the system 

This cultivated an expectation: past stability ensures future resilience. It doesn’t. That assumption—embedded deep within policy reflexes—has left institutions blind to volatility and ill-equipped for disruptions and rupture. 

II. Countdown to Fiscal Shock: The Hidden Story of June’s Blowout

Figure 1

In May, we warned that if June 2025's deficit merely hits its four-year average of Php 200 billion, the six-month budget gap would surge to Php 723.9 billion—surpassing the pandemic-era record of Php 716.07 billion. (Figure 1, upper window) 

Inquirer.net, July 25, 2025: The Marcos administration exceeded its budget deficit limit in the first half of 2025 after narrowly missing both its spending and revenue targets. This happened amid a gradual fiscal consolidation program. Latest data from the Bureau of the Treasury (BTr) showed the government logged a budget gap of P765.5 billion in the first six months, which it needed to plug with borrowings. This was 24.69 percent bigger compared with a year ago. (italics added) 

Then came the payload: Php 241.6 billion in fresh red ink last June!   

The government’s first-half deficit reached Php 765.5 billion—24.69% higher than last year and larger than even our most aggressive baseline x.com forecast (Php 745.18–Php 756.53 billion). (Figure 1, table)

Figure 2 

Bullseye! Our projections weren't just close—they were surgical. And the final blowout went further still. (Figure 2, topmost chart) 

Curiously underreported, June’s deficit marked an all-time high, driven by expenditure growth of 8.5% outstripping revenue growth of 3.5%. (Figure 2, middle graph) 

• BIR Collections: Up 16.24% YoY—a strong bounce from 10.71% in May and 4.71% in June 2024.
• BoC Collections: Recovered 3.23% YoY, compared to –6.94% in May and 0.67% in June 2024.
• Non-Tax Revenues: Plunged 43.25% YoY—from 40.93% in May and 81.7% in June 2024. 

Behind the aggregate improvement lies deeper fragility: June’s revenue outperformance was narrow, uneven, and ultimately insufficient to contain the programmed spending expansion—a predictable artifact of the conventional socio-democratic ochlocratic political model. 

Populist instincts override structural diagnostics. And the fiscal narrative remains hostage to crowd-pleasing interventionism rather than incentive discipline or institutional coherence.

III. Q2 Slowdown, Q1 Surge: Anatomy of the Half-Year Blowout—From Past Binge to Present Reckoning 

Despite June's record deficit, Q2 posted just Php 319.5 billion, the second slowest since 2020. That means the bulk of the six-month deficit—Php 446.03 billion—was frontloaded in Q1. 

Even then, authorities revised March spending down by Php 32.784 billion, artificially narrowing the Q1 deficit. Adjustments may mask the underlying magnitude but not the fiscal trajectory. 

This six-month outcome validates what we’ve long emphasized: programmed spending vs. variable revenues is no longer an assumption—it’s a structural vulnerability, a primary source of instability 

Importantly, this wasn’t an emergency stimulus. Unlike 2021, there’s been no recession nor one in the immediate horizon—per consensus. 

Yet the deficit beat that year’s record—despite BSP’s historic easing:

• Policy rate cuts
• Reserve requirement reduction
• USDPHP cap
• Liquidity injections
• Deposit insurance expansion 

Behind the optics: a quiet financial bailout, not of households or industries, but of the banking system. 

IV. Technocratic Overreach, Authorized Expenditures, Congressional Irrelevance 

As we earlier noted: the government continues to use linear extrapolation in a complex environment. Even with declared economic slowdown, the BIR posted 14.11% growth, buoyed by May–June outperformance. (Figure 2, lowest image) 

But has "benchmark-ism" inflated performance claims? Have authorities padded the numerator (tax data) to rationalize a fragile denominator (spending data)?

Figure 3

Non-tax revenue was the Achilles’ heel—its 2024 spike became the baseline for 2025’s enacted spending binge. The result: forecast miscalibration leading directly to fiscal shock. Beyond mere overconfidence, it was technocratic hubris that helped trigger today’s blowout. (Figure 3, topmost visual) 

Again, an underperforming economy—whether a below-target GDP, sharp slowdown, or even recession—would only reinforce this SPEND-and-RESCUE dynamic, repackaged and sold as stimulus. 

Meanwhile, authorized expenditures: Php 3.026 trillion. Remaining balance: Php 3.3 trillion, implying a floor monthly average of Php 550.05 billion. 

Budgets have been breached 6 years in a row—highlighting a redistribution of budgetary power from Congress to the Executive. 

Whether through creative reinterpretation or technical loopholes, these breaches signal a quiet transfer of fiscal power from Congress to the Executive. 

V. Deficit Forecasting: Averaging Toward a Crisis 

Looking at pandemic-era averages:

• Q3 deficits averaged Php 374 billion
• Q3 2024 hit Php 356.32 billion (–5.7% below average)
• Q4 averaged Php 537.9 billion Q4 is typically the largest—as government drops all remaining balance and more
• Q4 2024 deficit: Php 536.13 billion (–0.4% deviation)
• 2H Average: Php 911.6 billion
• 2H 2024: Php 892.45 billion (–2.6% vs trend) 

If 2025 follows this pattern, the full-year deficit could hit Php 1.677 trillion—Php 7 billion above prior records. 

But averages conceal real-world volatility, political discretion, and data manipulation—can skew results. 

Once again, it bears emphasizing: all this unfolded as the BSP eased aggressively—through rate and RRR cuts, doubled deposit insurance, capped USDPHP volatility, and expanded credit (mostly consumer-focused). 

Despite the stimulus, vulnerabilities not only persist—they’re escalating. 

If so, the DBCC's revised deficit-to-GDP target of 5.5% would be breached, necessitating another substantial upward adjustment. (Figure 3, middle table) 

Authorities would be mistaken to treat this as mere statistical noise; its implications extend far beyond the ledger into the real economy

VI. Financing Strain and the Debt-Debt Servicing Spiral 

Treasury financing soared 86.2%, from Php 665 billion to Php 1.238 trillion in H1 2025. (Figure 3, lowest diagram) 

Even with record high cumulative cash reserves of Php 1.09 trillion, June alone posted a residual cash deficit of Php 90.09 billion—evidence that surplus buffers are already depleted.

Figure 4 

As such, in June, public debt spiked Php 1.783 trillion YoY (+11.52%) or Php 348 billion (+2.06%) MoM to reach a historic Php 17.27 trillion! (Figure 4, topmost pane) 

Critically, this growth has outpaced the spending curve, suggesting potential deficit understatement or an acceleration of off-book liabilities. (Figure 4, middle image) 

Despite this, external debt share rebounded in June—a pivot back to foreign financing amid domestic constraints. (Figure 4, lowest graph)

Figure 5

Meanwhile, total debt servicing fell 40.12% YoY due to a 61% plunge in amortizations, even though interest payments hit a record. (Figure 5, topmost diagram) 

Why?

Likely causes:

• Scheduling choices
• Prepayments in 2024
• Political aversion to public backlash 

But the record and growing deficit ensures that borrowing—and debt servicing—will keep RISING. This won’t be deferred—it will amplify. 

As we warned last May

• More debt → more servicing → less for everything else.
• Crowding out hits both public and private spending.
• Revenue gains won’t keep up with servicing.
• Inflation and peso depreciation risks climb.
• Higher taxes are on the horizon 

VII. Tax Dragnet, CMEPA’s Forced Financial Rotation: The Economic Asphyxiation Tightens 

Debt-to-GDP hit 62%, triggering a quiet revision: Malacañang raised the ceiling to 70%. 

To accommodate this, authorities imposed a hefty tax on interest income via the Capital Markets Efficiency Promotion Act (CMEPA), engineering a forced rotation out of long-dated fixed income into leverage-fueled speculation and spending— (see previous discussions) 

This fiscal extraction dragnet is poised to widen—ensnaring more of the economy and constricting what little fiscal breathing room remains. 

VIII. Bank’s Fiscal Complicity, Liquidity Strains, Treasury Market’s Mutiny 

Banks continue to stockpile government securities through net claims on the central government (NCoCG). (Figure 5, middle image) 

Yet despite BSP’s easing, treasury yields barely moved—fueling further Held-to-Maturity (HTM) hoarding and deepening the industry's liquidity drain. 

At end of July, despite dovish guidance: (Figure 5, lowest graph) 

• Yields across the curve stayed above ONRRP, muting or blunting transmission
• Curve flattened unevenly: front and long ends softened, belly firmed—signaling hedging against medium-term risk
• T-bill rates remained elevated —signaling inflation fears and short-term funding stress 

Despite rate cuts, the treasury market refused to follow. Monetary policy faces bond mutineers. 

IX. Mounting USDPHP Exchange Rate Tension

Figure 6 

Following the June fiscal report, the USDPHP surged 1.29% on July 31, wiping out prior losses to post a modest 0.52% year-to-date return. 

With wider deficits on deck, foreign borrowing becomes more attractive—and a weaker dollar, further incentivized by the BSP’s soft peg, adds fuel to that pivot. But beneath the surface, this dynamic strain long-term currency stability. 

While global dollar softness might offset domestic fragilities, the USDPHP’s recent breakout hints at further testing—possibly probing the BSP’s 59-Maginot line, a psychological and tactical policy threshold. (Figure 6 upper chart) 

Should that line give, external financing costs and FX volatility could surge, exposing cracks in the peg architecture. (Figure 6, lower graph) 

X. Conclusion: The Structural Fragility of Deficit Philosophy

The Php 17.27 trillion debt—and growing—isn’t the cost of failure. It’s the price of consensus under a soft-focus ochlocratic social democracy. 

These systems don’t just elect leaders—they ratify an ethos: that deficit-fueled expansion is not only moral but inevitable. Redistribution becomes ritual. The annual SONA pipelines new spending schemes, boosting short-term political capital—but the structural anchors are threadbare. 

Compassion without discipline sedates policy. Voters misread rhetoric as reform, empathy as capability, largesse as virtue, and control as stewardship. Time preferences spiral, gravitating toward the instant dopamine hit of political dispensation. 

Alas—the tragedy is not merely fiscal. It’s intergenerational erosion. Each electoral cycle mortgages future agency, compounding fragility over time. 

What’s swelling isn’t just debt. It’s a philosophical incoherence—subsidizing dysfunction and labeling it 'development.’ 

When such convictions are deeply embedded, a disorderly reckoning is inevitable. 

____

References 

Prudent Investor Newsletter, The Philippines’ May and 5-Month 2025 Budget Deficit: Can Political Signaling Mask a Looming Fiscal Shock? Substack July 7, 2025 

Prudent Investor Newsletter, Is the Philippines on the Brink of a 2025 Fiscal Shock? Substack June 8, 2025 

Prudent Investor Newsletter, Philippine Fiscal Performance in Q1 2025: Record Deficit Amid Centralizing Power, Substack May 4, 2025 

Prudent Investor Newsletter, The Seen, the Unseen, and the Taxed: CMEPA as Financial Repression by Design, Substack, July 20, 2025 

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

Video: Mises Institute's Peter Klein on Bitcoin, Central Banking and Ideology

Peter G Klein, Mises Institute’s Executive Director and Carl Menger Research Fellow, explains of the importance of ideology in the evolution of cryptocurrencies.

(source Mises Blog)

As the great Austrian economist Ludwig von Mises wrote

The genuine history of mankind is the history of ideas. It is ideas that distinguish man from all other beings. Ideas engender social institutions, political changes, technological methods of production, and all that is called economic conditions. And in searching for their origin we inevitably come to a point at which all that can be asserted is that a man had an idea

Why the Pork Barrel Will Unlikely be Abolished

From today’s headlines:

In face-to-face interviews with 1,200 respondents aged 18 and above who were randomly selected nationwide, Pulse Asia also found that 67 percent believed that corrupt practices during the Arroyo administration involving the PDAF continued under the Aquino administration.

Most Filipinos, thus, approved of President Aquino’s announcement that the time had come for the scrapping of the pork barrel.

For about one in three Filipinos (32 percent), politicians were using the PDAF to get themselves and their relatives elected, while another 27 percent said the pork had given lawmakers an opportunity to receive bribes and commissions.

A fundamental reason why the Pork Barrel will unlikely be abolished (but will likely be transformed into another Pork with a lipstick) can be deduced from the consensus perspective which views the problem of Pork as having been based from personality virtues rather than an institutional-structural disease 

 

And media and their experts reinforce the populist belief that nirvana will be achieved (or the Pork will be of merit) once “angels” would run the government. 

But as 4^th President of the United Sates and “Father of the Constitution” James Madison Jr. warned in the Federalist papers (Federalist 51),

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

Government is about political power or the control of people and of resources by a few. Or political power is about the rule of men over men.

This means political power is hardly about righteousness for the simple reason that political power is about organized force. And to acquire and wield political supremacy means political agents will resort to all forms of manoeuvrings (which includes unethical means) for the purpose of acquiring the privilege of control over men.

The principle of economics tells us too that politicians and bureaucrats, like all the rest, are mere mortal human beings who are driven by self-interests (Public choice) and thus will be subject to the frailties and temptations of the common men.

But instead of promoting equality through opportunity and law, political power is about unjust coercive redistribution, as the illustrious economist Thomas Sowell says it best

The first lesson of economics is scarcity: There is never enough of anything to fully satisfy all those who want it.

The first lesson of politics is to disregard the first lesson of economics. When politicians discover some group that is being vocal about not having as much as they want, the “solution” is to give them more. Where do politicians get this “more”? They rob Peter to pay Paul.

After a while, of course, they discover that Peter doesn’t have enough. Bursting with compassion, politicians rush to the rescue. Needless to say, they do not admit that robbing Peter to pay Paul was a dumb idea in the first place. On the contrary, they now rob Tom, Dick, and Harry to help Peter.

In a related separate but related issue we see a variant of the Pork Barrel in action… (from another Inquirer article today)

In spite of widespread public outrage, the presidential body tasked with overseeing the pay and perks of state corporations justified Monday the bonuses that the Social Security System (SSS) had rewarded its managers while ramping up contributions of members, noting that 19 other state corporations have also handed out such management windfalls.

Paolo Salvosa, the spokesman of the Governance Commission for Government Owned or Controlled Corporations (GCG), talked to reporters after the panel members went to Malacañang to defend the much-maligned P1 million that the SSS board, headed by Emilio S. de Quiros as president and vice chair, ordered for each of its directors.

De Quiros announced at the same time that employees’ contributions to the SSS would be increased by 0.6 percent, raising their monthly salary contributions from 10.4 to 11 percent.

He said this would stretch pension funding capability “to perpetuity.” He indicated further increases in premiums were forthcoming.

The SSS chief has been roundly criticized, among others, for taking trips abroad, first class, all expenses paid, every two months since he took over the pension agency.

One may not be “corrupt” in the sense of 'kickbacks' and directly from pocketing of taxpayer funds, but the principle has been the all the same…

The politics of coercive redistribution is about the spending other of people’s money through the predation of Juan to pay Pedro and from the intermediation of political agents, who likewise benefits by getting a cut from such forcible transfer process. 

And Pork Barrel represents an element of the politics of coercive redistribution. It has been always easy to spend the toils and savings of other people in order to get elected or to maintain populist approval or for personal perks.

And in defense of the system, politicians run circles on the public by emitting smoke screens of putting the blame on previous administrations rather than to come clean by being transparent or by proving to the public of their alleged moral excellence by opening their earmarks (past and present) for scrutiny. 

Politicians also resort to legal technicalities to prevent such happening.

Bottom line: for as long politicians will be able to persuade their constituencies of the supposed necessity of spending other people’s money, the Pork barrel won’t likely be abolished.

The constituency should demand to scrutinize the Pandora’s Box as I earlier wrote

Yet the public should clamor for an independent non-partisan audit on earmarks (Pork barrel) of all incumbent officials (which should include previous tenures or positions) beginning with the highest to the lowest ranking.

This means abolishing the Pork may only happen from a radical reformation or transformation of public opinion. Or said differently, only when the public will be thoroughly convinced that the Pork is an incorrigible institutional defect will abolishing the Pork become a reality.

As the great Ludwig von Mises wrote (bold mine)

What determines the course of a nation's economic policies is always the economic ideas held by public opinion. No government, whether democratic or dictatorial, can free itself from the sway of the generally accepted ideology.