Is the Philippines on the Brink of a 2025 Fiscal Shock?

 

You should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt. They don’t include the greater risk that the countries in debt will print money to pay their debts, thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting (rather than from the decreased quantity of money they’re getting). Said differently, for those who care about the value of their money, the risks for U.S. government debt are greater than the rating agencies are conveying—Ray Dalio

In this issue

Is the Philippines on the Brink of a 2025 Fiscal Shock?

I. A Brewing Fiscal Storm?

II. April 2025 vs April 2024: A Sharp Deterioration

III. Four-Month Performance: Weak Revenue Momentum

IV. Weak Revenue Despite Loose Conditions: A Structural Problem?

V. Budget Math: A Deficit Blowout in the Making?

VI. Economic Fragility Threatens Further Revenue Weakness

A. Manufacturing: Price Softening Amid Trump Tariff Volatility

B. External Trade: Consumer Import Growth Sharply Slows

C. Headline and Core CPI: More Evidence of Demand Weakness

D. Labor Market Deterioration, Hidden Labor Market Realities

VII. The Conundrum of "Aggregate Demand" Policies and Consumer Strain

VIII. The Looming Debt Burden: Financing a Widening Deficit

A. April Financing Activities

B. Debt Payment Dynamics

IX. All-time High April Public Debt: Currency Effects Distorts Debt Composition

X. Crowding Out Effect and Interest Rate Pressures

XI. Crowding Out Effect and Policy Paralysis: The Limits of Monetary Easing

XII. The Inevitable Path: Debt, Inflation, and Future Taxation

XIII. Conclusion: Fiscal Shock Watch 2025 

Is the Philippines on the Brink of a 2025 Fiscal Shock? 

April's budget surplus masks a deeper fiscal crisis brewing beneath record-high deficits and weakening revenue collection

I. A Brewing Fiscal Storm? 

Is the Philippines teetering on the brink of a fiscal shock?  We are about to find out after eight months of government data. 

The Bureau of the Treasury’s April 2025 cash operations report confirms our suspicion that the government is struggling to meet critical fiscal targets, which should raise concerns about economic stability. 

As noted in early May: "A hypothetical Php 200 billion surplus in April would be required to partially offset Q1’s Php 478 billion fiscal gap and keep the official trajectory on track." (Prudent Investor, May 2025) 

The Inquirer.net reported on May 28, 2025: "The national government recorded a budget surplus of P67.3 billion in April, surging by 57.51 percent or P24.6 billion from a year ago, as tax revenues posted stronger growth and spending slowed for the month. However, for the January to April period, the cumulative budget deficit surged by 78.98 percent to P411.5 billion, as public spending rose by 13.57 percent to support economic activity and the priority programs of the Marcos administration." 

Media narratives either echoed the official line on tax revenue strength or highlighted spending restraint as causes for April’s surplus. But both perspectives overlook a critical detail: April’s surplus aligns not just with the 2023 VAT filing shift to a quarterly basis (previously discussed) but—more importantly—with the "annual tax filing deadline"—a period typically associated with a revenue spike. Yet, even this failed to close the fiscal gap. 

Additionally, the record-high deficits in Q1, persisting into the first four months, have gone largely unaddressed in mainstream discussions. 

To cut to the chase: April data signals a further weakening in the revenue base—right in the face of unrelenting public expenditure, pushing the deficit to historic levels. 

Let’s delve into the details to understand the scope of this fiscal challenge. 

II. April 2025 vs April 2024: A Sharp Deterioration 

In April 2025: 

• Revenues fell 2.82%
• Tax revenues grew 7.84%
• Non-tax revenues plunged 68.08%
• Bureau of Internal Revenue (BIR) growth of 11.1% boosted tax revenues
• Bureau of Customs (BoC) 7.5% declined, which weighed on overall performance

Compare that to April 2024: 

• Revenues soared 21.9%
• Tax revenues surged 13.9%
• Non-tax revenues rocketed 114%
• Tax revenues were anchored by BIR's 12.65% growth and the BoC delivered a strong 19.5%.

Clearly, April 2025 showed a sharp drop in performance despite the same structural advantages related to annual filings.

Figure 1       

The nominal (peso) figures show revenue collections falling significantly short of April 2024's all-time high. (Figure 1, topmost window)

Relative to the VAT’s quarterly cycle, note that the combined January and April 2025 surpluses (Php 135.66 billion) exceeded 2024’s (Php 130.7 billion) by just 3.8%—barely moving the needle against the Q1 fiscal gap. (Figure 1, second to the highest image) 

III. Four-Month Performance: Weak Revenue Momentum 

For January to April 2025: 

• Revenues grew a meager 3.3%.
• Tax revenues rose 11.5%, while non-tax revenues collapsed 51.94%.
• The BIR and BoC posted 14.5% and 2.16% growth, respectively.

In contrast, the first four months of 2024 showed:

• Revenues up 16.8%.
• Tax revenues up 13.22%.
• Non-tax revenues up 48.81%.
• The BIR and BoC grew by 15.35% and 6.47%, respectively. 

Clearly, April 2025 didn’t just underperform—it dragged down the already fragile broader four-month revenue trend. (Figure 1, second to the lowest visual) 

IV. Weak Revenue Despite Loose Conditions: A Structural Problem? 

Critically, Q1’s collection performance coincided with the full effects of the BSP’s first easing cycle in 2024, while April began reflecting partial effects of the second phase. 

Additionally, macro conditions were supportive:

• Bank credit growth was strong.
• Labor market conditions were reported as near full employment.
• Inflation slowed.

Universal-commercial bank loans jumped 11.85% in April to a record Php 12.931 trillion. Yet, public revenues stalled. (Figure 1, lowest graph) 

In short, despite historically loose financial conditions, the government has already been experiencing collection issues—a potential symptom of diminishing returns from BSP’s easy-money regime.

This suggests that further monetary stimulus yields progressively smaller positive impacts on revenue generation or economic growth, potentially reflecting inefficiencies in credit transmission due to mounting balance sheet problems. 

Which leads us to the trillion-peso question: What happens when financial conditions tighten? 

V. Budget Math: A Deficit Blowout in the Making?

From January to April, total revenues reached Php 1.520 trillion. Annualized, that projects Php 4.561 trillion—assuming average monthly intake of Php 380.06 billion. 

Compare that to the 2025 enacted budget of Php 6.326 trillion—already a base case considering six straight years of overspending. Authorities have already disbursed Php 1.932 trillion, implying a remaining monthly average of Php 549.28 billion. 

Bluntly put: At the current pace, 2025 could register a deficit of Php 1.765 trillion—5.7% higher than 2021’s all-time high of Php 1.67 trillion!

The key difference? 2021’s deficit was a deliberate fiscal stabilizer—alongside the BSP's unprecedented monetary and regulatory measures—in response to the pandemic. 

In 2025, no downturn has yet emerged—but the deficit itself threatens to trigger one.

VI. Economic Fragility Threatens Further Revenue Weakness 

A. Manufacturing: Price Softening Amid Trump Tariff Volatility

Figure 2

Since its peak in July 2024, manufacturing loans have been decelerating. March growth was just 2%. However, PPI rose only 0.06% in April YoY—barely moving. (Figure 2, topmost pane)

Though manufacturing volume/value both rose 4.2–4.3% inApril, this likely reflected distortions from new Trump tariffs effective that month.

The S&P PMI index showed a similar spike to 53 in April but slumped to 50 in May. (Figure 2, second to the highest chart)

B. External Trade: Consumer Import Growth Sharply Slows

April imports fell 7.2%, while exports rose 7%, compressing the trade deficit by 26%. (Figure 2, second to the lowest diagram)

But consumer goods imports slumped from 25.8% in March to just 2.83% in April. (Figure 2, lowest graph)

Agri-based products—led by coconut and sugar—boosted exports.

C. Headline and Core CPI: More Evidence of Demand Weakness

Headline CPI slipped from 1.4% in April to 1.3% in May, mainly due to quasi-price controls known as Maximum Suggested Retail Prices (MSRP) on rice and pork. The government also began rolling out Php 20 rice subsidies in select areas, distributing them among targeted groups.

Figure 3

However, Core CPI (non-food and non-energy) steadied at 2.2% for a third straight month, backed by a base-forming month-over-month rate of 0.16%—marking a second consecutive month. A soft CORE CPI reflects underlying weakness in demand. (Figure 3, topmost image)

D. Labor Market Deterioration, Hidden Labor Market Realities

Labor data reveals further vulnerabilities. The unemployment rate rose from 3.9% in March to 4.1% in April, but this excludes an estimated 24 million “functionally illiterate workers” (47% of the labor force or 30% of the population aged 15 and above). Many of these workers are likely employed in the informal sector or MSMEs (67% of employment in 2023, per DTI) or are underemployed, part-time, or not in the labor force. 

The “not in the labor force” population, defined by the PSA as those not seeking work due to reasons like housekeeping or schooling or permanent disability, has risen since November 2022, potentially masking the true unemployment rate and raises questions about the true extent of labor underutilization. (Figure 3, middle chart) 

The correlation between universal-commercial bank consumer salary loans and CPI trend since 2021 highlights consumer strain, further eroding aggregate demand. (Figure 3, lowest diagram) 

VII. The Conundrum of "Aggregate Demand" Policies and Consumer Strain 

Amidst all of this, we must ask: what has happened to "aggregate demand," particularly consumer demand? If consumers have shown worsening strains at the start of Q2, its continuity bodes ill for GDP growth and could likely be expressed in potential shortfalls in tax collections. 

So how will the government attempt to keep the GDP afloat? Given their top-down bias, the mechanical recourse would be to front-load public spending, thereby heightening the risks of a fiscal deficit blowout! 

Naturally, because the government is not a wealth generator but rather a redistributor and consumer, someone has to finance that swelling deficit. That "someone" is the individuals in the wealth-generating productive private sector. 

VIII. The Looming Debt Burden: Financing a Widening Deficit

A. April Financing Activities

Figure 4 

With the first four-month deficit at a record high of Php 411.5 billion, authorities raised Php 155.61 billion in April, leading to a 190% spike in financing of Php 799.73 billion in 2025. This effectively reversed the three-year (2021-2024) decline previously hailed by mainstream experts as prudential management. (Figure 4, topmost window)

The financing surge increased BTr's cash reserves to Php 1.205 trillion (Jan-Apr), though authorities held net cash reserves of only Php 188.9 billion in April. 

April's financing was mostly acquired through domestic issuance.

B. Debt Payment Dynamics 

April debt payments soared 73.72% to Php 280.898 billion, accruing to Php 622.921 billion in the first four months of 2025. (Figure 4, middle image) 

Total debt payments remained 45.7% below 2024's record levels. However, FX payments grew 17.3%, partly offsetting the 59.64% plunge in peso payments.

The FX share of debt servicing relative to the total has been rising since 2024. (Figure 4, lowest chart) 

The lag in payment data may be due to scheduling issues or information deliberately withheld for political reasons. 

While we find the preponderance of media announcements showing how debt payment has substantially slowed this year rather amusing, logic dictates that widening deficits will lead to a critical increase in debt that will have to be serviced over time. 

IX. All-time High April Public Debt: Currency Effects Distorts Debt Composition 

April debt hit a record Php 16.753 trillion. Thanks to a strong peso, FX-denominated loans fell 2.7% or Php 142.33 billion. 

Per Bureau of Treasury (BTr): "The reduction was primarily due to the P124.74 billion decrease in the peso value of external debt owing to peso appreciation." 

However, domestic debt grew 1.85% or Php 211 billion, resulting in a net increase of 0.41% or Php 68.690 billion. 

Reality Check: Philippine foreign debt did not actually shrink. The peso simply strengthened, lowering the debt's peso equivalent. Remember, FX liabilities still have to be repaid in dollars or other foreign currencies. In short, it's a revaluation trick—a statistical façade, not a real debt decrease. 

X. Crowding Out Effect and Interest Rate Pressures

Figure 5

In any case, the widening deficit, brought about by the mismatch between accelerating public spending and weakening revenue growth, underwrites the escalation of public debt. The rise in public debt has already been outpacing the growth trend of public spending, driven by the deficit and likely by amortization requirements. (Figure 5, topmost pane)

This escalating fiscal deficit means that competition for access to the public's diminishing savings will intensify, as government requirements will likely crowd out the domestic credit needs of banks and non-private sector firms, thereby putting pressure on interest rates. For businesses, this translates to higher borrowing costs and reduced access to credit, potentially stifling private sector investment and job creation. For ordinary citizens, it could mean higher interest rates on loans for homes, cars, or personal consumption. 

As an aside, the relentless rise in debt levels is not only a manifestation of the consequences of the government-BSP's "trickle-down" policies (debt-financed "savings-investment gap," "twin deficits," and "build and they will come" malinvestments); critically, they also signify the indirect ramifications of the Philippine social democratic system. In essence, this is what you have voted for! 

XI. Crowding Out Effect and Policy Paralysis: The Limits of Monetary Easing 

So, despite authorities' earnest attempts to push down the CPI—mainly via price controls or Maximum Suggested Retail Prices (MSRP) for rice and pork—to accommodate a desired easing cycle, T-bill rates have barely budged since 2022!  (Figure 5, middle chart) 

T-bills, the most sensitive to BSP's rate cuts, have remained unresponsive to April's CPI data! 

The widening spread between market (T-bills) and the CPI suggests that, aside from the crowding-out effect, Treasury markets view the present disinflation as "transitory," or they are hardly convinced of the integrity of the government's data. 

Consider this: The punditry consensus has been clamoring for lower rates on the back of a slumping CPI, but treasury dealers for their companies continue to price Treasuries as if the CPI remains inordinately high!

In short, the crowding out has rendered the government-BSP's easing cycle ineffective: Fiscal stimulus has hit a wall due to diminishing returns!

At worst, the mounting discrepancy could translate into increasing policy risks—or a potential blowback—that could be expressed through an inflation surge or a USD/PHP spike.

As seen in banks' balance sheets, this crowding out has led to a plunge in their liquidity positions (evidenced by falling cash-to-deposits and liquid assets-to-deposits ratios).

This increasing demand for public savings also applies to foreign exchange (FX) requirements. This means that to meet the economy's foreign exchange (FX) requirements and support the BSP's "soft peg" or foreign exchange policy, a surge in external debt can be expected. 

Evidently, public savings have not been sufficient. Authorities have increasingly relied on banks to finance public requirements via net claims on the central government (NCoCG), which have been rising in tandem with public debt. These assets have been siloed via banks' held-to-maturity (HTM) assets. The all-time high in public debt has been accompanied by a near-record NCoCG in April. (Figure 5, lowest diagram)

Figure 6

It is unsurprising that trades in government securities have been booming, even as 10-year yields have been on an uptrend. (Figure 6, topmost diagram) 

This phenomenon suggests two things: potential disguised losses in banks and financial institutions, and second, that these trades have crowded out trading activities in the Philippine Stock Exchange (PSE). 

In 2020, the BSP's historic Php 2.3 trillion intervention occurred partly via its own NCoCG, which is conventionally known as "quantitative easing." Although the present economy has supposedly ‘normalized,” the BSP's NCoCG remains at 2020 levels. This can be expected to surge when public savings and banks' capacity have reached their maximum. (Figure 6, middle image) 

Without a doubt, the BSP will likely rescue the banks and the government, perhaps using the pandemic template of forcing down rates, implementing reserve requirement ratio (RRR) cuts, massive injections (directly and through bank credit expansion), and expanding relief measures—though likely with limits this time. 

We doubt if they can maintain the USD/PHP peg or if they would accommodate a limited peso devaluation. 

XII. The Inevitable Path: Debt, Inflation, and Future Taxation

With this in mind, we can expect both public debt and debt servicing to experience an accelerated rise. Public debt to GDP could hit 2003-2004 levels, while debt servicing should see an equivalent uptrend over the coming years. (Figure 6, lowest chart) 

We should not forget: rising public debt inevitably leads to higher debt servicing, which in turn necessitates more public spending. 

As noted last May 

This trend suggests a potential roadmap for 2025, with foreign borrowing likely to rise significantly. The implications are multifaceted:

-Higher debt leads to higher debt servicing—and vice versa—in a vicious self-reinforcing feedback loop. 

-Increasing portions of the budget will be diverted toward debt repayment, crowding out other government spending priorities. In this case, crowding out applies not only to the private sector, but also to public expenditures. 

-Revenue gains may yield diminishing returns as debt servicing costs continue to spiral. 

-Inflation risks will heighten, driven by domestic credit expansion, and potential peso depreciation 

-Mounting pressure to raise taxes will emerge to bridge the fiscal gap and sustain government operations. (Prudent Investor, May 2025)

Following this, after grappling with debt and inflation, the government is bound to raise taxes. 

XIII. Conclusion: Fiscal Shock Watch 2025 

Unless BSP’s easing gains real economic traction, the first four months of 2025 point to a growing likelihood of a fiscal shock. 

• Revenue collection has deteriorated.
• Economic indicators signal fragility.
• Consumers are heavily indebted and weakening.
• External pressures—Trump's tariffs, deglobalization, and the re-emergence of "bond vigilantes" (investors who sell off government bonds when they believe fiscal policies are unsustainable, thus driving up borrowing costs for the government) could tighten external liquidity and worsen domestic financial conditions. 

Unless authorities rein in spending—which would drag GDP, risking a recession—a fiscal shock could emerge as early as 2H 2025 or by 2026. 

If so, expect magnified volatility across stocks, bonds, and the USDPHP exchange rate.

___

References 

Prudent Investor Newsletter, Liquidity Under Pressure: Philippine Banks Struggle in Q1 2025 Amid a Looming Fiscal Storm, May 18, 2025 

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

 

Phisix 7,150: Prospects of a Strong Man Rule Sends Peso Tumbling, Why A Shift to the Political Left Will Mean A Weaker Peso

Democratic socialism, then, is not a doctrine designed to protect the liberal values of independence, autonomy, and self-direction that many on the left still value to some degree. It is, on the contrary, a doctrine that forces those of us who cherish those liberal values onto a slippery slope toward tyranny.—Professor Sandy Ikeda

In this issue

Phisix 7,150: Prospects of a Strong Man Rule Sends Peso Tumbling, Why A Shift to the Political Left Will Mean A Weaker Peso

-Prospects of a Strong Man Rule Sends Peso Tumbling

-The Political Economy of Leftist Governments Leads To Weak Currencies

-Canary in the Coal Mine: Century Property’s Real Estate Sales Crash in 2015 as Debt Swells!

-Real Estate Banking Loans Nears BSP’s Cap, What the Resurgence of Money Supply Growth Implies

-Has The Philippine Presidential Elections Been About An Angry Vote Or A Bubble Vote?

-Philippine Presidential Election’s Unseen Winner: None of the Above!

-Election Surveys: To Trust or Not?

Phisix 7,150: Prospects of a Strong Man Rule Sends Peso Tumbling, Why A Shift to the Political Left Will Mean A Weaker Peso

Prospects of a Strong Man Rule Sends Peso Tumbling

In defense of the status quo, a claim was made that the pesos’ predicament should be put in ‘perspective’. And that the perspective of the anemic peso has been founded on a ‘regional’ dynamic.

So let us play ‘spot the odd man out’ from the diagram below.

Since the US Federal Reserve opted to maintain their current policy stance last week, the US dollar has been under siege against most major currencies. Similarly the feeble US dollar has sent commodities skyrocketing.

And the fall in the US Dollar has likewise permeated to Asia. So the regional perspective, contra to the unfounded assertion, has been a weak USD and strong Asian currencies. That’s with the exception of the Philippine peso and the Malaysian ringgit.

So what has prompted the two currencies to resist or defy the regional trend?

Domestic factors apparently have been the most likely answer.

The escalating corruption scandal involving Malaysia’s Prime Minister has impelled Malaysia’s state owned 1Malaysia Development Bhd (1MBDB) to default on its $1.75 billion debt last week. While the USD myr rallied following the announced default, the rebound wasn’t enough to offset losses incurred at the start of the week. So the Malaysian ringgit closed marginally down .1% or almost unchanged for the week.

This leaves the odd man out, the sole Asian (Asian-East Asian) currency to post a substantial loss for the week; the Philippine peso

While I have suggested that the BSP’s window dressing of GIRs through derivatives may have a culprit, last week’s actions points to other more significant factor/s.

With a week to go before national elections, uncertainties appear to have cast a pall on the peso.

Popularity of a self-proclaimed controversial leftist candidate recently zoomed to the top according to the polls, against a field of aspiring contenders for the highest national position.

This is a showcase of the remarkable careening of sentiment by the voting population to the political left.

And such dramatic transition to the political left may have possibly sent jitters to the some of the elites for them to panic buy the USD.

Based on official data, the peso closed down by .51% or from 46.65 last week to 46.89 last April 29 Friday.

However, Bloomberg’s data on international trade of the Asian reveal that the peso even fell further to 46.91 or down .57% in the US trading session.

The USD peso had been quoted last at 47.04-47.05 based on Google, Yahoo and Investing.com. This means that unless the BSP intervenes, Monday’s opening trade will likely be at range of the mid 46.90s-47.05.

In short, there seems to be a real panic out of the peso. We should see if this dynamic holds next week.

The Political Economy of Leftist Governments Leads To Weak Currencies

Weak currency in the prospect of a leftist government should be a natural outcome.

The shift to the political left only indicates that the thrust of the incoming administration will be to deepen the politicization of the economy.

This basically means bigger government or political centralization at the expense of the already constrained market economy.

Given that government will assume a bigger role, then this means that the rate of growth of government spending should rise faster than the economy. Therefore, fiscal deficits will only balloon.

Even more, the cost of financing a bigger government should translate to lower economic performance.

First, an increase in the size of the government translates to more competition with the private sector for resources, this should entail of the ‘crowding out’ of the private sector (all things being equal). In short, the more the transfer of resources to the government, the less resources available to the private sector.

Second, such transfers would entail of less efficient use of resources. The focus on consumption, particularly politically directed consumption, will infer to more deadweight losses in the economy that would lead to lower productivity—and eventual decline in the standard of living.

Third, the financing of a bigger government will translate to higher cost of doing business, via increased taxes, higher inflation rates, larger political compliance costs, regulatory obstacles and more corruption. This extrapolates to a much higher hurdle rate required for investments. And higher hurdle rates will deduce to diminished investments.

Don’t forget government’s survival depends on mostly expropriation of resources from the private sector, through taxation and inflation (invisible taxation).

Fourth, the government will likely decrease participation of private sector in the economy through legislation. The government will likely resort to the substitution of private sector participation through nationalizations. Or that the government will increase regulations and mandates that will raise barriers to entry. So by picking on winners, the incoming administration may essentially endow the privilege of political protection from competition to select favored (rent seeking/crony) private entities or to state owned enterprises.

And nationalization of enterprises will likely focus on key industries that will ensure the preservation of power of the new administration and those subject to populist clamor. Financials and energy sector are most likely candidates.

Fifth, given the prospects of diminished role of the private sector, which should put pressure on government financing, the government will likely increase the recourse to financial repression policies. Financial repression policies will allow the government to capture more resources or savings from the public indirectly or with less political visibility.

Hence, the government will not only resort to more inflationism combined with more financial regulations, they would likely tighten capital controls and reverse some of the recent liberalization activities undertaken by the outgoing regime.

And finally, since deficits will bulge, the government will have to raise taxes and or fund itself with more debt. Again, higher taxes in itself will not automatically weaken the peso. For as long as it can be paid for by taxes, more debt will also not contribute to the attenuation of the peso. The debilitation of the peso will occur when government increases money supply to directly monetize its spending, or, beyond the ability for taxes, employ bank credit expansion to fill the spending gap by purchasing government debt.

History has shown that dictators here and elsewhere have such a ravenous appetite on spending other people’s money. The last time the Philippines had a strong man rule, the peso crashed by 81% in 20 years!

Worst, the spendthrift strong man regime culminated with a balance of payment crisis in 1983-1984

The slomo boiling frog of the peso virtually sowed the seeds or paved way for the mass diaspora of laborers, which today we call as heroes or the OFWs.

Yet the previous dictator, whom practiced oligarchic crony capitalism, was hardly a leftist.

Today should the leftist government prevail, they will be faced with huge imbalances brought about by the previous two administration’s financial repression—negative real rates policies—that inflated a credit bubble which has been manifested in domestic asset markets (property, stocks and bonds). Worst, a larger government in the face of present economic maladjustments will deduce to a perfect storm.

Tinkering with money always generate a boom first, such can be seen in the Phisix 1970-1985 cycle. The boom which lasted from 1972 to 1978 culminated with a bust (blue bars).

Additionally the current leading leftist candidate has even swaggered about instituting a “revolutionary government” by “abolishing Congress” and intends to amend the constitution, which most likely will be used to convoke or usurp more power for themselves, with lesser encumbrance from checks and balances.

I am captivated by thought of the abolishment of Congress. However, in replacement of what? A left dictatorship? This means to jump from the frying pan to the fire!

The modern day or contemporary versions of leftist governments have been those that impose state capitalism or economic fascism.

State capitalism is defined¹ as “commercial (i.e., for-profit) economic activity “undertaken by the state, where the means of production are organized and managed as state-owned business enterprises (including the processes of capital accumulation, wage labor, and centralized management), or where there is otherwise a dominance of corporatized government agencies (agencies organized along business management practices) or publicly listed corporations of which the state has controlling shares, or “private capitalist economy controlled by a state, often meaning a privately owned economy that is subject to statist economic planning.”

On the other hand economic fascism entails “economic dirigisme”² or “an economy where the government exerts strong directive influence over investment, as opposed to having a merely regulatory role. In general, apart from the nationalizations of some industries, fascist economies were based on private individuals being allowed property and private initiative, but these were contingent upon service to the state. 

In short, modern day leftist regimes are characterized by the state directed economic activities through combination of state owned enterprises and government dictated privately owned crony firms.

Of course, pray that any “revolutionary government” by the new administration will not be of the early twentieth century leftist strain, similar to the Bolshevik revolution and its offspring Lenin-Stalin’s USSR, the Nazi (national socialist) dictatorship, Mao ZeDong’s Great leap forward, Pol Pot’s "Democratic Kampuchea" and others.

In the twentieth century paragon, stock markets did not exist in the said countries because property rights or private ownership were banned in favor of collective ownership.

All these indicate that when the perceive risks to private property increases, capital flight would be an intuitive response to the economics of leftist-dictatorship governments.

The peso (blue) apparently dragged down the Phisix (red) which closed down 1.32% over the week.

It has been interesting to note that both the peso-Phisix appears to have hit an inflection point where the USD php may have bottomed while the Phisix may have climaxed.

The inverse correlation of these two appears to have been reinforced.

Yet it is sad, if not alarming, to see how populist politics has fundamentally underwritten the peso’s downfall.

Canary in the Coal Mine: Century Property’s Real Estate Sales Crash in 2015 as Debt Swells!

This is just a short note on what seems as more proof of the deteriorating conditions for the real estate industry in 2015.

The annual report of high end property developer Century Properties has shown of a shocking -28.38% collapse in real estate sales in 2015!

The company blames this partly to accounting practices and a shortage of new projects³: For the year ended December 31, 2015, the Group recorded revenue from real estate sales amounting to P7,751.3 million compared to P10,822.9 million in 2014. The decrease in real estate sales is attributable to less revenue recognized in 2015 for projects that turned over in 2015 and prior years. A significant portion of revenue from these projects were already recognized in 2014 and prior years. In addition, there were less project launches in 2015

Yet in the same report the company seem to say that the opposite, they have lots of projects at work: The Company is currently developing six master-planned communities that are expected to have 28 residential condominium buildings, three commercial buildings for lease, and 934 landed houses, with a total expected GFA (with parking) of 1,671,339 sq.m. In addition, the Company has agreed to purchase 50% of the usage and leasehold rights of Asian Century Center, an office building in Bonifacio Global City. Asian Century Center is currently being developed by Asian Carmaker Corporation

The collapse in CPG’s sales has equally been manifested by a 30% crash in eps growth!

So far, CPG has had the worst performance among firms in the real estate industry in 2015. Yet the firm’s direction (falling top line which has spilled to the over to the bottom line and soaring debt) has not been in isolation but has only reinforced what seems a formative industry trend.

In addition, as CPG’s sales crashed, this has compounded on her cash flow quandary for the company to significantly lever up on debt. CPG’s long term debt alone has swollen by +34.8% in 2015.

CPG looks like the proverbial canary in the coal mine.

Real Estate Banking Loans Nears BSP’s Cap, What the Resurgence of Money Supply Growth Implies

And it has been interesting to observe that after a huge jump in banking loans to the real estate sector in the last two months (which grew by 23.26% January and 25.45% in February), such sizzling rate of growth seem to have moderated or fizzled back to its 2H 2015 levels in March (20.22%).

The share of loans to the real estate industry relative to the general (production loans) economy now accounts for 19.6%. This basically approaches the BSP’s loan cap for the sector! And this probably explains the slowdown.

Of course, I believe that the loans to the sector have been severely understated. The race to build supply in the face leveraged vendor financed sales has only led to cash flow deficiencies for MOST of real estate companies. This means that the industry has to rely on bigger borrowings to bridge finance everything from marketing, sales, operations, debt servicing and expansion. CPG is an example.

This implies too that loans incurred by the sector may have been channeled through different unofficial routes excluding bonds, which may include intra-company loans, unrelated company to company loans, promissory notes/placements or the diversion of loans from the reported BSP categorization, shadow banks and others, which may have been used to circumvent such regulatory loan cap.

And with the exception to banking loans to the financial sector, the rate of growth of loans to other sectors moderated, namely trade, electricity and construction. Loans to the manufacturing sector crashed anew from 5.49% in January and 5.73% in February to only 1.84% in March. This hardly has been a sign that the manufacturing sector has been growing.

Yet the surge in banking loans to the financial sector could have been used to finance speculative positions at the PSE.

Even more, the rate of growth to the construction industry continues to plunge.

At still a hefty 22.89%, it has dropped to its lowest level since 2013. (bottom window) The share of bank loans to the sector only accounted for 3% of production loans.

While this may partly be construed as diminishing returns on loan growth, this can also be seen as moderation in construction activities. If it is the latter then this leads us to a paradox, if construction activities has been slowing (bolstered by decline in 2015’s construction permits) then where has the recent engorgement of real estate loans been channeled to? Had such been used to finance frenzied speculative bids on properties (e.g. 3 bedroom Makati)? Or has current debt acquisition been more about debt servicing?

Another interesting take has been that the recent upside turnaround of credit growth has likewise been manifested on M3 and thus CPI.

While higher M3 will likely boost statistical GDP (money value of goods and services) in 1Q, it will also have a lagged effect on CPI and other real economy prices.

The point here is that higher real economy prices will not only eventually erode on profits (aggravating current conditions) but most importantly sink the purchasing power of residents.

Additionally, it points to a lower peso!

Has The Philippine Presidential Elections Been About An Angry Vote Or A Bubble Vote?

I came across on a headline which attributes the current voting sentiment in the Philippines as akin to a vote on US presidential aspirant Donald Trump.

Funny, but Donald Trump has NO political track record or history to speak of. Having said so, he hasn’t killed anyone as a standing politician. This is unlike one of the popular candidates in the Philippines. And I have not come across any article to claim that Mr Trump brags about or overtly desire to kill people to accomplish political objectives. [As a side note, I do not endorse any US and Philippine candidates]

On the other hand, ALL Philippine national (presidential and vice presidential) candidates are establishment politicians. The difference is in the position; some are from local levels, some from the bureaucracy and from the national levels.

In other words, a Trump comparison is virtually off the rails for Philippine conditions.

So this hardly been about anti-establishment votes, but an election composed of different establishment personalities with their respective baggage of vested interest groups.

In addition, piggybacking on the claim of the Trump like sentiment, the argument stretches on the idea that this election would account for an ‘angry’ vote.

As previously noted, angry of what? Angry of the establishment’s boom? Whatever happened to the statistical boom? Why has the boom not have gravitated populist sentiment towards the incumbent? Why has there been a pivotal shift towards the opposition or to the political left?

On the contrary, I’d suggest that current sentiment has hardly been an angry vote. Instead it represents a bubble vote.

The establishment boom has warped or mangled people’s mindsets into imbuing an ultra-short term orientation to embrace on knee jerk populist solutions. They must have watched too much of super hero movies as to lust for the real world assimilation of the savior-super hero effect.

Worst, current sentiment represents an expression from a substantial segment of the populace for an increasing desire to use of arbitrary violence through elective dictatorship or ‘strong man bubble’ to solve socio-political economic predicaments. This attraction towards violence, at the expense of due process, highlights on the deterioration of people’s moral fiber.

Basically, current sentiment seems to have overturned on the lessons of two people power events where political transitions had been nested on the peaceful overthrow of the old guards.

And that the appeal to violence seem to have emerged from grave misperceptions of the supposed lack of ‘political will’ for the ‘enforcement’ of rules

This only reveals that many people seem to think that enforcement has no economic cost or consequences! Just where the heck, will the government get resources to pay for ‘enforcement’? Manna from heaven?

And because absence of the costs, they see only beneficial social consequences!

Such are proofs that bubble mentality have only spread from the financial world to the political sphere.

More importantly, given that resources are scarce, just what should be the order of priorities by the new administration in the allocation of resources? Or just how will ‘enforcement’ take place?

To focus on spending and action on political priority ‘A’ means LESS spending and action on political priority ‘B’ or ‘C’ or ‘D’ to the nth. This is called opportunity cost.

Yet once the spending and action spread to a diverse field of interests, say political priority A, B, C, D to the nth, then political resources and actions will spread thin! Enforcement dissipates! And resources include people—bureaucrats, police and other political agents who will be task to ‘enforce’.

And the unsatisfied sectors, or sectors provided with less priority, say political interest B, C, and D, will likely cavil and demand for more share of spending and attention. So then we revert to the same cycle of decrying lack of political will!

And how will the new administration respond? By permanently silencing them?

In short, the notion that authoritarians knows of the interests of all individuals (or even various interests groups) represents an unalloyed fantasy.

The enforcement of multifarious political aspects is a complex social dynamic which cannot be reduced to simplistic rhetoric by demagogues.

Or if authorities do not possess the grassroots or decentralized knowledge, how can they resolve to satisfy the fierce competition among various political agendas?

But does it matter? In the world of politics, soundbites and images seem to be good enough.

Yet almost none have given a thought that uneconomic or unviable rules will always lead to enforcement failures.

The late great economic journalist Henry Hazlitt cited price controls as example⁴ (bold added)

The trouble is that their attempted legislative remedies turn out to be systematically wrong.

It is complained that prices are too high. A law is passed forbidding them to go higher. The result is that fewer and fewer items are produced, or that black markets develop. The law is ignored, or finally repealed.

It is said that rents are too high. Rent ceilings are imposed. New apartments cease to be built, or at least fewer of them. Old apartment buildings stand vacant, and fall into decay. Higher rents are eventually legally allowed, but they are practically always set below what market rates would be. The result is that tenants, in whose supposed interest the rent controls were imposed, eventually suffer as a body even more than landlords, because there is a chronic shortage of housing. Wages are supposed to be too low. Minimum wages are fixed. The result is that teenagers, and especially black teenagers, are thrown out of work and on the relief rolls. The law encourages strong unions and compels employers to "bargain collectively" with them. The result is often excessive wage-rates, and a chronic amount of unemployed.

As shown above, most of social problems have NOT been about the enforcement, but rather what mainstream applies as remedies to economic shortcomings through short sighted LEGISLATED LAW.

As American economist Armen A. Alchian wrote⁵ (bold mine)

Economics does not say any activities are bad and hence ought to be stopped.  It says if you want to restrain them, you can raise the price – the cost of doing that action.  Still, behavior in a capitalistic system is, by definition, more difficult to control by political authority because private property gives us more extensive authority over our lifestyles.  That is why, whatever the legislated law, it does not follow that its intent will be achieved.  Legislated law is overpowered by economic laws of capitalism, which often nullify or pervert intended effects.  So political forces are more and more designed to reduce the scope of private property rights, a bleak future.

Said simply, unviable or uneconomic mandates or rules or regulations, even when draconian enforcement has been applied are fated or doomed to fail.

What they do instead is to foster more social contortions.

Of course, it has not only an been issue of uneconomical aspects, just so to please the authority’s subjective moral standards, arbitrary statutes may be designed to plunder, oppress and impinge unnecessary violence on some segments of the political constituency

Example, the policy of plunder through elections, from the great French political economist Frédéric Bastiat⁶

What is the cry going up everywhere, from all ranks and classes? All for one! When we say the word one, we think of ourselves, and what we demand is to receive an unearned share in the fruits of the labor of all. In other words, we are creating an organized system of plunder. Unquestionably, simple out-and-out plunder is so clearly unjust as to be repugnant to us; but, thanks to the motto, all for one, we can allay our qualms of conscience. We impose on others the duty of working for us. Then, we arrogate to ourselves the right to enjoy the fruits of other men's labor. We call upon the state, the law, to enforce our so-called duty, to protect our so-called right, and we end in the fantastic situation of robbing one another in the name of brotherhood. We live at other men's expense, and then call ourselves heroically self-sacrificing for so doing. Oh, the unaccountable folly of the human mind! Oh, the deviousness of greed! It is not enough that each of us tries to increase our share at the expense of others; it is not enough that we want to profit from labor that we have not performed. We even convince ourselves that in the process we are sublime examples of self-sacrifice; we almost go so far as to call our unselfishness Christlike. We have become so blind that we do not see that the sacrifices that cause us to weep with admiration as we contemplate ourselves are not made by us at all, but are exacted by us of others

Rings a bell?

In the twentieth century, tens of millions of innocent people have lost their lives when governments decided to impose stringent ‘enforcement’ predicated on unfeasible, oppressive and thereby unjust utopian ideologies. I hope this would not be the template for the next regime.

Also, hardly anyone has given a thought that despite the electoral demonstration by candidates to impose on their brand of ‘political will’, politicians are human beings, where their actions will likely be influenced by their subjective preferences, values and sense of ethics that should aim to satisfy their personal Maslow’s hierarchy.

Alternatively, this means that those who aspire for power will have not only cravings for socio-political power, but goals pillared on attaining corporeal pleasantries and social rewards. Thus their actions will likely evolve around placating agents who will supply these factors to them. On the hand, they are likely to use repression to those whom they see as a threat or to perceived competitors (or political foes).

Known as the public choice theory, the halo effect from politicians will prove to be a mirage. From the great economist James Buchanan⁷.

When the very elementary step is taken to extend the behavioural models of economics to apply to public choosers, to those who participate variously in political roles, as voters, politicians, bureaucrats, planners, party leaders, etc., the romantic vision that was essential to the whole socialist myth vanishes.  If those who make decisions for other are finally seen as ordinary persons, just like everyone else, how can the awesome delegation of authority that must characterize the centralized economy be justified?

In other words, the idea of sincerity and down to earth personality traits represents nothing more than a personality cult or a populist delusion.

From the realist aspects, all candidates have political baggage (vested interest groups) to carry. And since there is no free lunch, there will cost for those cargoes when the candidate wins.

All these suggests that alarmingly, when the economic downturn surfaces, considering the ‘fragmented’ nature of Philippine politics, which has been backed by the election of the plural minority, where the winner may impose on radical ideological platforms, political risks may likely evolve towards increased societal violence.

And given the populist seduction for bloodshed, what stops the new administration from provoking risk of war with neighbors?

People with no real experience of violence think that violence may not happen to them. So the seek violence to befall on others without an inkling of the likely consequences these may occur even to them.

Bubbles have made people believe that fantasies are real.

Bubbles are never economically viable, so they always blow up. This applies to political bubbles as well.

At the day’s end, politics will never overrule the laws of economics.

Also think of what the economic downturn from a bubble economy (legacy from two administrations), the shift towards big repressive government (prospective regime) and increased political violence will do to the peso.

This wonderful quote from the great dean of the Austrian School of Economics, Murray N. Rothbard seems to reverberate⁸.

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a "dismal science." But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Philippine Presidential Election’s Unseen Winner: None of the Above!

Philippine democracy is supposed to represent a system that is based on the election of plurality voting. In plurality voting, the winner needs only the most number of votes, and not a majority, to get elected.

However if one considers the overall picture, Philippine democracy is an election of the plural minority.

And to extend on the unseen fact, Philippine democracy muzzles the true winners: the NONE of the ABOVE—the biggest plural minority.

Let me cite the 2010 elections as example

In the 2010 national presidential elections, today’s outgoing president garnered 15.209 million votes or 42% of the valid 36.139 million votes cast. Voter turnout was at 74.34% or 38.149 million. About 5.27% or 2.01 million were invalid votes. Total registered voters then were at 51.292 million.

In 2010, the population was 92.34 million (PSA) or 92.1 million (census).

Census data said that 60.3% or 55.5 million were at the voting age population.

So what does the data above say?

The winning candidate accounted for only 29.65% (or a third) of total registered voters and 27.4% of population at voting age (a little more than a quarter of voting population). If one would use PSA data the said ratio will decline more, although marginally.

Additionally, registered voters who did not vote accounted for 13.143 million while non registered voters at voting age totaled 4.21 million.

Therefore non voters, who were registered, and non registered people summed up to 17.535 million. That’s 2.144 million MORE than the winning vote! The PSA data would imply for a much bigger margin.

And one would hear the pronouncement that “the people have spoken”. They haven’t.

The fact that there had been more non voters (registered and non registered) implies that “the none of the above” have actually won!

In 2010, the non-voters were the BIGGER plural minority. This group had opted to stay on the sidelines. Unfortunately, their voices had been drowned out by the establishment whom has arrogated upon themselves reality.

As I previously asked⁹: So how can we adduce ‘people power’ when today’s Philippine political exercise represents a vote of the plural minority?

Unless voter turnout significantly improves and in spite of the current drama, I don’t think such dynamic will change in the present elections.

Voter turnout appears to be in a decline since 1998.

Yet the elected plural minority has imposed unseen costs on the bigger plural minority, and more importantly, to the entire population. For the current administration these costs are the huge credit bubble, the weak peso, inflation, surging inequality and US bases.

And such costs appear to have backfired for the opposition to gain significant sway on the odds of getting elected next week.

And the cycle will only repeat. The loud minority will claim legitimacy to dictate on and impose policies that will most likely injure the majority.

Yet elections are beyond cheering of personalities. Since actions have consequences, social policies will all entail multifaceted intertemporal costs. And the cost of the actions taken by such leaders will be borne by the citizenry. And such cost represents an externality: The externality of the delusions of social democracy designed to justify the rule of the establishment elites.

As author and assistant professor Jason Brennan trenchantly observed¹⁰

How other people vote is my business. After all, they make it my business. Electoral decisions are imposed upon all through force, that is, through violence and threats of violence. When it comes to politics, we are not free to walk away from bad decisions. Voters impose externalities upon others.

We would never say to everyone, “Who cares if you know anything about surgery or medicine? The important thing is that you make your cut.” Yet for some reason, we do say, “It doesn’t matter if you know much about politics. The important thing is to vote.” In both cases, incompetent decision-making can hurt innocent people.

Commonsense morality tells us to treat the two cases differently. Commonsense morality is wrong.

Because I do not want to impose externality upon others, I join the silent biggest plural minority.

Election Surveys: To Trust or Not?

It’s interesting to see people argue against trusting surveys. While I am with them in spirit, I really doubt if the reason they are arguing has been due to the context of the disinformation, or if the surveys simply don’t match their preferences/biases. Of course, they never say it directly.

It may be true that the intent of surveys have been to generate a bandwagon effect.

But if this assumption is true then surveys should be more accurate than less.

On the contrary, whatever the purpose, surveys have been proven to be imprecise.

Let me use this Wikipedia page on 2010 elections as example.

Second runner up Joseph Estrada was vastly underrated by both major domestic pollsters. Yet Mr Estrada racked up 26.25% of the votes cast compared to survey results of only 20%.

Importantly, in the VP category, one pollster showed that the winner, the administration candidate, had a huge margin over the opposition bet 37%-28%.

On the other hand, the other survey showed of a miniscule .2% lead by the opposition.

The actual outcome was 42% and 40% in favor of the opposition.

Ironically, both candidates are running again for the top spot.

The variance can be partly explained:

Surveys may indicate spur of the moment expressions—which may be fungible.

People may also say one thing and do another, perhaps as part of social signaling.

Surveys may also be manipulated for whatever reasons.

If people have been arguing over the credibility of election surveys, then why trust the credibility of the government’s GDP which mostly represents a statistics of an aggregated survey? Because the government have no motivation to skew information?

Won’t this signify as cognitive dissonance?

___

1 Wikipedia.org State capitalism

2 Wikipedia.org Economics of fascism

3 Century Properties Annual Report April 18, 2016 p.41 and 32-33 Edge.pse.com.ph

4 Henry Hazlitt, The ABCs of a Market Economy Mises.org April 29, 2016

5 Armen A. Alchian “Economic Laws and Political Legislation” from The Collected Works of Armen A. Alchian (2006) pages 604-605 of volume 2, Café Hayek Quotation of the Day… April 29, 2015

6 Bastiat, Frédéric Chapter 12 The Two Mottoes Economic Harmonies, Library of Economics and Liberty

7 James M. Buchanan The Collected Works of James M. Buchanan: The Logical Foundations of Constitutional Liberty Café Hayek Quotation of the Day… October 3, 2013

8 Murray N. Rothbard The Death Wish of the Anarcho-Communists June 2, 2006 Mises.org

9 See Philippine Election Aftermath: Goodbye Illusion, Welcome Reality! May 23 2010

10 Jason Brennan The Ethics of Voting, theartoftheory.com