Philippine President Benigno "Noynoy" Aquinos III's "top economic advisers" are monitoring the effects of the downgrade of US debt from AAA to AA+ by rating agency Standard and Poor -- the first time in its history since the rating scheme was introduced. Impact of this on US consumers' disposable income (if interest rates increase as an outcome of the higher risk perception attracted by US debt) presents the obvious possibility that the volume of remittances sent by Filipino-Americans to their relatives in the Philippines will be hit hard.
Strong pressure to create domestic employment in the US, plus downward pressure on salaries and wages as a result of rising employment could also depress the export and outsourcing markets upon which the Philippine economy is also highly dependent on.
Less known is the Philippine government's exposure to US debt instruments which, according to US Treasury data amounts to USD23.6 billion. All of this is now rated AA+ (down from AAA) by S&P with a "negative outlook".
China which holds more than a trillion dollars of US government debt issued a stern warning, in light of its "displeasure" with the S&P downgrade:
'It must be understood that if the US, Europe and other advanced economies fail to shoulder their responsibilities and continue their incessant messing around over selfish interests, this will seriously impede stable development of the global economy,' said a commentary in the People's Daily newspaper, the mouthpiece of China's ruling Communist party.
The US financial market will open today for the first time since the downgrade and it is anybody's guess what will happen.
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