Finance Secretary Cesar Purisima. FILE PHOTO
MANILA, Philippines—Finance Secretary Cesar Purisima has expressed alarm over a potential default by the United States government, saying such an event will bring down not only the world’s biggest economy but also emerging markets like the Philippines.
“It is almost as if they are arguing about how to unlock a bank vault with a live bomb. If they cannot make a deal in time, it will blow up in their hands and take the world’s economies with them,” Purisima said in a statement.
On Oct. 17, the US government is expected to reach its debt ceiling of $16.7 trillion. This ceiling has to be raised in order for the US government to be able to borrow and avoid defaulting on its maturing obligations, the outstanding amount of which is estimated at $12 trillion.
Raising the ceiling, however, requires agreement among executive officials and legislators of the US government—some thing that seems difficult to reach at the moment. The US government, in fact, has shut down partially due to failure of the US Congress to pass the proposed budget amid ongoing debates on the Obama healthcare.
“The US is in a political gridlock, failing to reach an agreement over ‘Obamacare.’ However, their Congress has to realize the implications of defaulting on $12 trillion of outstanding debt, almost 23 times the $517 billion in debt that forced Lehman Brothers into bankruptcy in 2008,” Purisima said.
Citing estimates from the International Monetary Fund, Purisima said a US default could drive US interest rates by 2 percent, bring down US equity prices by 27 percent, and weaken the dollar by 13 percent.
According to estimates by the Philippines’ Department of Finance, interest rate on peso-denominated securities rise by 0.8 percentage point for every percentage-point increase in US interest rates.