Browsing by Author "Chavez, Loretta A."
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Item Restricted Foreign borrowing, prices and output: the Philippine experience(1992-11) Chavez, Loretta A.; Lim, Joseph Anthony Y.Before the international financial crisis in 1982, foreign borrowing had been a preferred solution to the country's current account problem. Empirical data, however, show that after foreign loans were restricted, the country's domestic inflation shot up and real output deteriorated. This paper examines the question of how the path of some macroeconomic variables in the major sectors of the economy might have been had the country borrowed less during the period of debt influx. Assuming the same use of debt, it is determined whether the country would have been better off with less external debt and therefore less future obligations in terms of amortization and interest payments. The analysis is facilitated by using a macroeconometric model with an exchange rate modelled as a function of external debt flows. A comparison of base and counterfactual simulations shows that in the long run, with less foreign borrowing during the debt influx period, the economy would have withstood the debt crisis period better and would have ended up with a higher level of output and GNP in 1989 (the last year of the simulation period). The inflation rate, however, would have been higher primarily as a result of the higher exchange rate.