A Simulation of the Macroeconomic Impact of ODA with the Debt Factor: The Philippine Experience

Foreign aid has always been treated as “cheap mons.” In the past, aid studies almost always implicitly assumed that the economic impact of ODA loans is negligible. This paper, however, takes an opposite view and presents that ODA debt implications do matter. It is proposed that while aid carries “softer” terms that reduces the burden of a given debt, it may not always be intuitively obvious that these “softer” repayment terms will also produce a larger debt out of a given flow of loans resulting to higher interest rate.