Report for Philippine Studies 201, Asian Center, University of the Philippines, Diliman. Presented in 2011.

1. The Philippine Economy
(POST-WAR TO POST-COLD WAR)
Kristine Angeli S. Sabillo
Philippine Studies 201, U.P. Diliman

2. Aftermath of World War II (1946-1949)
• Struggle to rebuild. Approx P40 billion invested to re-construct physical
capital.
• Foreign aid flowing, $803 million from the US (= debt).
• Rehabilitation funds from the US through the Tydings Rehabilitation Act
which required:
• Bell Trade Act
- prohibited Philippines from protecting new industries, manufacturing or selling
products that may be in competition with US goods.
- no import duties for US products.
- pegging of peso to dollar at P2:$1 rate.
- quotas on PH export to US and free trade.
- Parity Clause allowing US citizens and corporations
access to natural resources and operation of public utilities.

3. Aftermath of World War II (1946-1949)
• Heavy importation. American goods flooded the country, draining
Philippine dollar reserves and causing local prices to depress by 50
percent = large accumulated balance of payments deficit
• Pre-control era (before import and foreign exchange restrictions)
• With peso overvalued, trade deficit rose (averaging around $300
million for each of the four pre-control years).
• Dollars from aid were lost on imported goods instead
of developmental purposes.

4. Controls (1950s)
• Controls were then activated by the newly-established Central Bank and
Congress to save Philippine economy
• There was an exchange control system
- peso was depreciated from P2:$1 to P2.40:$1.
- quantitative limitation
- gov’t channeled the dollars into dev’t projects.
• Import substitution industries prospered, created jobs, taught skills.
• Manufacturing output grew and by 1959 its share in
national output doubled. Filipino businessmen
demanded dollar priority = Filipino First

5. Decontrol Program (1962 onwards)
• Lifting of controls, devaluation of peso (from P2:$1 to P3.90:$1).
• PROs:
- Wider field of financial business opportunities. (Financial institutions
multiplied. There were 22 new banks with 111 branches from 1960 to 1967
compared to 7 new banks in the 1950s.)
- Evolution of a Philippine money and capital market.
- Improvement in climate of foreign investment.
• CONs:
- Slow down in the industrial sector.
- Cost of imports increased which resulted in industrial weakening.
- Economy was flooded w/ imports even as prices soared
• Resulted in trade deficit again.

6. Decontrol Program (1960s)
• In exchange of letting go of the foreign exchange control system,
IMF lent us a $300M stabilization loan. From a natl debt of $150M,
we had a $600M debt by 1965.
• Even as author of import control law, Marcos thought decontrol was
inseparable from free enterprise. Congress thought otherwise.
• After his re-election in 1969, Marcos attested to the ills of
devaluation. But in 1970, the peso was devalued from P3.90:$1 to
P5.50 to P6:$1.
• In 1970, the Philippine peso was subjected to a floating rate,
meaning its value will be determined by market
transactions.

7. Floating Rate (1970s)
• Finance Secretary Cesar Virata admitted that the floating rate was
among the conditions of the IMF for new loans.
• Debt reached $1 billion. Unpaid loans had to be paid at much higher
rates.
• Some industrial projects (Iligan Steel, Elizalde Steel Rolling Mills) had to
be aborted
• Far Eastern Economic Review: « When a country is in the throes of a political crisis as the
Philippines is today, a floating exchange rate makes no sense. »
• In 1973, the Bureau of Investments
removed heavy industries from the Priorities Plan and
gave emphasis on labor-intensive, export-oriented
(LIEO) industries.

8. Industrialization plans (1970s to 80s)
• By 1979, while almost every country in Asia had developed its basic
industries, Philippines had none.
• Marcos’ 11 major projects (1979): integrated steel mill, petrochemical complex,
copper smelter, phosphate fertilizers, aluminum smelter, diesel engine manufacturing,
integrated pulp and paper, cement industry, expansion and rationalization of coconut
industry and dev’t of non-conventional sources of energy. But the World Bank
recommended caution in launching large-scale projects, substantial investments from
gov’t.
• In 1983, Ninoy Aquino was assassinated. People Power.
• From 1973-1986, importation of luxuries reached a level 10x higher than South Korea’s
• Led by NEDA (under Solita Monsod) and DOF (Jaime Ongpin),
import liberalization was intensified. LIEO thrust
was continued.

9. Free trade, free reign (Post-EDSA)
• AQUINO administration: $26 or 28 billion external debt was a pressing
problem, honored instead of repudiated.
• Progress was hampered by Pinatubo , coup attempts, and daily
brownouts.
• Industrial growth fell from 6.9 percent in 1989 to 1.9 percent in 1990.
• Amid stagnation of industrialization, growth rate increased from 1.9
percent in 1986 to 6.7 percent in 1988. As growth increased, so did
trade deficit.
• Privatization of crony and bad assets. Sold hundreds of
said assets. Build-Operate-Transfer Law was enacted.
• 10% value-added tax imposed (EO 273, 1987)

10. Free trade, free reign (1990s to present)
• RAMOS administration: Philippines 2000. Further privatization of
public utilities such as electricity, telecommunications, banking,
domestic shipping and oil.
• World Trade Organization membership.
• PROS: Helps in handling disputes. Creates trade rules. Free trade makes products
cheaper. Working with other countries provides more product choices and export
opportunities.
• CONS: Erosion of national sovereignty. More beneficial to developed than developing
countries. Damaging to local agriculture.
• Asian Financial crisis. Why did the Philippines fare
better than the other countries amid hitting 0.6%
growth in 1998?

11. Where are we going?
• ESTRADA administration: deficit increased , though GDP and GNP
rose (from almost 0% during the Asian crisis).
• ARROYO administration: fastest growth in three decades (2007),
fared relatively well in the 2008 global financial crisis. However, it has
been criticized for a jobless growth and a stagnant poverty rate.
• Japan-Philippines Economic Partnership Agreement (2006).
• AQUINO administration: Philippine Development Plan of 2011 –
targets globally competitive industries and services (foreign tourism,
BPOs, electronics, extractive mining, ship building),
public-private partnerships (PPP), conditional cash
transfer program (CCT)

12. Where are we going?
Pressing issues:
• OFW Remittance.
• Inflation. Price increase of basic commodities.
• Issue of stagnant wages.
• Debt management

14. IBON Foundation:
3 decades of globalization
• Economic results…
– Greater trade & foreign investment
– Rapid growth
• … yet underdevelopment
– Manufacturing & agricultural decline
– High & rising joblessness
– Growing poverty
– Severe inequality

15. Aquino 1:
ave. 3.9% Ramos:
ave. 3.8% Estrada:
ave. 2.4%
Arroyo:
ave. 4.5%
Aquino 2:
7.3%
Source: IBON estimates on NSCB data

16. Manufacturing
(23.0%)
as small as in
1950s
Agriculture (16.8%)
smallest in history
Source: IBON estimates on
data from NSCB

17. References
• Constantino, Renato, The Philippines: The Continuing Past
• David, Fernando, Economic Perspective 1945-1968
• IBON Foundation, “Midyear 2011”
• Lichauco, Alejandro, Nationalist Economics
• Lichauco, Alejandro, The Financial Crisis in Asia
• NEDA Report on the Economy 1975
• Noland, Marcus, “Philippines in the Asian Financial Crisis: How the Sick Man Avoided
Pneumonia.”
• Padilla, Arnold, “EDSA 25”,
http://arnoldpadilla.wordpress.com/2011/02/22/edsa-25-economic-legacy-of-the-first-aquino-administration/
• Philippine Development Plan 2011-2016
• Rivera, Temario, Landlords and Capitalists
• Sicat, Gerardo, The Philippine Economy in the 1960s