Tomas del Rosario College

San Jose, Balanga City, Bataan

ECONOMIC HISTORY OF THE PHILIPPINES

 EMILIO AGUINALDO

o The economy is at its lowest state during the Fil-am war. Famine hits Filipino people. Even
before the said war, the country is already experiencing a great mishap in economy because of
Spaniards. Resources that belongs to the Philippines are continuously being taken, many landless
Filipinos specially farmers and others willing to be treated as slaves just to earn for living.
 MANUEL L QUEZON
o Manuel L. Quezon made several institutions and programs to attend to the needs of the economy
on his term. Healthy economy is hard to establish back then because we became independent on
U.S. his effort to fix the economy was see on the Commonwealth Act No. 2 which established
the National Economic Council, this act helps solve social imbalance, land misdistribution,
provide land to the landless and farmers, provide housing and create an employment to the
unemployed.
 JOSE P LAUREL
o During Laurel's term as President, hunger was the main problem. Prices of essential supplies
rose. The government exerted every effort to increase production and bring consumers' goods
under control. However, the greediness of the Japanese prevails.
 SERGIO OSMENA
o During his time when the country is still recovering from the damage of the war; the Philippine
National Bank has been rehabilitated and the country joined the International Monetary Fund. To
help the economy be somewhat stabilized
 MANUEL ROXAS
o Since the country was severely damaged by the war, the economy was struggling because of low
output growth and high unemployment rates. Production became low because farms and
factories were ruined. Unemployment rates were rising at a fast pace; because businesses were
closing, there were no more jobs available for people. The reconstruction cost of these buildings
reached 126 million pesos. Also, there was an annual lack of budget of about 200 million pesos.
 ELPIDIO QUIRINO
o The Philippines in Quirino's term is still undergoing reconstruction of the damages from the war.
Economy is not in great shape. Unemployment from the previous government is one of the main
problems his administration faces. The country is struggling a high inflation rate and Quirino's
solution to this is to increase the wages of the people so that purchasing and producing will be
balanced.
 RAMON MAGSAYSAY
 o Rehabilitation of establishments ruined because of World War is still ongoing but there is a lack
on fund to support this.
 CARLOS P GARCIA
o Recovering from the World War II is almost finished yet the country is experiencing several
economic challenges. The flow of imports had greatly increased making the Philippines heavily
dependent of imported products. Imports coming from the United States were also allowed to
enter the country without tariffs, the Philippines also promised not to change its exchange rate
from $1 is to Php2.
 DIOSDADO MACAPAGAL
o Exchange controls were lifted, and the Philippine peso was allowed to float on the free currency
exchange market. The peso devalued from P2.64 to the U.S. dollar, and stabilized at P3.80 to the
dollar, supported by a P300 million stabilization fund from the International Monetary Fund.

ECONOMIC DEVELOPMENT IN THE PHILIPPINES IN

THE 1950s AND 1960s
Import restrictions stimulated the manufacturing sector. Manufacturing net domestic product (NDP) at
first grew rapidly, averaging 12 percent growth per annum in real terms during the first half of the
1950’s, contributing to an average 7.7 percent growth in the GDP, a higher rate than in any subsequent
five-year period.
The Philippines had entered an import-substitution stage of industrialization, largely as the unintended
consequence of a policy response to balance-of-payments pressures.
In the second half of the 1950s, the growth rate of manufacturing fell by about a third to an average of
7.7 percent, and real GNP growth was down to 4.9 percent. Import demand outpaced exports, and the
allocation of foreign exchange was subject to corruption. Pressure mounted for a change of policy.
In 1962 the government devalued the peso and abolished import controls and exchange licensing. The
peso fell by half to P3.90 to the dollar.
Traditional exports of agricultural and mineral products increased; however, the growth rate of
manufacturing declined even further. Substantial tariffs had been put in place in the late 1950s, but they
apparently provided insufficient protection. Pressure from industrialists, combined with renewed balance
of payments problems, resulted in the reposition of exchange controls in 1968. Manufacturing recovered
slightly, growing an average of 6.1 percent per year in the second half of the decade.
However, the sector was no longer the engine of development that it had been in the early 1950s.
Overall real GNP growth was mediocre, averaging somewhat under 5 percent in the second half of
decade; growth of agriculture was more than a percentage point lower.
The limited impact of manufacturing also affected employment. The sector's share of the employed
labor force, which had risen rapidly during the 1950s to over 12 percent, plateaued. Import substitution
had run its course.
To stimulate industrialization, technocrats within the government worked to rationalize and improve
incentive structures, to move the country away from import substitution, and to reduce tariffs.
Movements to reduce tariffs, however, met stiff resistance from industrialists, and government efforts to
liberalize the economy and emphasize export-led industrialization were largely unsuccessful.
 Tomas del Rosario College
San Jose, Balanga City, Bataan

PHILIPPINES ECONOMY UNDER MARCOS

The Philippines economy grew at a relatively high average annual rate of 6.4 percent during the 1970s,
financed in large part by foreign-currency borrowing.
External indebtedness grew from $2.3 billion in 1970 to $24.4 billion in 1983, much of which was owed
to transnational commercial banks.
In the 1980s the Philippine economy was hurt by political instability, authoritarianism, increasing
foreign debt, falling commodity prices, corporate mismanagement and vast unemployment The
Philippines found itself in an economic crisis in early 1970. in large part the consequence of the
profligate spending of government funds by President Marcos in his reelection bid.
The government, unable to meet payments on its US$2.3 billion international debt, worked out a
US$27.5 million standby credit arrangement with the International Monetary Fund (IMF) that involved
renegotiating the country's external debt and devaluing the Philippine currency to P6.40 to the United
States dollar.
In the early 1980s, the economy began to run into difficulty because of the declining world market for
Philippine exports, trouble in borrowing on the international capital market, and a domestic financial
scandal. The problem was compounded by the excesses of President Ferdinand E. Marcos's regime and
the bailing out by government owned financial institutions of firms owned by those close to the
president that encountered financial difficulties
In 1983 the country descended into a political and economic crisis in the aftermath of the assassination
of Marcos's chief rival, former Senator Benigno Aquino, and circumstances had not improved when
Marcos fled the country in February 1986.

IMPACT OF MARTIAL LAW ON THE PHILIPPINES ECONOMY

IN THE 1970s AND 1980s

In September 1972, Marcos declared martial law, claiming that the country was faced with revolutions from
both the left and the night. He gathered around him a group of businessmen, used presidential decrees and
letters of instruction to provide them with monopoly positions within the economy, and began channeling
resources to himself and his associates, instituting what came to be called "crony capitalism." By the time
Marcos fled the Philippines in February 1986, monopolization and corruption had severely crippled the
economy.

In the beginning, this tendency was not so obvious. Marcos's efforts to create a "New Society” were supported
widely by the business community, both Filipino and foreign.
Foreign investment was encouraged: an export-processing zone was opened, a range of additional investment
incentives was created, and the Philippines projected itself onto the world economy as a country of low wages
and industrial peace. The inflow of international capital increased dramatically.

A general rise in world raw material prices in the early 1970s helped boost the performance of the economy;
real GNP grew at an average of almost 7 percent per year in the five years after the declaration of martial law,
as compared with approximately 5 percent annually in the five preceding years.

Agriculture performed better that it did in the 1960s. New rice technologies introduced in the late 1960s were
widely adopted. Manufacturing was able to maintain the 6 percent growth rate it achieved in the late 1960s, a
rate, however, that was below that of the economy as a whole.

Manufactured exports, on the other hand, did quite well, growing at a rate twice that of the country's traditional
agricultural exports.

The public sector played a much larger role in the 1970s, with the extent of government expenditures in GNP
rising by 40 percent in the decade after 1972. To finance the boom, the government extensively resorted to
international debt, hence the characterization of the economy of the Marcos era as "debt driven."

After martial law was declared Marcos's cronies amassed huge fortunes while the Philippines ran up a huge
national that brought the economy to edge of collapse. Real incomes declined by half between 1956 and 1985 as
the wealth of richest 10 percent rose from 27 percent to 37 percent. In the latter half of the 1970s, heavy
borrowing from transnational commercial banks, multilateral organizations, and the United States and other
countries masked problems that had begun to appear on the economic horizon with the slowdown of the world
economy. By 1976 the Philippines was among the top 100 recipients of loans from the World Bank and was
considered a "country of concentration." Its balance of payments problem was solved, and growth facilitated, at
least temporarily, but at the cost of having to service an external debt that rose from US$2.3 billion in 1970 to
more than US$17.2 billion in 1980.
There were internal problems as well, particularly in respect of the increasingly visible mismanagement of
crony enterprises. A financial scandal in January 1981 in which a businessman fled the country with debts of an
estimated P700 million required massive amounts of emergency loans from the Central Bank of the Philippines
and other government-owned financial institutions to some eighty firms. The growth rate of GNP fell
dramatically, and from then the economic ills of the Philippines proliferated. In 1980 there was an abrupt
change in economic policy, related to the changing world economy and deteriorating internal conditions, with
the Philippine government agreeing to reduce the average level and dispersion of tariff rates and to eliminate
most quantitative restrictions on trade, in exchange for a US $200 million structural adjustment loan from the
World Bank. Whatever the merits of the policy shift, the timing was miserable. Exports did not increase
substantially, while imports increased dramatically. The result was growing debt-service payments; emergency
loans were forthcoming, but the hemorrhaging did not cease.
It was in this environment in August 1983 that President Marcos's foremost critic, former Senator Benigno
Aquino, returned from exile and was assassinated. The country was thrown into an economic and political crisis
that resulted eventually, in February 1986, in the ending of Marcos's twenty-one-year rule and his flight from
the Philippines. In the meantime, debt repayment had ceased. Real GNP fell more than 11 percent before
turning back up in 1986, and real GNP per capita fell 17 percent from its high point in 1981. In 1990 per capita
real GNP was still 7 percent below the 1981 level.
 IMPACT OF U.S. MILITARY BASES ON THE PHILIPPINES
ECONOMY
The economy of the Philippines in the Marcos years in many ways was propped by the Subic and Clark
American military bases, trade with the United States and income from overseas workers. The World Bank
played a major role in planning and running the Filipino economy under martial law.

There were three economic considerations from the point of view of the Philippine government:

First, the proportion of the Philippine budget allocated for its armed forces was the smallest in the
region, a fact linked to the presence of United States air and naval forces in the Philippines, as well as
direct military assistance.
Second, in the latter half of the 1980s, the bases directly employed between 42,000 and 68,000 Filipinos
and contracted for goods and services from Filipino businesses. During this period, yearly. base
purchases of goods and services in the Philippine economy (when corrected for the estimated import
content of the goods purchased) was in the range of P6.0 billion to P8.3 billion.
A third and politically very important consideration, was the sum given to the Philippines by the United
States in connection with the presence of the bases, referred to as aid by United States officials and as
rent by the Filipinos. Base-related payments were first agreed to in 1979 when United States president
Jimmy Carter made a "best effort" pledge to secure US$500 million for the Philippines from the United
States Congress over a five-year period. In 1983 another five-year commitment was made, this time for
US$900 million. In October 1988, the Philippines' Secretary of Foreign Affairs Raul Manglapus and
United States' Secretary of State George Schultz signed a two-year agreement for US$962 million, an
amount double the previous compensation but substantially less than the US$2.4 billion that the
Philippines initially demanded. In 1991 talks over the future of the bases and the size and terms of the
aid or rent that would be given in consideration for continued United States access to military facilities
in the Philippines was the most important unresolved issue. The decision of the Philippine
administration to bring Secretary of Finance Jesus Estanislao into the negotiations in March 1991 was a
further indication of the economic importance of the bases to the Philippine government.

The Philippines was once a model of development and second only to Japan among east Asian economies. In
the 1960s, when South Korea was a land of peasant, the Philippines was one of Asia's industrial powerhouses. It
produced consumer goods, processed raw materials and had assembly plants for automobiles, televisions and
home appliances. Chemical plants produced drugs. Scrap metal was imported and made into steel for ships and
factories produced cement, textiles and fertilizer.

Prior to 1970, Philippine exports consisted mainly of agricultural or mineral products in raw or minimally
processed form. In the 1970s, the country began to export manufactured commodities, especially garments and
electronic components, and the prices of some traditional exports declined. By 1988 nontraditional exports
comprised 75 percent of the total value of goods shipped abroad.

In the 1970s and 80s, the Philippines declined while its neighbors grew and became one of the poorest non-
Communist governments in Southeast Asia. The gains made in the 1950s and 60s were lost to corruption,
cronyism, and mismanagement during the Marcos years and ineptitude of the Aquino years Now the Philippines
is sometimes referred to as "sick man of Asia and a "Latin-style banana republic in the South China Sea." Its per
capita income is about one tenth of that of Taiwan. Many of its most talented people work overseas.

According to The Economist: What distinguishes Manila from other South-East Asian capitals is the ubiquitous
Jeepney, the loud the loud rickety bus used by the city's poorer inhabitants. Once modified American Jeeps,
nowadays most Jeepneys are cobbled together from second-hand Japanese lorries. They have ne a metaphor for
the Philippine economy: inefficient and easily overtaken. In the 1970s the Philippines was richer than its
neighbours. Yet while it chugged along at growth rates of around 2 percent, other countries stepped on the gas:
it was passed by Singapore, Malaysia, Thailand and more recently, by China. A former American colony, it
could have made more of its cultural affinities with the United States, including the widespread use of English.
The incompetent and crooked rule of Ferdinand Marcos from 1965 to 1986 bears some of the blame for its
failure to do so. A sluggish economy combined with a fast-growing population has forced some 8m Filipinos-
equivalent to almost a tenth of the resident population to seek jobs abroad. [Source: The Economist, August 16,
2007]

ECONOMIC DEVELOPMENT IN THE PHILIPPINES IN THE

EARLY 20TH CENTURY
In the mid-nineteenth century, a Filipino landowning elite developed on the basis of the export of abaca (Manila
hemp), sugar, and other agricultural products. At the onset of the United States power in the Philippines in
1898-99, this planter group was cultivated as part of the United States military and political pacification
program. The democratic process imposed on the Philippines during the American colonial period remained
under the control of this elite. [Source: Library of Congress]
Access to political power required an economic basis, and in turn provided the means for enhancing economic
power. The landowning class was able to use its privileged position directly to further its economic interests as
well as to secure a flow of resources to gamer political support and ensure its position as the political elite.
Otherwise, the state played a minimal role in the economy, so that no powerful bureaucratic group arose that
could pursue a development program independent of the wishes of the landowning class. This situation
remained basically unchanged in the early 1990s.
At the time of independence in 1946, and in the aftermath of a destructive wartime occupation by Japan,
Philippine reliance on the United States was even more apparent. To gain access to reconstruction assistance
from the United States, the Philippines agreed to maintain its prewar exchange rate with the United States dollar
and not to restrict imports from the United States. For a while the aid inflow from the United States offset the
negative balance of trade, but by 1949, the economy had entered a crisis. The Philippine government responded
by instituting import and foreign- exchange controls that lasted until the early 1960s.