The Philippine's Economic History from 1973 to 1986 was complex. These were the years in the Philippines under the regime of former President Ferdinand Marcos. These years also mark the Philippines under Martial Law, the assassination of Benigno Aquino, Jr., changes to Philippine energy law, and the successful EDSA People Power Revolution that ousted former President Ferdinand Marcos. The Philippine economy during these years suffered from a downturn due to a mixture of domestic and international problems, after experiencing years of positive growth.
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President Ferdinand E. Marcos declared Martial Law in the midst of rising student movements and increasing communist and socialist groups both lobbying for reforms in their respective sectors. The leftist initiatives held rallies to express their frustrations to the government, and this restiveness culminated in the First Quarter Storm, where the rallying activists stormed Malacañang Palace only to be turned back by the Philippine Constabulary (PC). This event left four people dead and left many injured after heavy exchanges of gunfire. With all the leftist initiatives, communist and socialist groups gathered larger numbers and further created unrest. In the middle of all the disorder on 21 September 1972, Marcos issued Proclamation No. 1081, and effectively installed Martial Law in the Philippines, a declaration that suspended the civil rights and imposed military authority in the country.
Marcos defended the declaration stressing the need for extra powers to quell the rising wave of violence allegedly caused by communists. He further justified the decree citing the provisions from the Philippine Constitution that Martial Law is in fact a strategic approach to legally defend the Constitution and protect the welfare of the Filipino people from the dangerous threats posed by vigilantes that place national security at risk during the time. The emergency rule, according to Marcos’s plan, was to lead the country into what he calls a “New Society”.
The move was initially supported by most Filipinos and was viewed by some critics as a change that solved the massive corruption in the country. It, in fact, ceased the clash between the executive and legislative branches of the government and a bureaucracy characterized by special interest. The declaration, however, eventually proved unpopular as excesses and human rights abuses by the military emerged.
The GDP of the Philippines rose during the martial law, rising from P55 million to P193 million in about 8 years. This growth was spurred by massive lending from commercial banks, accounting for about 62% percent of external debt.[1] As a developing country, the Philippines during the martial law was one of the heaviest borrowers. These aggressive moves were seen by critics as a means of legitimizing Martial Law by purportedly enhancing the chances of the country in the global market. Much of the money was spent on pump-priming to improve infrastructure and promote tourism. However, despite the aggressive borrowing and spending policies, the Philippines lagged behind its Southeast Asia counterparts in GDP growth rate per capita. The country, from 1970–1980, only registered an average 3.4% growth, while its counterparts like Thailand, Malaysia, Singapore, and Indonesia garnered a mean growth of 5.4%.[1]
Despite government efforts to pump-prime the economy to increase income and encourage spending, unemployment and underemployment grew. Unemployment rate rose from 5.2% to 5.9% from 1978–1983, while underemployment was a problem. It tripled, on the same time period, from 10.2% to 29.0%. Concurrently, the labor force of the Philippines grew at an average 4.47% from 1970-1983.[1] This can be attributed to an increasing number of females seeking work in the market.
Income inequality grew during the Martial Law Era, as the poorest 60% of the nation contributed only 22.5% of the income at 1980, down from 25.0% at 1970. The richest 10%, meanwhile, took a larger share of the income at 41.7% percent at 1980 from 37.1% at 1970.[1] This coincided with issues of cronyism in the Marcos administration, as the administration faced questions of favoring certain companies that were close to the ruling family.
According to the FIES (Family Income and Expenditure Survey) conducted from 1965 to 1985, poverty incidence in the Philippines rose from 41% in 1965 to 58.9% in 1985 . This can be attributed to lower agricultural real wages and lesser real wages for unskilled and skilled laborers. Real agricultural wages fell about 25% from their 1962 level, while real wages for unskilled and skilled laborers decreased by about one-third of their 1962 level. It was observed that higher labor force participation and higher incomes of the rich helped cushion the blow of the mentioned problems.
In the two decades of Marcos’s rule, Philippine economic development strategy had three central pillars: The Green Revolution, Export Agriculture and Forestry, and Foreign Borrowing.[2]
Rice is the foundation of the Philippine economy. It is the country’s single most important crop, and the staple food for much of the population. It is especially important to the country’s poor majority, as both consumers and producers.
A central element of Philippine development strategy since the mid-1960s has been the introduction of new rice technology, popularly known as the “Green Revolution”. The technological key in this strategy is the introduction of ‘high-yielding varieties’, also called as HYVs. The birthplace of this new technology was in Los Banos, where the International Rice Research Institute (IRRI) was established. Scientists were recruited from around the world, and the world’s largest collection of rice varieties was assembled to provide the genetic raw material for IRRI’s plant breeders. Their efforts focused on combining the genetic attributes of high fertilizer responsiveness and a short-statured plant type, so as to create a variety which could support heavy ears of grain without toppling under their weight.
The architects of this green revolution had one overriding objective: increased food production (growth of output). Proponents of the strategy expected, however, that the new rice technology would also have a positive distributional impact on the poor. Three major benefits were taken to be virtually self-evident :
The following key inputs of the new rice technology are highly complementary. That is, if one is absent, the productivity of the others is greatly reduced.
Among these key inputs of the new technology, water control remains a key constraint in Philippine rice agriculture. Underling this technological constraint is an institutional one. Water control improvement often “can be most efficiently achieved by the mobilization of community labor”, but this poses public-good problems. How will labor commitments and other costs be apportioned? How will irrigation water be fairly allocated? In some places, these problems have been resolved; but elsewhere, conflict and mistrust among individuals have “impeded collective action”.
The green revolution brought temporary relief from this impasse, allowing the country to achieve substantial rice yield increases via the shift to new seed-fertilizer technology. But the water control constraint did not permit the new varieties to attain their full potential yoelds, nor did it permit much increase in multiple cropping.
All in all, the green revolution in the Philippines succeeded in fulfilling its architects’ primary objective: more food production. In little more than two decades, the country’s rice output doubled. In pursuit of this goal, the planners chose what appeared to be the easiest route―breeding of new varieties for “high fertilizer response” . In fact, the fertilizer price rise sparked by the energy crises of the 1970s, but it did not act as a serious interruption on output growth.
Now let us look on the other side of the picture. Economic theory tells us that consumers in general, and poor consumers in particular, will benefit from increased output and the resulting price declines. Despite the positive impact of lower prices on poor consumers, absolute poverty increased. “Cheaper rice mitigated, but did not reverse the trend towards impoverishment.”
The year 1962 was a favorable one for Philippine export agriculture. Devaluation and decontrol of foreign exchange brought windfall profits to agro-exporters, and were widely seen as a “political triumph” for our main traditional exports.
Earnings, nevertheless, did not rise equally owing to worsening terms of trade. The country experienced severely declining terms of trade and great price instability for its agricultural exports from 1962-1985. These price movements were “the result of external political and economic forces over which the Philippines could exercise little control.” This just casts doubt on the reliability of export agriculture as an “engine of economic growth”.
The income generated by exports accumulates not to countries, but to “specific individuals within them”. In the Philippines, these arrangements typically have led to a highly inequitable result―where the peasants and laborers who produce the crops have received minimal rewards for their efforts, while those who control land and markets, especially the state, have profited greatly.
Yes it is true that the explicit aim of the Marcos regime’s development strategy for export agriculture was “growth in output and export earnings”. Behind the scenes, however, the regime “aggressively pursued another agenda”―the redistribution of income to favored individuals. Marcos even deployed state power to put control of the country’s top agricultural exports securely in the hands of presidential “cronies”. The result is sad to hear: dramatic redivision of the agro-export income pie having bigger slices for the privileged few and smaller for the rest.
Foreign borrowing was a key element in Philippine development strategy in the Marcos era. The primary rationale was development itself: “borrowed money would speed the growth of the Philippine economy, improving the well-being of present and future generations of Filipinos”.
The government financed its spending primarily from foreign debt. From $2.9 Billion in 1973, it rose to 6.8 Billion in 1976 and 17.3 billion dollars in 1980. The Balance of Payments also behaved generally well in the earlier parts, with surpluses recorded in 1973 to 1974. However, an increasing trend of deficits followed the years afterwards.[3] From 1974 to 1976, investments were still very high as the government still engaged in massive spending. Spending on infrastructures was primarily the focus of the government, targeting an increase economic growth and tourism. Because of the large influx of investments from the public and private sector and the increase in economic activity, together with high domestic savings which financed part of government spending, the Philippines survived the first oil price shock, the "Middle East Oil Embargo" which started in 1973 and caused inflation to rise in the Philippines.[3]
By the years 1977 to 1980, the Marcoses primarily supported and focused on the expansion of its government-owned corporations, which were able to loan from foreign institutions for investments.[3] According to Joseph Lim of the University of the Philippines, a businessman in 1981 related to Marcos fled the country with $80 million worth of debt in international and local banks. Because of the gravity of the parties involved, the Central Bank, together with national banks like Philippine National Bank and Development Bank of the Philippines, formed a bail-out package and rescued the banks and companies implicated, which paved way for “the expansion of the money supply from 1980 to 1983.”[3] The outflow of capital, termed as “capital flight", contributed to the foreign exchange depletion as seen in table 2 (qtd. in Boyle, 1990). "As the import liberalization program started to be implemented, important sectors … became more and more monopolized by the cronies of Marcos.” [3]
After the assassination of political rival Benigno Aquino, the Philippines saw itself at the brink of an economic freefall. The government, due to the sudden collapse of confidence and credit ratings from international financial institutions, had a difficult time borrowing new capital to cut the increasing budget deficit, much of it were payments to interest from debt. Because of these, the government was forced to declare a debt moratorium.[3](13) As a response to this, the government started to impose import controls and implemented foreign exchange rationing, which temporarily halted the government’s import liberalization program. The peso was again devalued in 1984 by almost 100 percent. The Central Bank was later forced to start a new program, which was issuing “Central bank bills ... at more than 50 percent interest rate – which most likely contributed to the high inflation in 1984 and 1985.”[3] This was aimed at attracting inflows of foreign currency due to the higher domestic interest rate and to lower deficit and aggregate demand. This resulted in a reduction the Balance of Payments and national account deficits but at the same time also started an economic decline of about 7% in the years 1984 to 1985. Investments also fell by about 50% in 1985 due to lower economic growth.[3]
According to Lim, the government also employed measures to reduce overall government expenditures to reduce deficits. This effort, however, was partially caused by the fall in tax revenues during that time as public speculation about the weaknesses of the government was increasing. However, because of the large deficit incurred by the Central Bank due to bail outs and assumption of debts from bankrupt firms, this measure had relatively no effect on the overall deficit that the government had by the end of 1986.[3]
Between 1962 and 1986, the external debt of the Philippine grew from $355 million to $28.3 billion. By the end of the Marcos years, the Philippines was the “ninth most indebted nation in Asia, Africa, and Latin America in absolute terms”.
The Marcos regime, during the early to mid 70s, focused primarily on improving the economy and public image of the Philippines through major increases in government spending particularly on infrastructures. The main target of the government at this time was on the side of the tourism industry, with numerous constructions, such as the Philippine International Convention Center, hotels, and even the hosting of international events like the Miss Universe and IMF forums to be able to improve the international status of the county. This policy generally continued even through the 1980s, when the world was experiencing stagflation, an international debt crisis, and high increases of interest rates.
The early effects of the increase in government spending were generally positive. Private businesses and firms, seeing this action by the government, felt very bullish and also engaged in aggressive investment and spending patterns. Initially, the Gross Domestic Capital Formation to GDP rose up to 28% and foreign investments to the country also increased.
The government, in the 1970s, also focused on an “Export-led Industrialization Program”. This focused on “non-traditional manufactured exports and foreign investments.”This led to an increase of foreign direct investment in the country particularly to manufacture export-oriented goods. This program also allowed the government to be able to “shift the composition of exports toward a more balanced mix between non-traditional manufactures and primary/agricultural exports.”
With this growth in the export sector, there was also an accompanied growth in the import sector especially since imported raw materials, also known as intermediate imports, were sourced for domestically produced goods. This led to the worsening deficit at that time, especially by the end of the decade, accompanied by the second oil price shock.
Poverty during the Marcos era deepened despite a modest increase in average national income. Even by the narrower objective of economic growth, the Philippine strategy could not claim great success. Compared to other East and Southeast Asian countries, economic growth was slow, and by the mid-1980s “it was grinding to a halt”.
The three central elements of the government’s development strategy―the ‘Green Revolution’ in rice agriculture, continued growth in agricultural and forestry exports, and massive external borrowing―received strong intellectual and financial support from international officialdom. The new rice technology increased output, but failed to bring a substantial reduction in poverty. Export agriculture and forestry failed to provide an engine for economic growth. Foregin borrowing too little genuinely productive investment. This failure of the Philippine development strategy thus was also a failure of the international development establishment.
Moreover, the Marcoses have been notoriously linked to the massive government debt that the Philippines is still facing today. His goal of strengthening the Philippines in terms of being internationally competitive may be good, but the implementation of his goal ultimately led to widespread corruption and mismanagement. Together with his declaration of Martial Law and the suppression of freedom in his regime, the Philippines faced a serious threat to the integrity of its social and economic structures.
The initial period of the martial law and Marcos’ economic policies have generally stimulated the Philippine macro-economy. During this period, the Philippines grew “in pace with its ASEAN neighbors… although more lavish and wasteful in its spending ”. However, much of these progresses were only temporary as the government struggled to manage its growing debt that was the direct result of its massive spending and aggravated by different worldwide crisis like the Middle East oil embargo, “high world interest rates and the Brazil-Mexico debt moratoria” the Philippines had difficulty sourcing out new funds mainly to pay its interest dues from debt. This, clearly, shows how Keynesian ideals work in the short run, but not relatively in the medium to long run.
Clearly, the Marcos era was an example of how a centralized government can fail because of the protection of interests of the few in power. Filipinos ultimately paid the price in bailing-out large companies and literally paying for the debt that only a handful of people benefitted from . The failure here is that the government overspent, even in times of positive economic growth, and also failed to improve the local industries primarily geared towards exports at par with its borrowing. This is similar to the Mexican Crisis in the 1980s, but the difference is that the government failed to recover as well because of corruption, mismanagement, and also rising political instability that led to a shift in power in the EDSA People Power Revolution.