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I.

Introduction

Background of the Study

Throughout the decade of the 1950s, the Philippines was known for being one of the fast

growing economies in Asia. By the end of that decade, the Philippines, together with Taiwan,

had the most progressive economies among the underdeveloped countries in East and Southeast

Asia. However, nowadays, the country has been playing catch-up most of the time as it

depended mostly on agriculture, while others reduced their dependence on that sector. The

industrial sector, on the other hand, had little expansion since the 1960s. It is thus important to

know of the changes that happened in the 1950s and 1960s that shaped the economy, how the

economy had a promising potential in the 1950s and how the potential shattered in the 1960s.

Studying the administration of Carlos P. Garcia, which was from 1957-1961, would be of

utmost significance and contribution to the problem stated above. By 1962, when Diosdado

Macapagal assumed the presidency, the period of control, especially on import and foreign

exchange, that characterized the Quirino, Magsaysay, and Garcia administrations, had ended as

Macapagal implemented decontrols. Focusing on the economic policies of Garcia, it was in his

term that the government took the first steps towards heavy industrialization. Noteworthy of

course was Garcia’s promulgation of the Filipino First Policy.

Objectives of the Study

Being the last administration to be under the 1949-1961 period of control, the study seeks

to establish and discuss the economic development that happened during the Garcia

admnistration. This paper shall also try to achieve the following:


1. To discuss the context of the period that characterized the years of Garcia’s

administration

2. To examine the major policies and programs of the Garcia administration.

Significance of the Study

The study is an attempt to narrate and discuss the economic policies of the Garcia

Administration. The study will help readers understand the significance of the actions done

before the Garcia administration which lead to the economic policies approved during the Garcia

administration. The study also will inform the readers of the importance of the economic policies

during that era.

Scope and Limitations

The study limits itself to the historical background of the period of control, starting with

the Bell Trade Act, until the end of Garcia’s presidency in 1961. The context of the said period

will be discussed to establish properly its effects and implications on the Garcia administration.

This paper is limited to few economic policies and programs and will not be dealing with

Macapagal administration.

II. Historical Background of the Period of Control

The Bell Trade Act and the Economic Dependency on the US

The Bell Trade Act implemented during the Roxas administration enabled free trade

between the Philippines and United States. It also meant a flood of imports, huge amount of

capital fleeing the country, and the perpetuation of economic dependency on the United States.
The Bell Trade Act therefore operated against Philippine development efforts since all

dollars that the country received, through aid, war compensation and earnings from export

products had evaporated due to massive and unlimited importation of goods. The effort to put up

industries was prevented by the utilization of post-war funds received on importation.

As a requirement for receiving war reconstruction assistance from the United States, the

Philippine government agreed to a number of items that, in effect, kept the Philippines closely

linked to the United States economy and protected American business interests in the

Philippines. Manila promised not to change its overvalued exchange rate from the prewar P2 to

the dollar, or to impose tariffs on imports from the United States without the consent of the

president of the United States. By 1949 the situation had become untenable. Imports greatly

surpassed the sum of exports and the inflow of dollar aid. These resulted to the bankruptcy of the

Philippine economy.

The Need for Controls

The government then had to institute a system that would limit imports of the country and

that would control the dollars that could be transferred abroad. Thus, the foreign exchange

control came to existence. Under this system, all dollars earned by Filipinos and foreign

residents, and by exports as well, had to be surrendered to the Central Bank and exchanged to

pesos at the rate of P2 is to $1. Although the declaration of controls did not come easily,

especially with the opposition of the American Chamber of Commerce in the Philippines, the

United States had to agree with the implementation to save the Philippines from bankruptcy. To

allow the Philippines to go to bankrupt would be tantamount to handing over the country to
Communists, something that the United States feared. If the Philippines fall to the Communists,

American businesses in the country would be lost forever.

The controls initially reduced the inflow of goods dramatically. Between 1949 and 1950,

imports fell by almost 40 percent to US$342 million and surpassed the 1949 level in only one

year during the 1950s. Being constrained, imports of goods and nonfactor services as a

proportion of GNP declined during the 1950s, ending the decade at 10.6 percent, about the same

percentage as that of exports.

The imposition of import and exchange controls in the late 1940s had a significant impact

on the economy of the Philippines. In the first four years, from 1949 to 1953, 5,000 industries

sprouted. The industrial sector’s contribution to Gross National Product rose from 8 percent in

1949 to 17 percent in the late 1950s. Industry grew by 12 per cent per annum between 1950 and

1957.

III. Economic Policies and Programs of the Garcia Administration

Garcia’s as the New President

Indeed the period of control would continue until the presidency of Carlos P. Garcia, and

thus, he was a beneficiary of the good effects that this system brought with it. However, the

Philippines was still very dependent for its local needs, especially to the United States. The

controls were still not enough.

As Carlos P. Garcia assumed the presidency once again after winning the 1957 elections,

it was the problems of the economic sector that he wanted to address the most, seeing the need

for economic independence through development. In his inaugural address on December 30,
1967, Garcia enumerated the problems being faced by the Philippine economy and he proposed

solutions on how to solve them.

Garcia pointed out the problem of self-sufficiency in food, wherein a substantial part of

the supply of rice and fish had to be imported from abroad, with rice and fish being the basic

articles of the Philippine economy. He thus wanted the reorientation of national economic

policies towards doing first things first. He urged the production be done in the country by and

for Filipinos to provide enough of the fundamental needs of life.

Another problem was the apprehension that the international reserves of the country were

deteriorating citing the over-eagerness to push forward industrialization as the cause. Garcia saw

the need to restore the correct proportion between dollar reserves and industrialization, while

also submitting to measures of austerity.

Nonetheless, Garcia wanted the industrialization program to continue. He pointed out

that a well-balanced agro-industrial economy is the best for the country. He recommended the

hastening of establishing agricultural industries so as to utilize with least delay the abundant

natural resources of the country. For an industrial economy, he rightly called for the

establishment of the basic steel industry, which can support a hundred more industries. It is also

through the steel industry that Garcia hopes machineries would be generated for the entire

Philippine agro-industrial structure.

Realizing that the dollar reserves of the country could not do double role of providing for

the normal requirements of foreign trade and the tremendous financing of the economic and

industrial development, Garcia saw the need to generate development funds from sources other

than taxes and proceeds from export. He also saw the importance of the collaboration between
the government and the private enterprise for deficiencies in finances and scientific and

industrial research.

The Filipino First Policy and Industrialization

On August 21, 1958, Resolution No. 204 or The Filipino First Policy of the National

Economic Council was adopted. As the word itself entails, the Filipino First Policy gave

preferential treatment to Filipinos in the Philippine economy. For example, in the allocation of

dollars which were used to buy machineries, Filipinos or corporations with Filipino equity were

given preference. Moreover, the government encouraged Filipinos to take part in enterprises and

industries which were vital towards economic growth, stability and security of the Philippines. It

was known that in 1958, 2% of the entire population were non-Filipinos. This 2% of foreigners

controlled 4/5 of the domestic trade in the Philippines. The National Economic Council tried to

correct this by providing for the promotion of substantial Filipino participation in commercial

and industrial businesses in 1958 and in the future. This gave preference over to Filipino

applicants for foreign exchange allocations, aided Filipino enterprises which seek to enter a field

which was predominantly in foreign contro,l and helped give recognition to joint-venture

enterprises of both Filipino and foreign capital which the Filipino participation would be at least

60% of the stock ownership. More and more Filipinos thus began to own factories. Together

with the foreign exchange control, the policy enabled the government to assist Filipino

entrepreneurs to assume control of the economy and break the hold the foreigners exercised on

the economy.

The country was able to produce its own captains of industry such as Salvador Araneta

who pioneered the flour and engine industries; Hilarion M. Henares, Jr., who was into industrial
chemicals and school supplies; Filemon Rodriguez, who founded a prestigious management

company and the co-founder of FILOIL, the first Filipino-owned oil refining company; Col.

Severo Santiago, who pioneered the production of telecommunications equipment; Meneleo

Carlos, who was into industrial resins, Pablo Silva, who pioneered in foundries and steel pipes,

Jose Concepcion, who pioneered the manufacture of air conditioners, the del Rosarios, who

worked on household appliances, and the Marcelo, Martel and Jacinto families, who pioneered

the steel industry.

To establish the foundations for heavy industrialization, the Garcia administration

approved a resolution calling for the establishment of an integrated steel industry in which the

government would hold a controlling interest of 51%. The decision led to the formation of the

Iligan Integrated Steel Mills, which was a joint venture with the private sector, particularly the

Jacinto Steel Incorporated, with little equity from the foreigners. With this, the government

hoped that it would not only make the country independent from steel imports but would

eventually make it produce the various machineries and factories needed in the country.

Since its enactment in 1958, new Filipino-owned business organizations continued to

sprout. Total capital investments of new Filipino businesses in 1958 was only P108,831,000

whereas the Americans had P2,537,000. By 1959, new Filipinos businesses’ investments rose to

P143,012,000 and those of the Americans declined to P2,433,000. In the 1960, the trend

continued. Filipinos had P157,631,000 and Americans had P1,375,000. Although, investments of

new American businesses rose to P2,881,000 in 1961, those of Filipinos still had the bigger

advantage with an increase to P209,398,000.

With regards to capital increases of corporations and partnerships in general, the trend

was always positive since. The increase during 1957 was only $29,144,000, by 1958, it the
increase was $74,315,000 and in 1959, it was $99,092,000. The increase reached the centennial

mark when in 1960 it was $103,763,000 and $162,155,000 in 1961.

Support to Local Industries

To show how the government prioritized and gave preference to Filipino industries, there

were policies enacted to fund and help locals to develop their industries.

One of which was the P30M Coconut Financing Fund, or Republic Act 2282, approved

on June 19, 1959. It was an act to rapidly develop the Philippine coconut industry. This policy

was administered by the Development Bank of the Philippine and the fund was used to grant

loans at 2% annual interests for capital requirements of farmers and cooperatives.

Republic Act 2233, concerning Philippine Tobacco Administration, was an amendment

of Republic act 1135 of 1954. The law states that taxpayers pay a total of Php60M for the

promotion of the Tobacco industry, 15% of the amount will be spent for operating expenses,

75% of the total amount will be spent for native tobacco cigar fillers trading and 10% of the

amount will be spent for research to improve the tobacco industry. The Philippine Tobacco

Administration was the agency which was responsible for the spending and allocations of the

total budget. The objective of the act was to establish the Philippine Tobacco Administration’s

objectives, powers and functions and it also created the Tobacco Classification Council.

Republic Act 2265, on the other hand, established the Virginia Tobacco Administration

as a self sustaining agency which would handle the Virginia Tobacco industry. The creation of

this body did not entail the appropriation of fund but it permitted the agency to borrow money

from the Central Bank to use as capital. As a result of these two resolutions on tobacco, the

physical volume of production of tobacco products increased by about 35% from 1958 to 1961.
Further Controls

More controls were implemented by the government to achieve its economic goal of

being self-sufficient and independent. The controls also helped in the continued economic and

industrial development of the country.

Approved in May 15, 1959, Republic Act 2207, or the Rice and Corn Import Ban,

prohibited the importation of corn and rice by any person, association, corporation and

government agency at any point of the archipelago. Violations of the ban were subjected to

penalties. The importation of rice and corn was banned unless there is an inadequacy of local

supply which would constitute a national emergency. In case of such emergency based on

findings of the Office of Statistical Coordination, the President must designate a government

agency to facilitate the importation.

This policy protected local rice and corn producers and promoted the interests of local

producers and planters in a way which is also consistent to the welfare of the buyers or

consumers. The policy helped to accelerate the self sufficiency of the country in terms of rice

and corn production.

From 3,204,000 metric tons of rice produced in 1958, there was a 16% increase to

3,685,000. Rice production continued to increase to 1.5% in 1960, and remained relatively the

on the same level during 1961. For corn, the 852,000 metric tons produced in 1958 grew by

19.2% to 1,016,000 in 1959. It increased by 14.7% in 1960 and by 3.8% in 1961.

Republic Act 2240 was the new amendment on export control law, approved on June

18,1959. The law provided that export control shall continue until December 31, 1962 unless

cancelled by Congress. The goods Filipinos may not export, re-export and tranship outside the

country unless with a permit from the President are uranium and other atomic energy materials,
machineries and their spare parts, scrap metals, medicine, food, abaca seedlings, fuel, oil,

lubricants, military equipment and items which are essential for industrialization and economic

development.

This policy led to the regulation of control and prohibited certain exports. It promoted

economic and industrial development as well as national security, since the country was

prioritized for its use of its own resources.

Other Means of Bolstering the Economy

The Garcia administration, being a beneficiary of the import and foreign exchange

controls, was able to initiate heavy industrialization and to implement the famous Filipino First

Policy. Through these, the government was able to initiate and implement policies and programs

for the further development of the economy. However, the Garcia administration did not rely

solely on the advantages that the controls gave to develop the economy of the country.

One instance was the austerity program that was known for being the first step Garcia

took as he was elected in 1959 after finishing the remaining term of President Magsaysay. The

program called for the reduction of government expenses on account of the almost bankrupt

treasury that was inherited from the Magsaysay administration. By this program, he meant a

government with utmost economy, and he fairly succeeded doing so.

Garcia’s negotiations with the United States also helped to prop up the country’s sagging

economy. In 1958, he undertook a successful State visit to the United States to negotiate loans

and other forms of economic aid. The Philippine Government, who demanded jurisdiction over

cases in military installations of the United States in the Philippines, also demanded payment of

$900 million from the United States government for claims arising from the balance of war
damage payments, for differential pay of military service men in the U.S. Army, the oil excise

tax, and the devaluation of the dollar. Although the Philippines did not get all the demands, it

showed the independent and firm policy of the country.

When Garcia returned from his State visit, he came back with great hope of being able to

tide the country over its precarious economic situation. Realizing that no program could succeed

in bolstering the economy of the country without insuring honesty in the government, especially

in the revenue-producing departments, the President launched an intensive effort to eradicate

reported frauds in the Bureau of Customs, Bureau of Internal Revenue, and a few other offices.

During the Garcia presidency, there were also negotiations with Japan as the Reparations

Agreement was made. This agreement provided that the Philippines shall be paid by Japan in the

amount of U.S. $550 million as war damage payment. A supplementary agreement also allows

the Philippines to secure loans from Japan in the amount of $250 million.

The reparations payment from Japan was an addition to the country’s foreign exchange

reserves. Reparations were sources of capital formation and could be channelled to be used for

economic development. Thus, for an effective employment of reparations resources, the

Reparations Law (R.A. 1789) provided the utilization to be guided and regulated by the priority

system formulated by the National Economic Council.

The law also provided that proceeds from sale of reparations goods and utilization of

services shall constitute a Special Economic Development Fund. From this, the Congress may

appropriate amounts for a Special Trust Fund to which the Development Bank of the Philippines

and the Philippine national Bank shall have access for their use in extending loans for economic

and industrial development projects, construction, and repair and improvement of public school

buildings.
As of the end of 1959, from the reparations, the total amount of goods and technical

services received in Manila was P164,426,636. Of this sum, the private sector received

P61,419,582.68 placed into agricultural, fishing, mineral resources, industrial, transportation,

communication and other developmental projects. The government received a total of

P103,043,053.32 for the country’s electric power, industrial development, transportation and

communications, public works, and other projects.

Effects on Employment

The Filipino First Policy and the industrialization program of the Garcia administration

was criticized for only being advantageous to the elite and the business sector, while being harsh

to the working and lower classes. However, as the capital of many industries increased during

the Garcia administration, the employment rate saw a similar trend as well.

The steady growth of production in recent years has improved further the

underemployment problem in the Philippines. Agricultural employment expanded at a rate of

7.8% in 1958 and 3.8% in 1959. While non-agricultural employment increased by 7.7% in 1958

and 0.7% in 1959. Thus, by 1959 unemployment was reduced by 14.7%. Employment reached

8.959 million in 1959, an expansion of 2% from the previous peak established in 1958.

There were favourable labor developments as average monthly earnings of wage earners

and salaried employees made a good showing, while the money wage rates of agricultural,

skilled and unskilled laborers also rose moderately.

The reaction of manufacturing production to the expansionary policies of the government

had a proportional increase in employment in 1960-61. Employment for manufacturing


increased by 1.5% in contrast to the 7.6% expansion in the volume of production between 1960

and 1961.

The productivity gains for the non-agricultural sector was shared by the employed

unskilled labor in the form of increases in money wages which averaged 2.5% between 1960 and

1961, while the wages of the skilled labor remained sustained.

Agricultural wages also increased by 3.6% on the average between 1960 and 1961.

Planters received the largest wage boost of 5.6%, followed by plowmen who had 4.8% increase.

Harvesters and common labourers also received increments in their wages, with increases of 3%

and 1.9%, respectively.

IV. Conclusion

It was the period of control that started in 1949 that characterized the administration of

Carlos P. Garcia, from 1957-1961. The Bell Trade Act and the economic dependency of the

Philippines to the United States proved to be detrimental to the economy and thus import and

foreign exchange controls had to be implement to save the country.

As the years passed and the Garcia administration came to existence in 1957, the

economic condition of the system of controls has shaped the period and thus helped the

government under Garcia to push through economic and industrial development projects.

However, huge dependency on the United States was still felt that controls were not enough to

become truly economically independent. This gave rise to the Filipino First Policy and heavy

industrialization soon followed. The enactment of such policy resulted in the implementation of

other policies that spurted economic growth. Statistics would show this growth was achieve, with

increased capital, more Filipino ownership of businesses, preference given to Filipinos to fund
their industries, increased employment, and through other programs that bolstered the economy

such as the austerity program, reparations and negotiations.

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