ECONOMIC HISTORY―1973-1986

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PHILIPPINES UNDER THE MARTIAL LAW
by Trina Candelaria, William Ang, Jim Nemeno | Ateneo de Manila University

I. WHY MARCOS DECLARED THE MARTIAL LAW
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 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.1 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.2

II. MACROECONOMIC INDICATORS
[A] Growth Domestic Product
1970-1980 Growth Rates of GDP per capita (in %) 5.3 Malaysia 5.1 Thailand 5.7 Indonesia 7.7 Singapore 3.4 Philippines
Source: Table 3, De Dios, p.8

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 to about 62% percent of external debt3. As a developing country, the Philippines during the martial law were one of the
1 2

http://www.philippine-history.org/martial-law-philippines.htm http://en.wikipedia.org/wiki/Martial_law#Philippines 3 De Dios, 4

poverty incidence in the Philippines rose from 41% in 1965 to 58. and the world‟s largest collection of rice varieties was assembled to 4 5 De Dios. [B] Employment Despite government efforts to pump-prime the economy to increase income and encourage spending.heaviest borrowers. 8 Boyce. also called as HYVs. These aggressive moves were seen by critics as ways legitimizing Martial Law by purportedly enhancing the chances of the country in the global market. The birthplace of this new technology was in Los Banos. while its counterparts like Thailand.5% of the income at 1980. This coincided with issues of cronyism in the Marcos administration. meanwhile.1% at 1970. from 1970-1980. Philippine economic development strategy had three central pillars: The Green Revolution. This can be attributed to lower agricultural real wages and lesser real wages for unskilled and skilled laborers. popularly known as the “Green Revolution”. Concurrently. Singapore. as the administration faced questions of favoring certain companies that were close to the ruling family. This can be attributed to an increasing number of females seeking work in the market.9% from 19781983. MAIN DEVELOPMENT STRATEGIES In the two decades of Marcos‟s rule. took a larger share of the income at 41. the Philippines lagged behind its Southeast Asia counterparts in GDP growth rate per capita. Unemployment rate rose from 5.7% percent at 1980 from 37. while underemployment was a problem. 61. as the poorest 60% of the nation contributed only 22. The technological key in this strategy is the introduction of „high-yielding varities‟.0%.2% to 29. III.47% from 1970-1983. while real wages for unskilled and skilled laborers decreased by about one-thirds of their 1962 level. Real agricultural wages fell about 25% from 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. and the staple food for much of the population. However.0% at 1970. down from 25. where the International Rice Research Institute (IRRI) was established. . Scientists were recruited from around the world. from 10. 46 6 Boyce. According to FIES (Family Income and Expenditure Survey) conducted from 1965 to 1985.9% in 19855. It tripled. the labor force of the Philippines grew at an average 4. The country. Malaysia.4%4.6 It is especially important to the country‟s poor majority. Much of the money was spent on pump-priming to improve infrastructure and promote tourism. unemployment and underemployment grew. [C] Poverty and Income Distribution Income inequality grew during the Martial Law Era.2% to 5. Export Agriculture and Forestry. and Indonesia garnered a mean growth of 5. as both consumers and producers. this was misleading as despite the aggressive borrowing and spending policies. only registered an average 3. [A] The Green Revolution Rice is the foundation of the Philippine economy. on the same time period. and Foreign Borrowing. The richest 10%.4% growth. A central element of Philippine development strategy since the mid-1960‟s has been the introduction of new rice technology. It is the country‟s single most important crop.

The green revolution brought temporary relief from this impasse. the planners chose what appeared to be the easiest route―breeding of new varities for “high fertilizer response”12. (2) Poor farmers would share in the gains to rice producers. 72. This would be a special advantage to smaller growers who have lower labor costs. they would benefit excessively. nor did it permit much increase in multiple cropping.8 The architects of this green revolution had one overriding objective: increased food production (growth of output).7 Their efforts focused on combining the genetic attributes of high fertilizer responsiveness and a short-statured plant type. the fertilizer price rise sparked by the energy crises of the 1970s. ceteris paribus. conflict and mistrust among individuals have “impeded collective action”11. In pursuit of this goal. however. 119.provide the genetic raw material for IRRI‟s plant breeders. In fact. 62. so as to create a variety which could support heavy ears of grain without toppling under their weight. the country‟s rice output doubled. but this poses publicgood problems. . Boyce. 90. if one is absent. Economic theory tells us that consumers in general. (3) Landless agricultural workers would benefit too. [1] „high-yielding‟ or „modern‟ rice varities originated at the IRRI [2] chemical fertilizers. allowing the country to achieve substantial rice yield increases via the shift to new seed-fertilizer technology. 9 Ibid. 10 Ibid. the green revolution in the Philippines succeeded in fulfilling its architects‟ primary objective: more food production.9 Three major benefits were taken to be virtually self-evident10: (1) Increased rice output would. Now let us look on the other side of the picture. 12 Boyce. But the water control constraint did not permit the new varieties to attain their full potential yoelds. 11 Boyce. In little more than two decades. New Rice Technology: Three Essential Elements The following key inputs of the new rice technology are highly complementary. absolute poverty increased. How will labor commitments and other costs be apportioned? How will irrigation water be fairly allocated? In some places. but did not reverse the trend towards impoverishment. that the new rice technology would also have a positive distributional impact on the poor. “Cheaper rice mitigated. Underling this technological constraint is an institutional one.  Thanks to the increased demand for labor and the resulting increased employment and higher wages. Water control improvement often “can be most efficiently achieved by the mobilization of community labor”. lower the price of rice. notably irrigation in the Philippine setting Among these key inputs of the new technology.”13 7 8 Ibid.  Since the poor spend a larger fraction of their income on food than do the rich. and poor consumers in particular. Proponents of the strategy expected. these problems have been resolved. Overall Effect All in all. water control remains a key constraint in Philippine rice agriculture. but elsewhere. will benefit from increased output and the resulting price declines. That is. Despite the positive impact of lower prices on poor consumers.  The new technology was not only scale-neutral but also labor intensive. the productivity of the others is greatly reduced. 13 Boyce. but it did not act as a serious interruption on output growth. to which these varieties are highly responsive [3] water control.

21 According to the official statistics. 19 A situation in which a product or service is only bought and used by one customer 20 Boyce. The Philippines accounts for more than half of world coconut exports. export volume began to decline as the country‟s forest resources were depleted. These have been “comparable to sugar as a source of Philippine export earnings” since the early 1960s. To lower the value of a nation‟s currency by government action To remove official restraints or regulations Boyce. Copra exports began in the late19th century. but the commanding role of sugar in the Philippine political economy began in the latter half of the 19th century as large plantations were established in Negros. 22 Boyce. In fact. 2 Sugar was the Philippines‟second most important agricultural export in the Marcos years. understating its share of the market but overstating its market power (since this is severely constrained by the existence of natural and synthetic substitutes). attributed to be the “only one of the world‟s top six banana exporters outside Latin America”20.g: soap. and (3) creation of a monopsonistic19 sugar trading apparatus under the Marcos regime.22 From less than 10% of total exports in the early 1950s. and were widely seen as a “political triumph” for our main traditional exports16.In the mid1980s. cosmetics. The Philippines became Asia‟s „banana king‟. Sugar exports date from the eighteenth century. (2) loss of favored access to the US market. 17 Ibid. 3 Bananas were the number three export crop after coconut and sugar. Boyce―that caused this decline were the (1) softening of world prices. ultimately reaching to the point in 1987 where the country had to import sugar in order to meet domestic needs. In the mid-1970s. Devaluation14 and decontrol15 of foreign exchange brought windfall profits to agro-exporters. the country is sometimes termed as the „Saudi Arabia of coconut oil’. cut lumber. however. plywood and veneer. the Philippine sugar industry went into decline. detergents.18 Sugarcane acreage doubled from 250. 171. 169. it grew to more than 25% in the 1960s. and pharmaceuticals). Factors―according to James K.000 in the mid-1970s.17 The use of coconut oil in the world economy after the World War II shifted from edible to non-edible industrial products (e. However. the Philippines ranked as the world‟s second largest exporter (after Thailand) of both canned and fresh pineapples. 5 Forestry Products include raw logs. Their export began only after Japan lowered its tariff barriers in the 1960s. in response to European and North American demand for margarine and soap manufacturing.00 hectares in 1962 to more than 500. 1 Coconut products were the single largest export of the Philippines in the Marcos era. 21 Ibid.[B] Export Agriculture and Forestry The year 1962 was a favorable one for Philippine export agriculture. 18 Boyce. 4 Pineapples are the other leading „non-traditional‟ agricultural export of the Philippines. 14 15 16 . 165. 170. The development of the banana export industry has been accompanied by dramatic yield increases. pineapple acreage more than doubled. explosives.

Overall Effect The income generated by exports accumulates not to countries.2 80.6 16 62. while those who control land and markets. 167.o. Ibid.3 29. have profited greatly. Debt-Driven Growth27.4 2. however. 1962-198523 US $ million f. 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. however. 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”.4 2. nevertheless. The country experienced severely declining terms of trade and great price instability for its agricultural exports from 1962-1985.9 9.28 In 1973.b value TOTAL EXPORTS Share in total exports (%) Coconut Sugar Bananas Pineapples Forestry TOTAL SHARE Source: Table 6.5 Earnings. the Middle East Oil Embargo took place and sparked 23 24 25 Quinquennial averages Boyce.9 70. From $2.24 In the Philippines. 5 . Boyce.8 Billion in 1976 and 17. 1962-66 724 33 21 0 1. The Balance of Payments also behaved generally well in the earlier parts.8 1967-71 973 22.” This just casts doubt on the reliability of export agriculture as an “engine of economic growth”.2 6. 26 Boyce.1 1977-81 4537 20 10.9 Billion in 1973. but to “specific individuals within them”. 245.9 27. 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.8 1982-85 5012 12.6 18 0. The primary rationale was development itself: “borrowed money would speed the growth of the Philippine economy.7 21. 1970-1983 The government financed its spending primarily from foreign debt. Marcos even deployed state power to put control of the country‟s top agricultural exports securely in the hands of presidential “cronies”.3 1. 27 Boyce. improving the well-being of present and future generations of Filipinos”26. with surpluses recorded in 1973 to 1974.4 1. However. These price movements were “the result of external political and economic forces over which the Philippines could exercise little control. did not rise equally owing to worsening terms of trade.6 25. 254.1 2. 189.6 43.5 2.25 Behind the scenes.3 6.2 1. especially the state.8 1972-76 2120 20.3 billion dollars in 1980. [C] Foreign Borrowing: The Debt-for-Development Strategy Foreign borrowing was a key element in Philippine development strategy in the Marcos era.Exports of Major Agricultural and Forestry Products. an increasing trend of deficits followed the years afterwards. it rose to 6.2. 28 Lim. the regime “aggressively pursued another agenda”―the redistribution of income to favored individuals.

and later forced the Central Bank to start a new program in order to reduce the deficit and the aggregate demand in the market. temporarily stopped the government‟s import liberalization program. coconut trading… became more and more monopolized by the cronies of Marcos. 13 32 ibid 33 ibid 34 ibid 35 Lim. Moreover. Spending on infrastructures was primarily the focus of the government. 8 Lim.”35. This measure tried to attract inflows of foreign currency because of the higher domestic interest rate being offered compared to foreign ones. implemented foreign exchange rationing. 1983 . which increased tariffs on these items. however. 12 31 Lim. but at the same time also started an economic decline of 7% in the years 1984 to 1985.36 Moreover.32 Battle for Stabilization. both of which are national banks.”33 (p13) As a response. According to Lim. the Marcoses primarily focused on the expansion of its government-owned corporations. the Philippines saw itself at the brink of an economic freefall. Because of the large influx of investments from the public and private sector and the increase in economic activity. important sectors such as sugar. the Philippines survived the first oil price shock. From 1974 to 1976. “As the import liberalization program started to be implemented. the government was forced to declare a “debt moratorium… as it defaulted in its debt payments. This bailing-out or the imposition of government control on non-performing firms paved way for “the expansion of the money supply from 1980 to 1983. This effort. 14 36 ibid . The government. Investments also fell by about 50% in 1985 and also decrease in import coefficients due to lower economic growth. were not enough. together with the Philippine National Bank and Development Bank of the Philippines. an associate professor in the University of the Philippines. which showed how fragile the financial system in the country was. However. being able to also borrow funds from foreign loans in order to invest in the country. most of them owning the companies bailed-out by the government.inflation to rise (as seen in the graph). As seen in the situation. “Central bank bills were issued and sold at more than 50 percent interest rate – which most likely contributed to the high inflation in 1984 and 1985. because of the large deficit incurred by the Central Bank due to bail outs and assumption of debts from 29 30 Lim.1986 After the assassination of political rival Benigno Aquino. the government also employed measures to reduce overall government expenditures to reduce deficits. The peso was again devalued in 1984 “by almost 100 percent. however. according to Lim. a business man related to the Marcos fled the country with $80 million worth of debt in international and local banks. contributed to foreign exchange depletion (qtd.”34 These. in 1981. 1990). in Boyle. had a difficult time borrowing new capital and funds to cut the increasing budget deficit. Because of these. this reduced the Balance of Payments and national account deficits. formed a bail-out package and rescued the banks and companies involved. Because of the gravity of the debt involved.”31 This outflow of capital. due to the sudden collapse of confidence and credit ratings from international financial institutions. the Central Bank and other national banks are not that independent from the government. termed as “capital flight”. which also was a year of negative economic growth. together with high domestic savings which financed part of government spending and deficit. investments were still very high as the government still engaged in massive spending. the government started to impose import controls.29 By the years 1977 to 1980. much of it were payments to accumulated interest from debt. was partially caused by the fall in tax revenues during that time as public speculation about the weaknesses of the government was increasing. Strong support was given to these firms. the Central Bank.”30 This exposed how the Marcoses tend to favor a small number of businessmen and friends. hoping to increase growth and tourism.

this measure had relatively no effect on the overall deficit that the government had by the end of 1986.bankrupt firms. National Statistics Coordination Board. 65) Economic and Social Statistics Office. 16 .37 TABLE 1 60 50 40 30 Real GDP Growth Rate 20 10 0 -10 -20 Inflation Rate Treasury Bill Rate TABLE 2 30000 25000 20000 15000 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 Gross International Reserves (Billion $) Foreign Debt Stock (Million $) 10000 5000 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Sources: (Lim. Bangko Sentral ng Pilipinas 37 Lim.

The main target of the government at this time was on the side of the tourism industry. an international debt crisis. The early effects of the increase in government spending were generally positive.38 IV. .” – J. 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. and high increases of interest rates. 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. also known as intermediate imports. continued growth in agricultural and forestry exports.The External Debt: Magnitude and Composition Between 1962 and 1986. the Philippine strategy could not claim great success. V. 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. OTHER DEVELOPMENT POLICIES The Marcos regime. were sourced for domestically produced goods. the external debt of the Philippine grew from $355 million to $28. 347. focused primarily on improving the economy and public image of the Philippines through major increases in government spending particularly on infrastructures. the Gross Domestic Capital Formation to GDP rose up to 28% and foreign investments to the country also increased. economic growth was slow. when the world was experiencing stagflation. This focused on “non-traditional manufactured exports and foreign investments. with numerous constructions. especially by the end of the decade. This led to the worsening deficit at that time. and massive external borrowing―received strong intellectual and financial support from international officialdom. felt very bullish and also engaged in aggressive investment and spending patterns. during the early to mid 70s. Africa.”This led to an increase of foreign direct investment in the country particularly to manufacture export-oriented goods. also focused on an “Export-led Industrialization Program”. Private businesses and firms. The government. in the 1970s. Boyce Poverty during the Marcos era deepened despite a modest increase in average national income. the Philippines was the “ninth most indebted nation in Asia.3 billion. Foregin borrowing too little genuinely 38 39 Boyce. but failed to bring a substantial reduction in poverty. such as the Philippine International Convention Center. and Latin America in absolute terms”. By the end of the Marcos years.” With this growth in the export sector. then the Philippine development strategy in the Marcos era was an abysmal failure. hotels. Boyce. 39 Compared to other East and Southeast Asian countries. accompanied by the second oil price shock. This policy generally continued even through the 1980s.40 The new rice technology increased output. there was also an accompanied growth in the import sector especially since imported raw materials. 259. Initially. seeing this action by the government. Export agriculture and forestry failed to provide an engine for economic growth. ASSESSMENT OF THE MARCOS REGIME “If the central aim of economic development is the reduction of poverty. Even by the narrower objective of economic growth. 40 Ibid.

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. Honolulu: University of Hawaii in Associatiom with the OECD Development Centre. Together with his declaration of Martial Law and the suppression of freedom in his regime. 1970-1993. shows how Keynesian ideals work in the short run. This failure of the Philippine development strategy thus was also a failure of the international development establishment. An Analysis of the Philippine Economic Crisis: a Workshop Report. Philippine Macroeconomic Developments.htm>. even in times of positive economic growth. 15 May 2011. Wikipedia. WORKS CITED Boyce. Canlas. De Dios. Web. The failure here is that the government overspent. but the implementation of his goal ultimately led to widespread corruption and mismanagement. <http://www. 32 .philippine-history.org/wiki/Martial Law> 41 42 Lim. and also failed to improve the local industries primarily geared towards exports at par with its borrowing. Philippines: University of the Philippines. 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 from43. and also rising political instability that led to a shift in power in the EDSA People Power Revolution. <http://en. the Philippines faced a serious threat to the integrity of its social and economic structures. Print. 1996. Moreover. The initial period of the martial law and Marcos‟ economic policies have generally stimulated the Philippine macro-economy. 15 May 2011. During this period. Print. but the difference is that the government failed to recover as well because of corruption.productive investment. Dante B. Emmanuel S. the Free Encyclopedia. Ed. Clearly. the Marcoses have been notoriously linked to the massive government debt that the Philippines is still facing today. Quezon City: Philippine Center for Policy Studies. 31 Ibid 43 Lim. 31). This is similar to the Mexican Crisis in the 1980s. Quezon City. Lim. mismanagement. "The Philippines During the Martial Law. Print.wikipedia. His goal of strengthening the Philippines in terms of being internationally competitive may be good. However. but not relatively in the medium to long run. clearly. the Philippines grew “in pace with its ASEAN neighbors… although more lavish and wasteful in its spending41” (Lim. James K. Joseph Y. Martial Law. 1993. The Philippines: the Political Economy of Growth and Impoverishment in the Marcos Era.org/martial-law-philippines. 1984. Web. “high world interest rates and the Brazil-Mexico debt moratoria”42 the Philippines had difficulty sourcing out new funds mainly to pay its interest dues from debt. This." Philippine History | Filipino History.

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