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IMF-WB in the Philippines: Half-Century of Anti-Development

The people of the world have little to cheer as the IMF and WB turn 60 in July. The
Philippines has suffered under them for nearly that long and, with no real end in
sight, will continue to be the worse off for that.
The International Monetary Fund (IMF) and World Bank (WB) were conceived at a United
Nations conference convened in Bretton Woods, New Hampshire, U.S. in July 1944.
From the beginning their aim has been to create an open international trading and
financial order, allegedly to prevent a repeat of the supposedly protection-induced Great
Depression of the 1930s.
The IMF started operations in March 1947 and the WB earlier in June 1946. Since then
they have been enormously successful in prying open neocolonial economies and putting
the most advanced industrial powers in a position to assert their economic dominance
amidst a so-called free market.
Today the IMF-WB has 184 member countries. The IMF has provided loans amounting to
U.S.$ 107 billion to 87 countries. These include only loans that are currently outstanding,
thus, still covered by IMF conditionalities. All in all, the IMF currently monitors 136
countries. The WB last year provided U.S.$18.5 billion in loans and grants to over 100
countries. For foreign monopoly capital these are financial resources well-spent: they go
far in making sure that neocolonies remain open to imperialist plunder.
Never mind the anti-people and anti-developmental implications that come with that
plunder. The Philippines is a case in point.
Enter the IMF-WB
For nearly half a century, the IMF and WB have been vital in ensuring that Philippine
economic policies hew to the needs of foreign, especially U.S., monopoly capital. These
have resulted in persisting economic backwardness far removed from the development
rhetoric the multilateral agencies pathologically spew.
The countrys first WB loan was for the Binga Power project in 1957 and its first IMF
program was in support of Pres. Diosdado Macapagals foreign exchange decontrol
program in 1962. All told there have so far been U.S.$11.6 billion worth of loans and U.S.
$75.4 million of grants in WB development assistance for 176 programs and projects,
and 24 IMF programs.
These IMF stabilization and WB structural adjustment programs set macroeconomic
targets, demanded policy changes and influenced virtually every sector of the economy.
Trade and investment liberalization, privatization and deregulation have steadily
progressed under the purview of the IMF-WB.

Foreign exchange restrictions and import licensing requirements were dismantled in

the 1960s. Likewise, mounting incentives for foreign investors were started during the
said decade. In the 1970s, the peso was floated and so-called export industries and
export processing zones set up. Tariff rates and quantitative restrictions started to be cut
back in the 1980s, especially with the tightening financial stranglehold over the country
following the early 1980s debt crisis.
The 1990s in turn saw the most intense period of market-oriented measures in the
countrys history. The then existing minimal and selective protectionist structures were
taken down including reduction of regulated items and decreases in tariff rates. Foreign
investments were liberalized starting in 1991 with 100% foreign ownership allowed in
most sectors and complete freedom to repatriate capital. Foreign exchange controls were
dropped in 1993.
Water transport was liberalized and deregulated in 1992, telecommunications in 1993,
banking and shipping in 1994, airlines in 1995, oil in 1996, and retail trade in 2000. Over
U.S.$3.5 billion worth of government assets were privatized including oil firms and water
utilities. Essential road and power infrastructure was turned over to the private sector
through build-operate-transfer (BOT) projects following deregulation in 1993. The Senate
ratified the General Agreement on Tariffs and Trade (GATT) in 1994 and the Philippines
entered the World Trade Organization (WTO) in 1995.
No development here
Philippine ruling and policy-making elites had so internalized the neoliberal model that
the 1994-97 IMF extended fund facility was considered the countrys exit program from
the IMF. Certainly, government commitments under the last two IMF programs, in 199497 and 1997-2000, are a virtual road map of Philippine economic policy: oil deregulation,
banking sector liberalization, a regressive and inequitable taxation system (including the
EVAT), rice and corn import liberalization, retail trade liberalization, and power reforms.
Working in parallel, the WB has made loans contingent on policy changes in the health,
education, agriculture, telecommunications, transportation, banking, power and water
sectors. Its programs also provide a development gloss with selective infrastructure
projects in support of an export-oriented economy and towards showcase safety nets,
poverty reduction and alleviation, social services, and environment projects.
Yet what has the headlong rush towards a utopian capitalist free market economy
actually wrought? More to the point, what has come as a result of opening up great
swaths of the domestic economy as opportunities for amassing private profit for foreign
monopoly capitalists and their domestic counterparts?
After a half century of being under the IMF-WB and its market-oriented macroeconomic
and structural adjustment policies, the overwhelming majority of Filipinos remain poor,
sick, uneducated and hungry.
The 3.9 million jobless last year is the highest number of unemployed the country has
ever seen. The 11.4 percent average unemployment rate, consistent during these last
two years, is the highest on record since the 1950s and even worse than the rates during
the severe economic crises in the mid-1970s, mid-1980s and early 1990s.

Adding the 5.2 million more underemployed means that 9.1 million Filipinos, who are
seeking work, are either jobless or still not earning enough to live decently. Yet half of the
jobs to be had are just in irregular low-paying own-account and unpaid family work.
Contrast this reality with how the government cites jobs created without mentioning that
many more jobs are lost and needed by a growing labor force not to mention the dismal
working conditions.
As a result the number of poor people is unprecedented. In 2000, according to the latest
census data, around 75 percent of Filipinos or 58 million people were struggling to get by
on just PhP82 or less a day; some 90 percent or 69 million people lived on PhP137 or
less. The government routinely invokes a much lower official poverty incidence of 40
percent but this uses a poverty threshold of a measly PhP38 per person per
day. Moreover it obscures how things have gotten worse in the last three years of rising
Overall, the Philippines remains backward, agrarian and pre-industrial, unable to provide
the livelihoods, goods, and services needed by the broad masses of the Filipino people.
It has no real industry to speak of and is barely able to produce even basic consumer
goods, much less the intermediate and capital goods of a modern industrial economy.
Agriculture remains grossly underdeveloped and, with the recent rush of cheap
agricultural goods imports from abroad, is deteriorating rapidly.
The domestic situation is so bad that over 7.5 million Filipinos have been forced to
migrate overseas in search of livelihoods. Remittances of U.S.$7.6 billion in 2003 (not
even counting perhaps U.S.$4-5 billion more unrecorded) are already over 10 percent of
Gross Domestic Product (GDP) making the Philippines the most overseas worker
remittance-dependent economy of any significant size in the world. Overseas Indian and
Mexican workers send back about U.S.$10 billion yearly but their economies are much
larger so the equivalent figure is less than 2 percent of their GDP.
At around 72 percent of GDP, the countrys public and private foreign debt stock of U.S.
$56.3 billion, as of September 2003, is possibly the highest level in Asia. Levels in
Thailand, Malaysia, Taiwan, Korea, India and China by the same measure range from
around 10-50 percent of their respective GDPs. Only Indonesia, with its foreign debt
stock of 69 percent of GDP, comes close. Yet some U.S.$85 billion has already been
paid in foreign debt servicing since 1970. The exchange rate is hitting record highs and
scraping PhP57 to the U.S.$1.
It is also notable that the unraveling disasters in the power and water sectors are the
result of their privatization since the mid-1990s. The IMF, WB and the Asian Development
Bank (ADB) were all threatening to withhold loans unless the National Water Crisis Act of
1995 and the Electric Power Industry Reform Act of 2001 (EPIRA) were passed.
It will be recalled that the WB and ADB hailed the use of independent power producers
(IPPs) as models for all of Asia and the entire underdeveloped world. The WB in
particular also pushed for water privatization through such small efforts as sending
Filipinos to study water privatization in Argentina to actually drafting the concession
agreement and designing the bidding process for selecting two private utility operators.
The long exit

All these problems abound because the IMF and WB have never been interested in
promoting Philippine development. From the beginning, they have been instruments for
manipulating the domestic economy according to what would best ensure foreign
monopoly capitals super profits. In particular, they have been about imposing free
market reforms that create the economic conditions that will be advantageous only to
those who are best positioned to dominate it the foreign monopolies and their junior
partners among the richest fractions of the domestic population.
Certainly the value of import-export trade since 1996 has been around 90-100% of gross
domestic product, or double the level since the first WB policy-oriented structural
adjustment loan in 1980. For the IMF-WB, this is a triumph of opening up the economy.
Tight fiscal and monetary policies and an ever-devaluing peso are used to create an
economic environment conducive to the fickle operations of foreign capital. Public
responsibility for health, education and other social services is foregone for the sake of
fiscal discipline; yet debt payments to big creditors and military spending to put down
domestic dissent continue. Higher revenues are sought through increasingly regressive
taxes. The domestic economy is choked by prohibitively high interest rates.
What happened to the supposed exit of the Philippines from IMF supervision in 1998?
So far this hasnt even materialized. Following a two-week visit last December, the IMF
recommended that the Philippines remain under the IMFs non-loan post-program
monitoring (PPM) scheme indefinitely. This obliges the government to allow regular semiannual monitoring visits by an IMF team which, in turn, would officially determine whether
to give its seal of good housekeeping or not.
The IMFs findings are conventionally taken as an indicator of a countrys
creditworthiness. With the availability of foreign loans hinged on the IMFs seal of good
housekeeping and the countrys dependence on foreign loans to fund its deficits and
prop up the economy, the IMF remains in a powerful position to influence domestic
economic policy.
As it is, the last IMF mission in March has, among others, explicitly asked for higher
power rates and the implementation of a universal charge; pushed for intensified power
sector privatization; called for higher excise taxes for cigarette, alcohol, and petroleum
and higher value-added taxes; and discouraged trade protectionism.
Which way out?
In any case, its important not to overstress the problem of Philippine underdevelopment
as rooted in the IMF-WB.
The course of Philippine (under)development has for over a century been profoundly
determined by the interests and demands of foreign monopoly capital. The country has
been used as a source of cheap human and material resources, a dumping ground for
surplus goods, and a captive outlet for recycling surplus capital. Local elites have
collaborated in this neocolonial plunder for a share of its spoils. The vast majority of
Filipinos, on the other hand, has been exploited as mere fodder for generating monopoly
super profits and remains inhumanly poor.

The IMF-WB is just a detail in this picture. The real root of the Philippines chronic crisis
lies in foreign domination and elite rule intrinsic to monopoly capitalism, or imperialism.
As such, the solution is only incidentally about reforming or doing away with or coming
out from under the IMF-WB. More important is the implementation of a comprehensive
socio-economic program. The socio-economic program to be implemented must be free
from the oppressive and retrogressive constraints of foreign monopoly interests whether
under the auspices of the IMF-WB or any other multilateral institution such as the WTO,
as well as through the binds of bilateral agreements.
The interests of the Filipino people come first: there must be a genuine agrarian reform,
which breaks the feudal constraints of land monopoly, peasant poverty, and rural
backwardness; then national industrialization as the essential and leading factor in
economic development.
The surging of popular protests around the world and the little victories won such as
momentarily stymieing the WTO prove that the bastions of elite power and privilege are
not invincible. The surging too of peoples struggles in the Philippines shows that the
Filipino people are grasping the only truly liberating alternative.

The 1946 US decision to grant the Philippines its independence inaugurated a period of
prosperity in the country. For a number of geo-strategic reasons, in the wake of the Second
World War the Americans were willing to let the Philippine government pursue policies that they
ruled out elsewhere.
The Philippine government was allowed to implement independent policies that fostered the
countrys economic development. However, American tolerance was short-lived. From 1962
onwards, and with the backing of the IMF and the World Bank, the Conservatives (who had won
a majority of seats in the Philippine Congress in the 1959 elections) imposed radically different
policies. These new policies sparked massive capital flight, crippling debts, devaluation, and a
drop in wages for the population. It was in this context of crisis that Ferdinand Marcos declared
martial law in 1972. The dictator earned the admiration of the World Bank for pursuing policies
very much in line with Washingtons expectations. Massive corruption increased popular
discontent and brought about the downfall of Ferdinand Marcos and his replacement by
Corazon Aquino in 1986. Aquino was the leader of the democratic opposition but was also
closely connected to the plantation owners. She carried out intransigently neoliberal economic
policies bearing the unmistakable imprint of the World Bank. To be sure, this was a great
disappointment to the people.

The Philippines remained a Spanish colony until 1898, when Spain was defeated in a war
declared by the United States. The US then occupied the country itself; this occupation was

interrupted by the Japanese occupation during the Second World War. In 1946, the US granted
the Philippines independence in exchange for its acceptance of a number of conditions: a fixed
exchange rate between the Philippine peso and the American dollar to protect US companies
against the effects of devaluation; free- trade agreements, and so forth. At the beginning, the
arrangement worked relatively well since the US was bringing in a large amount of dollars to the
Philippines, primarily through its strong military presence in the country.
However, in 1949 the flow of dollars slowed down dramatically. The Philippine government
established strict exchange controls to avoid a heavy drain on the currency. Private companies
were forbidden to borrow money from foreign investors. The US government and
the IMF tolerated this measure in order to stay on good terms with their Philippine ally. The
introduction of controls over currency exchange, capital flows and imports sparked an economic
boom in the country, driven in particular by the growth of industry. This period of economic
growth ended twelve years later, in 1962, when the control measures were abandoned under
pressure from the United States, the IMF and the World Bank.
During the 1950s, the manufacturing sector grew annually from 10 to 12%, the
annualinflation rate was kept below 2%, foreign-exchange reserves were strong and the
external debt was extremely low. However, this was not to everyones liking; American and other
foreign companies complained about having to reinvest all their profits in the countrys economy.
Capitalist export firms were forced to deposit their hard-currency export earnings in the Central
Bank, which returned them in pesos at an unfavorable rate. This was a source of enormous
revenue for the state. In 1954, bolstered by its success, the Philippine government demanded
that the US alter the rules of the game laid down in 1946 at the time of independence.
Washington submitted to this demand, which strengthened the position of the Philippine
Of course, one has to be careful not to idealize the achievements of the Philippines in this
period. It remained a profoundly unequal capitalist society, and industrialization did not go much
beyond assembly and light manufacturing. Nevertheless, the situation of the 1950s was
certainly promising in comparison with all that has transpired since 1962. Indeed, it was these
promising developments that triggered the united offensive led by the US, the IMF and the
World Bank together with the most conservative sectors of the Philippine ruling classes
aimed at putting an end to the experience.
In 1962, the Conservatives, who had won a majority in the Philippine Congress after the
elections of 1959, eliminated controls on capital movements. The IMF and the US government
showed their approval by immediately granting a loan of 300 million dollars. The elimination of

controls led to massive capital flight towards foreign countries; the resulting deficit was financed
by one set of external loans after another. The external debt increased sevenfold between 1962
and 1969 from 275 million to 1.88 billion dollars!
Transnational corporations and Philippine exporters of agricultural products and raw materials
rejoiced as their profits jumped. On the other hand, the manufacturing sector oriented toward
the domestic market rapidly declined. In 1970, the peso had to be sharply devalued. The
incomes and earnings of small producers slumped.
It was in this context of a crisis of the policies supported by the United States, the IMF, the
World Bank and the Conservatives, that Ferdinand Marcos set up a dictatorship in 1972. His
objective was to consolidate neoliberal policies through force.
One year later, on the other side of the Pacific, Augusto Pinochet took power in Chile with
exactly the same objectives, the same overlords and the same backing!
The role of the World Bank
The first loans granted by the World Bank to the Philippines date back to 1958. But the loans
remained extremely low until Robert McNamara became World Bank president in 1968.
McNamara argued that the Philippines where there were American military bases, as in
Indonesia and Turkey was of such strategic importance that it was absolutely necessary to
strengthen its ties to the World Bank. Lending money was a way to get greater leverage. World
Bank historians do not mince words: McNamara and his staff were annoyed at the way the
Philippines legislature was stalemating policy reforms. Thus the Philippines was an instance in
which martial law triggered the takeoff of Banking lending. Marcos dismissed the legislature and
started ruling by presidential decree in August 1972. McNamara and the Bank staff welcomed
the move |1|. One of the first measures taken by the Marcos dictatorship was the removal of
the ceiling on public indebtedness, initially established by the Philippine Parliament in 1970. The
regulation had established a debt margin of one billion dollars with an annual ceiling of 250
million dollars. Marcos put an end to this limitation, to the great satisfaction of the World Bank |
2|. McNamara announced that the World Bank was ready to at least double the amounts
granted |3|. At the time it was too late to increase the loans granted for 1973, much to
McNamaras displeasure. That is why the Bank did the job in double quick time and increased
by 5.5 times the total amount for 1974 (165 million instead of 30 |4|).
The World Bank and the IMF publicly supported the dictatorship to such an extent that they held
their 1976 annual general meeting in Manila. That year, Bernard Bell, Vice President of the Bank

for East Asia and Pacific Region, declared: The risk in lending to the Philippines was lower than
for Malaysia or Korea |5|. It is also worth noting that the World Bank established one of the
three centres of research on the green revolution in the Philippines, in partnership with the Ford
and Rockefeller Foundations.
However, Ferdinand Marcos did not quite carry out the economic policy the Bank had hoped for.
The World Bank was disappointed since it was on very good terms with the dictator and the
team of academics he had gathered around himself some of whom became later officials of
the Bank, such as Gerardo Sicat, Secretary for Planning and then President of the Philippines
National Bank, the main bank of the country.
The World Bank did not criticize in the slightest the regimes repressive measures. However, it
was concerned about the slowness with which structural reforms were being implemented. It
wanted the dictatorship to replace what remained of the import-substitution industrialization
model with the export-oriented industrialization model that it championed. In order to exert
greater influence on the Filipino government, the Bank decided to grant two huge structuraladjustment loans in 1981 and 1983, aimed at export-promotion. The Bank was perfectly aware
of the fact that most of these funds ended up in the bank accounts of Marcos and his generals;
nevertheless, it considered it worthwhile to pay off members of the ruling clique in exchange for
an acceleration of the neoliberal counter-reform.
At this juncture, in 1981, a banking crisis broke out in the Philippines due to a huge case of
corruption involving the capitalists and sections of the state bureaucracy. The crisis spread
gradually to the whole financial system, threatening the two largest public banks with
bankruptcy. The crisis spread from 1981 to 1983-1984 and was exacerbated by the external
debt crisis that broke out internationally in 1982. Foreign private banks stopped granting credits
to the Philippines. This was a clear failure for the World Bank and its good friends, Ferdinand
Marcos, Gerardo Sicat and Prime Minister Cesar Virata.
Popular discontent rose sharply. A number of key sectors of the ruling classes clashed with the
Marcos regime. The crisis deepened following the murder of one of the members of the landed
oligarchy opposed to Marcos: Senator Benigno Aquino, previously exiled to the United Sates,
was shot down at Manila airport upon his return to the country in August 1983.
In spite of the growing opposition to Marcos, the World Bank opted to stand behind the dictator.
Departing from its plans, it massively boosted its loans to the Philippines: 600 million dollars in
1983, or more than double the previous years loans of 251 million dollars. World Bank
historians write that it was a matter of loyalty towards a good friend |6|.

Popular mobilizations became more radical until the opposition within the ruling classes and the
Army removed Marcos. They did so with the assistance of the Americans represented in
Manila by Paul Wolfowitz |7|
who supported the Marcos regime until the end and then forced him into exile |8|. Corazon
Aquino leader of the opposition among middle-class and landed sectors and widow of
Benigno Aquino took over the reins of power in 1986.
The World Bank then hesitated over which course to follow. The World Bank President for East
Asia and Pacific Region, Attila Karaosmanoglu (see the chapter on Turkey), wrote a rather
unenthusiastic internal note on the new democratic regime: We expect that the decision making
process will be more difficult than in the past, because of a more collegial nature of the new
team, the enhanced role of the legislative branch and the populist tendencies of the new
government |9|. Finally the World Bank, the IMF and the US sought to make the best of the
situation by backing president Corazon Aquino since she had made a commitment to keep her
country on the right side and even to deepen the neoliberal reforms. The World Bank lent 300
million dollars in 1987 and 200 million in 1988: it was all about greasing the wheels of the
privatization of state-owned firms. Between 1989 and 1992, the World Bank lent the Philippines
1.3 billion dollars to finance structural adjustment. The US threatened to block these loans in the
event that the Philippines carried out its plan to close American military bases on its territory.
As for the land reform demanded by the powerful popular movement that led to the overthrow of
Marcos and became even stronger in 1987, Corazon Aquino sided with the landed oligarchy she
came from. Between 1986 and 1990, the state only acquired 122 hectares |10|!
All told, the government of Corazon Aquino went even further than Marcos as far as the
implementation of neoliberal policy prescriptions was concerned. This was cause for great
satisfaction at the World Bank.