Economic Performance

Once known as the “sick man of Southeast Asia,” the Filipino economy has performed relatively well
since the late 2000s. Despite a difficult global environment, the Philippines were one of the fastest
growing economies in East Asia. GDP is expected to grow up to 7% in 2016, after 5.9% in 2015 and 6.2%
in 2014.The World Bank forecasts a 6.2% GDP growth for 2017. Growth was largely driven by robust
private and public consumption, the booming business process outsourcing (BPO) industry and a
probably overheating construction sector.

Additionally, strong overseas remittances boosted domestic consumption. In the first half of 2016,
Overseas Filipino Workers (OFWs) remitted $14.6 billion to the country representing a 3.1-% rise year-
on-year.

Inflation remained very low at 1.6% in 2016 and 1.4 in 2015, respectively. According to the National
Statistics Office the employment rate in December 2016 was estimated at 94.5%. According to the same
statistics, 2.367 million Filipinos were unemployed in December 2016, most of them male (62.8%) and
between 18 and 24 years old (48.4%). The number of underemployed people reached 18.3 million
people of a complete workforce of 68.125 million persons

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Economic performance

The growth of per capita GDP has only reached 0.8 % since 1998. The overall increase in GDP is also
unsatisfactory in view of structural problems and high population growth. According to international
organizations such as the World Bank and the IMF, targeted average growth rates of 5 % can only be
realized if international conditions are favorable and rapid and effective reforms are implemented. In
this context, the national debt and the predicament of the financial system are as much a cause for
concern as the extremely low investment ratio, the slump in export growth and the weakness in
government revenues.

Unemployment of approximately 11 % conceals the high degree of underemployment in the agricultural

sector. Foreign debt has already clearly exceeded the 1997 level. The high inflation rate, however, which
stimulated the economy in 2000 and 2001 in the course of an expansive monetary policy from the
central bank, has clearly dropped in 2002. Despite an adverse international economic environment, the
Philippines have achieved surpluses in the balance of trade and the current account balance.

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The truth about the economy under the Marcos regime

Introspective

Emmanuel S. de Dios

Posted on November 16, 2015

Nearly three decades after it ended, still no proper account has been written of the economy under
authoritarian rule, which is a big reason that Millennials have only an inkling of what transpired during
those years. It is also why one now hears the mind-blowing judgement that “Marcos was the best
president the country ever had.” And if you ask Millennials today who in their mind was the country’s
worst president, their likely answer is “Gloria Arroyo.” (Sigh.)

This is obviously no place to write an economic history (hanc columnis exiguitas non caperet). But there
may be enough room to correct a few bad habits when thinking about the Marcos period.

A common foible is selectivity: Marcos-admirers wax nostalgic about the “earlier years” of martial law
but forget its later consequences. Ah, yes... remember when order and discipline seemed to reign, grand
industrial and infrastructure plans were in the works, governance was discharged by a simple snappy
salute, newspapers carried no muckraking reports about corruption, spanking new hotels were on the
rise, a glittery cultural scene was on display, and foreign celebrities, bankers, and business people
regularly came in and out -- not to mention the beauty pageants! What was not to love?

The customary counterpoint to this has been to cite the gloomy human rights record: arbitrary arrests,
disappearances, suppression of dissent and civil rights, and the brutal war on Muslim rebels in the
south. But all this is typically swept aside by the regime’s lovers as being the “necessary cost” of all that
economic progress -- and in any case, it is argued, these were just the concern of a few Leftist activists
and some collateral victims.

That argument might hold some plausibility if the economic record was brilliant to begin with. But it was
not. And here one needs to underscore the importance of assessing the entire period of authoritarian
rule, from late 1972 to early 1986.

Take gross domestic product (GDP) for instance: the average GDP growth rate from 1972 to 1985
(Marcos’s last full year) was all of 3.4% per annum. Per-capita GDP grew annually at less than 1%
average over the period -- more precisely 0.82%. Hardly a roaring-tiger performance. At that rate it
would have taken 85 years for per capita income just to double.

For comparison, the average GDP growth from 2003 to 2014 -- even under a bumbling and quarrelsome
democracy -- has been 5.4% per annum -- with a rising trend. On a per capita basis, GDP today is rising
3.5% annually, more than four times the growth rate under the dictatorship.

The reason for the dismal performance under martial law is well understood. The economy suffered its
worst post-war recession under the Marcos regime because of the huge debt hole it had dug, from
which it could not get out. In fact, all of the “good times” the admirers of the regime fondly remember
were built on a flimsy sand-mountain of debt that began to erode from around 1982, collapsing
completely in 1984-1985 when the country could no longer pay its obligations, precipitating a debt
crisis, loss of livelihood, extreme poverty, and ushering in two lost decades of development.

The economy’s record under Marcos is identical to that of a person who lives it up on credit briefly,
becomes bankrupt, and then descends into extreme hardship indefinitely. It would then be foolish to
say that person managed his affairs marvelously, citing as evidence the opulent lifestyle he enjoyed
before the bankruptcy. But that is exactly what admirers of the Marcos regime are wont to do.

It is instructive that neither Thailand, Indonesia, Malaysia, nor any major Asian country catastrophically
experienced negative growth in the early 1980s. The Philippines was the exception, following instead
the example of protectionist and over-borrowed Latin American countries. This suggests that there was
nothing unavoidable about the crisis the Philippines suffered, and that it was the result instead of failed
policies. In 1977 the Philippines’ total debt was all of $8.2 billion. Only five years later, in 1982, this had
risen to $24.4 billion. Thailand’s debt in 1982 was still only half that amount. Thailand and other
countries of the region thus avoided a debt crisis and ultimately went on to attract foreign direct
investments in export-oriented industries in the now-familiar East Asian pattern. But no such thing
happened under Ferdinand E. Marcos, notwithstanding the arguments and exhortations of people like
Gerardo P. Sicat (who would cease to be active in the regime by 1980). By the early 1980s, the pattern
would be set where foreign direct investments in neighboring countries regularly outstripped those in
the Philippines. (The intermittent coups d’etat post-Marcos did us no favors either.)

All this should correct the common misconception that the country’s troubles stemmed entirely from
conjunctural “political factors,” notably that it was caused by ex-Senator Benigno “Ninoy” S. Aquino, Jr.’s
assassination. One might not even entirely blame the mere fact of authoritarianism itself -- after all
Thailand, Indonesia, and Malaysia at the time were also ruled by despots of some sort or other, yet
suffered no crisis. Rather the Philippine debacle was linked to the misguided policies that were
structurally linked and specific to Marcos-style authoritarianism. For all its technocratic rhetoric and
rationale, the Marcos regime never took economic reform, liberalization, and export-oriented
industrialization seriously; it remained a heavily protectionist and preferential regime (think the cronies
and the failed major industrial projects). The availability of easy loans was well suited to the priorities of
a regime that thought it could stoke growth without deep reform and slake the greed of Marcos and his
cronies at the same time. In the end a corrupt regime fell victim to its own hubris.

In three decades more, the whole Marcos episode will probably be regarded as no more than an
avoidable nightmare; a wasted opportunity; a bump on the road on the country’s ultimate march to
development.

But this narrative, for different reasons, is unpalatable to many of the regime’s lovers.

Indeed, one of the “alternative truths” propounded by some otherwise respectable people is that the
fatal flaw of the Marcos period was really just the fact that Marcos failed to provide for a proper
succession -- as if the regime’s logic of patronage would have allowed it to behave otherwise.

A more pedestrian version of it, however, simply says Marcos gave Imelda too much power. The story
runs as follows.
There were really two Marcoses: Marcos B.C. and Marcos A.D., i.e. “before concubinage” and “after
Dovie” (kids, you can ask your grandparents what this refers to).

Marcos B.C. was a statesman, out for greatness for himself, brooking no deviation from his vision of the
nation’s future.

But Marcos A.D. was a weakling hostage to his vengeful wife, who exacted inordinate power as the price
of the discovery of her husband’s indiscretion. It was she and her obscene taste for extravagant projects
that caused the country to run huge debts; she and her ambition and greed that skewed policy making
and ruined the chances of an orderly political succession. Imelda in short was the real villainess; Marcos
by contrast was little more than a hapless victim of spousal politics, a tragic hero ruined by guilt, having
falling victim to that all-too human weakness -- the need for love! It’s an almost Shakespearean story
(think Antonius and Cleopatra) of an entire nation’s fate being determined by human passions and
foibles.

For some, this “alternative truth” will continue to be more riveting than any dry economic history based
on real facts and hard economics. (Sigh.)

Emmanuel S. de Dios is an Oscar M. Lopez professor at the University of the Philippines School of
Economics and a fellow of Institute for Development and Econometric Analysis (IDEA).

ededios@gmail.com

www.idea.org.ph

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Philippines: The Marcos debt

by Eduardo C. Tadem

5 November 2018
Another compelling argument against the “hero’s burial” for Ferdinand Marcos was his corruption-
ridden mismanagement of the country’s debt. At the height of martial law in 1977, he issued
Presidential Decree 1177 mandating the automatic appropriation for debt service, thus starting the
process that continues to this day of prioritizing debt repayments before budget allocations for social
and economic services and other government expenditures. The Philippines is the only country in the
world with such an automatic debt appropriation law, Walden Bello says.

In the 1970s Marcos took out huge amounts of foreign currency loans that by the 1980s his regime
could not repay. He tried to hide the dire financial situation by overstating the figures for foreign
reserves. By then the economy was in a free fall: GDP growth dropped 5.3 percent, prices of primary
export commodities fell by 50 percent, workers’ wages were reduced, and unemployment hit one-
fourth of the labor force. The crisis worsened with the assassination of Ninoy Aquino in August 1983. As
foreign banks withheld their credit facilities, Marcos declared bankruptcy in October 1983 and sought a
90-day moratorium on principal debt payments. The World Bank provided bailout loans to avert a
default but with painful conditions like cutting the government budget, peso devaluation, tariff
dismantling, and ending subsidies. Marcos had become the proverbial debt addict wholly dependent on
foreign aid.

The Philippines is the only country in the world with such an automatic debt appropriation law

Cronyism became more rampant as Marcos prioritized the bailout of companies owned by his friends
and close business associates. The Freedom from Debt Coalition cited the proliferation of behest loans
with government guaranteeing the procurement of borrowed capital without complying with banking
rules and procedures. The most notorious case was the $2-billion Bataan Nuclear Power Plant, which
was completed in 1985. Total repayments, which ended only in 2007, reached $22 billion, with a debt
service of $140 million a year, $12 million a month, and $388,000 a day. Marcos, through a crony, was
reported to have received an $80-million payoff.

Ibon Databank reported that the Philippine debt in 1983 comprised 91 percent of GNP and 509 percent
of export earnings. In addition, the loans became costlier as creditors imposed higher and floating
interest rates. When Marcos became president in 1965, the total debt was $600 million; by the time he
was ousted in 1986, it had ballooned to $26 billion—a 4300-percent rise.

Mamoru Tsuda and Gus Yokoyama wrote in 1986 that hearings by the US House subcommittee on Asia-
Pacific affairs revealed that “Japanese corporations had paid rebates to Marcos and his cronies, as well
as to financial groups allied with the former President, in connection with Japanese yen loans to the
Philippines.” Total commissions—in reality, bribes—allegedly paid by five Japanese corporations
amounted to $1.03 million.

In April 1986, the Commission on Audit accused Marcos of diverting US aid funds, particularly the
interest earnings of P236 million from the Economic Support Fund (ESF) which were illegally disbursed
and classified as “confidential fund” via a Malacañang memorandum. The COA also reported the
“irregular and illegal” diversion of P35 million to the “confidential fund” of the ESF Council headed by
Imelda Marcos.

A May 1986 report by the UP School of Economics said: “The foreign debt incurred by the old regime is
one of the biggest obstacles to Philippine economic recovery. The Philippines is one of the most heavily
indebted countries in the world: seventh in size of debt, sixth in debt to exports ratio, fourth in debt to
GDP ratio, and ninth in debt service ratio.”

The UP report also said that “most of the projects financed by the foreign loans were unproductive; …
not well chosen or were probably chosen precisely to finance capital flight through the overpricing of
projects.” Furthermore, projects were found to be “overpriced, mismanaged, not viable to begin with,
or made unviable by changes in exchange rate and the international environment.”

As a result, the government had “to squeeze basic services and maintenance expenditures, reduce
investment in infrastructure, incur huge deficits, and raise taxes and user fees to service the debt,” the
UP report said.

Source: Inquirer.net

Eduardo C. Tadem PhD, is professorial lecturer of Asian studies at UP Diliman and president of the
Freedom from Debt Coalition.