IMPACT OF IMF SAP IN THE PHILIPPINES

pleasant day everyone. This is my critique of the article entitled The impact of international monetary
fund or IMF structural adjustment policies or SAP on the Philippines.

article citation, the title, the impact of international monetary fund or IMF, structural adjustment
policies or SAP on the Philippines authored by Ferdinand T. Abocejo. It was published in the journal
recoletos multidisciplinary research journal, volume number two number one, the year 2014 total
pages six.

The research question addressed in this study is: what is the impact of international monetary fund or
IMF structural adjustment policies or SAP on the on the Philippine economic performance.

The theory examined in this study is whether the adherence by the Philippines to IMF loan
conditionalities pertaining to liberalisation, export oriented economic efficiency, privatization of state
owned assets, reducing government expenditures and streamlining the bureaucracy did not significantly
benefit the country.

For everyone's information. The International Monetary Fund or IMF is an organization of 190 countries
working to foster global monetary cooperation, secure financial stability, facilitate international trade,
promote high employment and sustainable economic growth and reduce poverty around the world. The
IMF has three main functions, overseeing economic development, lending and capacity development.
When a country borrows from the IMF, its government agrees to adjust its economic policies to
overcome the problems that led it to seek financial aid. These policy adjustments are conditions for IMF
loans and serve to ensure the country will be able to repay the IMF.

For its research methodology, the study utilized critical analysis approach to evaluate secondary data
from government statistics. The bangko sentral ng Pilipinas or BSP, World Bank, IMF and articles from
online referred journals. Analysis were focused on IMF prescribed SAP loan conditionalities pertaining to
liberalisation, export oriented economic efficiency, privatization of estate owned assets, reducing
government expenditures and streamlining the bureaucracy.

For each loan conditionalities analysis, the author presented graph one on Philippines external loans
from wb IMF and ADB from 1990 to 2011. This was sourced from bangko sentral ng Pilipinas 2012.

As we can see here, there is a graphical analysis showing the external loans availed by the Philippines
from World Bank, IMF and Asian Development Bank from 1990 to 2011. For the IMF loan, the
Philippines has never been out of the debt roster of the IMF until 2006 when the Philippine government
prepaid its remaining obligations to the fund and exited a post program monitoring agreement or
arrangement for countries whose borrowing scheme has expired but still owe the fund money.

The following are the salient points cited in the loan conditionalities analysis. The Philippines had its own
first loan from the IMF in 1962. The condition which came with a loan was the removal of the foreign
exchange controls, which resulted to abrupt Philippine peso devaluation vis-à-vis the U.S dollar. In the
years that followed until early 2000, the country availed 24 IMF loans, amounting to more than 3.0
billion US dollars, and about special drawing rights, or SDR amounting to 3.1 billion. Each of these loans
were contained under the standard stabilization program of the IMF bearing tight monetary and fiscal
policy measures. Operationally, IMF loans in the same way as WB loans come with policy
conditionalities and performance target for the borrowing country for this paper the Philippines.

Some of IMF prescribed SAP loans for the country include conditionalities on liberalisation, export
oriented economic efficiency, privatization of estate owned assets, reducing government expenditures,
particularly in view of burgeoning annual budget deficits, bureaucratic streamlining, taxation reforms
and imposition of new taxes, currency devaluation, and increasing domestic interest rates, among
others.

Basically, the policy routes pursued by successive Philippine presidents from Cory Aquino until Gloria
Arroyo government are all SAP driven. This is understandable, because the IMF had been extending
huge amounts of loans to the country since the Marcos regime. It is therefore not surprising that the
need for IMF continued loan commitments influenced the national government leadership's for many
decades, as manifested by the country's faithful adherence to IMF’s prescribed conditionalities. Under
SAP’s, the increased role of the market is viewed to benefit both the poor and the rich countries in a fair
liberalisation network between trading partners. Objectively free market economic development, which
puts the emphasis on the greater role of the private sector was envisioned as the primary stimulus for
sustainable economic growth and development.

For the country program assessment and analysis, the author presented graph two, which shows
selected Philippine government spending from 1981 to 2006 as a percentage of national budget, as
noted by the author, the period 1984 to 1993 witnessed the Philippines receiving 15 structural
adjustment and stabilization loans from both IMF and World Bank, instead of utilizing the loans for
productive investments, said loans were redirected to service the government 26 billion US dollar debt
at that time, mainly as interest payments to Japan, USA and European international creditor banks. In
addition, about 50% of government budget had been allocated to debt servicing through the 1980s,
representing about seven to 10% of the Philippines’ annual GDP. As a result, there was a shift in the
national policy directions to debt repayment, right. Rather than mobilizing the economy back on its own
growth path.

The effects of the economy by particular SAPs were also presented by the author first on trade
liberalization. trade liberalisation was done by way of stripping of restrictions of more than 900 items
and significant reduction in nominal tariff protection. its effect on the economy include liberalisation
mechanism, mechanism efforts failed to consider the onset of global recession is that period. Thus,
aggregate exports contracted instead of expanding, while imports disproportionately increased. It also
caused severe erosion on the country's industries, which were left unable to compete in the open
market. Next, liberalisation had a weak if not negative impact of actual employment output levels in
some sectors. There were also unexpected effects resulted from the incomplete and politically
sequenced approach of the policy reforms, such as exchange rate overvaluation and some forms of
policy inconsistencies. There were also weak responses in some sectors, which are viewed to benefit
from the reforms like those sectors, which registered investment declines compared with the period
before liberalisation and even those sectors having natural comparative advantage in the Philippine
context.

The next SAP, which the effects were also extensively discussed where the author was on privatization.
Privatization as one of IMF SAP prescribed policies in vision to widen the participation of private sector
in public services. Hence allow business initiatives taking over privatized government functions. its
effects on the economy for the first time in 1995. Since many years, the Ramos government was able to
realize budget savings from the sales of public assets. Ironically, however, why privatization was has
ensured the government with more available funds for foreign debt servicing, the amount of foreign
debts continued to increase rather than diminish.

In part, the privatization has led to the creation of local monopolies in the country's capital market.

In conclusion, the author stated as a whole that the impact of IMFs prescribed is a piece on the
Philippine development has been mixed. The adherence by the government to SAP driven policies and
programs have narrowed down the national government's budget deficit, but has never drive the
Philippines out from higher expenditures than revenues. In particular, the SAP’s conditionality on
reducing government expenditures, (while faithfully responding to debt servicing) resulted to a decline
in the share of national expenditures on social services, e.g education and health services.

Next, IMFs prescribed structural adjustment policy implementation did not bring favorable
developments on the Philippines’ economic endeavors. The country has not gained with its short term
stabilization measures of government expenditures cutbacks, increased interest rates and currency
devaluation.

The policy recommendations made by the author as follows:

First, the Philippines should keep the status quo of not going back to the IMF loan portfolio. The
country can find other sources to propel growth and development away from IMF borrowing. Next is to
continue to engage in avail of the funds expertise on monetary and international banking practices on
consultation best basis. SAP reforms may be pursued with the end goal of realizing a positive impact on
poverty alleviations and without underpinning the much needed resources for basic health, education
and social services delivery programs, beneficial to the large and will vulnerable groups of the populace.
Tax collections efficiency has to be improved and sustained especially for the high income groups, which
oftentimes manipulate and lobby the government for their own benefits instead of focusing on the
lower income, majority sectors of the society

Now we go to my assessment on the strengths and weaknesses of the study.

First, relevant SAP conditionalities were specifically identified by the author. However, he failed to
examine if the SAP conditionalities were met. Moreover, he direct relationship with our poor economic
development, and the particular conditionality imposed must not established or discussed.
Second, the author used graphs to visualize and perform analysis on the Philippines external loan and
spending over a given period. However, there was no graph analysis on the on the economic
performance indicators of our country. Specifically the GDP, the CPI, unemployment rate, etc, which
have been relevant in the analysis of the impact of the IMF-SAP conditionalities. Third, the graphs
presented clearly the trend of external loans and expenditures of our country. However, the two graphs
did not present the same length of timelines. The external debt graph was for 1990-2011. While the
expenditure graph was for 1981-2006, which is the timelines were the same, could have been analyzed
and compared together.

Fourth, country program assessment and analysis is made from discussions sourced from various
reliable sources. However, economic performance indicators such as GDP, CPI, unemployment rate, etc,
were not included in the assessment and analysis. Fifth, negative effects were identified that resulted
from the trade liberalisation. However, government actions or lack thereof to support local businesses
when trade was liberalized, was not mentioned or identified. Finally, annual expenditures allocation was
clearly presented. However, analysis of government revenues were not presented. Its trend over the
years (whether increasing or decreasing), will may as well reflect the impact of the IMF loan availment
and it's conditionalities.

For my overall assessment, the study had comprehensive sources of materials that were analyzed
extensively. However, the impact of the IMF loan availment maybe more assessed clearly unfairly, with
the inclusion in the study, the economic performance indicators for example, GDP, CPI, unemployment
rate, etc, as well as revenues generated by the government. Moreover, a clear relationship between the
conditionalities or SAPs and the negative effects in our economy may also have been more clearly
identified or expounded there rather than stating the outcome that happened after complying with a
particular SAP. In particular, devaluation of Philippine peso versus US dollar after removal of foreign
exchange controls. Note that the foreign exchange rate is affected by numerous factors (e.g inflation
rates, interest rates, etc.)

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