A World of Regions

Ken Drexel Q. Cadano

Foreign and Economic Policies
• The Philippine Development Plan 2011-2016 adopts a framework of
inclusive growth, which is high growth that is sustained, generates
mass employment and reduces poverty.
• Through this plan, we intend to purse rapid and sustainable economic
growth and development, improve the quality of life of the Filipino,
empower the poor and marginalized and enhance our social cohesion
as a nation.
• The Philippine Development Plan will serve as our guide in
formulating policies and implementing development programs.
Development Planning (1)
• The responsibility for economic planning was vested in the National
Economic and Development Authority. Created on January 1973.
• Expansion of employment
• Maximization of growth
• Attainment of fiscal responsibility
• Monetary stability
• Provision of infrastructure
• Equittable distribution of income

Produced by Marcos administration for 1974-77, 1978-82, 1983-88

• The National Economic and Development Authority Medium-Term
Development Plan, 1987-92 reflected Aquino’s campaign themes:
• Elimination of structures of privilege and monopolization of the economy
• Decentralization of power and decision making
• Reduction of unemployment and mass poverty, particularly in rural areas
• The private sector was described as both the “initiator” and “prime
mover” of the country’s development; hence, the government was
“to encourage and support the private initiative,” and state the
participation in the economy was to be minimizes and decentralized.
• The plan also involved implementing more appropriate, market-
oriented fiscal and monetary policies, achieving a more liberal trade
policy based on comparative, advantage and improving the efficiency
and effectiveness of the civil service as well as better enforcement of
government laws and regulations.
Development Planning (2)
• Economic performance fell far short of plan targets. For example, the
real GNP (Gross National Product) growth rate from 1987 to 1990
averaged 25 percent less than the targeted rate, the growth rate of
real of real imports was well over double.
• The Philippine government has undertaken to provide incentives to
firms, both domestic and foreign, to invest in priority areas of the
economy since the early 1950s. In 1967, an Investment Incentive Act,
administered a Board of Investment (BOI) was passed to encourage
and direct investment more the economy beyond import substitution
manufacturing.
• The investment incentive system was revised in 1983 and again in
1987 with the goal of rewarding performance, particularly exporting
and labor-intensive production. As a result of objections made by the
United States and other industrial nations to export-subsidy
provisions contained in the 1983 Investment Code, much of the
specific assistance to exporters was removed in the 1987 version.
Fiscal Policy (1)
• Historically, the government has taken conservative stance on fiscal
activities. Until the 1979s, national government expenditures and
taxation generally were each less than 10 percent of GNP (Gross
National Product).
• Under the Marcos regime, national government activity increased to
between 15 and 17 percent of GNP, largely because of increased
capital expenditures and, later, growing debt-service payments.
Expansionary Fiscal
• Strategy of the government to increase the level of the economy.
• The whole output is lower than what is expected because the
resources are not being used.
• One strategy is to build infrastructure
• The larger the income, the higher level of the economy
• The lower the tax, the higher demands in the market
Contractionary Fiscal
• Strategy of the government being done when there is a threat of
increase of all the prices in the market
• Overheated economy – extreme increase in the production and
demand
• Demand will increase, as well as decrease in production
• Expecting the slow in the movement of economic level, will result to
inflation
• Chronic government budget deficits were covered by international
borrowing during the Marcos era and mainly by domestic borrowing
during the Aquino administration.
• Over time, the apportionment of government spending has changed
considerably. In 1989, the largest portion of the national government
budget (43.9 percent) went for debt servicing. Most of the covered
economic services and social services, including education.
• The Aquino government formulated a tax reform program in 1986
that contained some thirty new measures. Most export taxes were
eliminated; income taxes were simplified and made more progressive;
the investment incentives system were revised; luxury taxes were
imposed; and beginning in 1988, a variety of sales taxes were
replaced by a 10 percent value-added tax – the central feature of the
administration’s tax reform effort.
• Some administrative improvements also were made. The changes,
however, did not affect an appreciable rise in the tax revenue as a
proportion of GNP.
Fiscal Policy (2)
• Problems with Philippine tax system appear to have mo to do with
collections than with the rates. Estimates of individual income tax
compliance in the late 1980s ranged between 13 and 27 percent.
• Low collection rates also reinforced the regressive structure of the tax
system. The World Bank calculated that effective tax rates (taxes paid
as a proportion of income) of low-income families were about 50
percent greater than those of high-income families in the mid-1980s.
• The consolidated public sector deficit – the combined deficit of
national government, local government, and public-sector enterprise
budgets – which had been greatly reduced in the first two years of the
Aquino administration.
• A new standby agreement between the government and the IMF in
1991 committed the government to raise taxes and energy prices.
Although the provisions of the agreement were necessary in order to
secure fresh loans, the action increased the administrator’s already
fractious relations with Congress.
Monetary Policy (1)
• The Central Bank of the Philippines was established in June 1948 and
began operation the following January. It was charged with
maintaining monetary stability; preserving the value and convertibility
of the peso; and fostering monetary, credit, and exchange conditions
conducive to the economic growth of the country.
• From the time it began operations until the early 1980s, the Central
Bank intervened extensively in the country's financial life. It set
interest rates on both bank deposits and loans, often at rates that
were, when adjusted for inflation, negative.
Monetary Policy (2)
• At the start of the 1980s, the government introduced a number of
monetary measures built on 1972 reforms to enhance the banking
industry's ability to provide adequate amounts of long-term finance.
• Monetary and fiscal policies that were set by the government in the
early 1980s, contributed to large intermediation margins, the
difference between lending and borrowing rates. In 1988, for
example, loan rates averaged 16.8 percent, whereas rates on savings
deposits were only slightly more than 4 percent.
Expansionary Money Policy
• BSP’s strategy to encourage businessmen to open up a business that
will eventually help in promoting economic stability
• Low interest rate in business loans
• Promotes wide employment
• Promotes continuous flow in the market
Contractionary Money Policy
• a strategy used by a nation's central bank during booming growth periods to slow
down the economy and control rising inflation.
• The BSP uses three main contractionary monetary tools: increasing interest rates,
increasing banks’ reserve requirement, and selling government securities.
• The primary purpose of contractionary monetary policy is to make it harder for
companies and consumers to borrow and spend money and, in turn, halt
inflation.
Privatization
• When Aquino assumed the presidency in 1986, P31 billion, slightly
more than 25 percent of the government's budget, was allocated to
public sector enterprises--government-owned or government-
controlled corporations- -in the form of equity infusions, subsidies,
and loans.
• The proliferation of inefficient and unprofitable public sector
enterprises and bad loans held by the Philippine National Bank, the
Development Bank of the Philippines, and other government entities,
was a heavy legacy of the Marcos years.
• The Aquino administration established the Asset Privatization Trust in
1986 to dispose of government-owned and government-controlled
properties.
• Another seventy-four public sector enterprises that were created with
direct government investment were put up for sale; fifty-seven
enterprises were sold wholly or in part for a total of about P6 billion.
The government designated that about 30 percent of the original
public sector enterprises be retained and expected to abolish another
20 percent. There was widespread controversy over the fairness of
the divestment procedure and its potential to contribute to an even
greater concentration of economic power in the hands of a few
wealthy families.
Foreign Affairs
• Philippine foreign policy in the early 1990s was broadly prodemocratic and
pro-Western in orientation. Philippine international prestige was at an all-time
high when Marcos was overthrown.
• . As a charter member of the United Nations, the Philippines participated in
all its functional groups, such as the Food and Agriculture Organization; the
World Health Organization; the United Nations Educational, Scientific and
Cultural Organization; and the Economic and Social Commission for Asia and
the Pacific. In addition, the Philippines has been a member of the Association
of Southeast Asian Nations (ASEAN), the International Monetary Fund, the
World Bank, and the General Agreement on Tariffs and Trade. The Philippines
was a founding member of the Asian Development Bank, which is
headquartered in Manila.
• Article 2 of the Constitution states that "the State shall pursue an
independent foreign policy." For historical, economic, cultural, and
strategic reasons, the Philippines has been tied most closely to the
United States. Economic necessity dictated maintaining a smooth
working relationship with Japan. Filipinos wanted a foreign policy
oriented more toward their Southeast Asian neighbors, but for most
purposes implementing such a policy was not high on their agenda. T
Economic Planning and Policy
• The Philippines has traditionally had a private enterprise economy
both in policy and in practice. The government intervened primarily
through fiscal and monetary policy and in the exercise of its
regulatory authority
Filipino Nationalism
• Filipino nationalism, which is an important element of foreign policy,
showed every sign of intensifying in the early 1990s. Diverse elements
in Philippine society have been united in opposition to their common
history of foreign subjugation, and this opposition often carried an
anti-American undertone.
Relations with the United States
• Precisely because the "special relationship" between the United
States and the Philippines has been lengthy and intimate, it
sometimes has resembled a family feud. Aquino enjoyed great
prestige and popularity in the United States and was named Time
magazine's "Woman of the Year" for 1986. Aquino had spent much of
her early life in the United States and returned in September 1986 for
a triumphant tour of Washington, New York, Boston, and San
Francisco, culminating in an address to an emotion-filled joint session
of the United States Congress and a congressional pledge of strong
support for her government.