ECONOMIC PLANNING AND POLICY

Introduction

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. Although
expansion of public sector enterprises occurred during the Marcos presidency,
direct state participation in economic activity has generally been limited. The
Aquino government set a major policy initiative of consolidating and
privatizing government-owned and government-controlled firms. Economic
planning was limited largely to establishing targets for economic growth and
other macroeconomic goals, engaging in project planning and implementation,
and advising the government in the use of capital funds for development
projects. THE PHILIPPINE ECONOMY EXPERIENCED considerable
difficulty in the 1980s. Real gross national product (GNP) grew at an annual
average of only 1.8 percent, less than the 2.5 percent rate of population
increase. The US$668 GNP per capita income in 1990 was below the 1978
level, and approximately 50 percent of the population lived below the poverty
line. The 1988 unemployment rate of 8.3 percent (12.3 percent in urban areas)
peaked at 11.4 percent in early 1989, and the underemployment rate,
particularly acute for poor, less-educated, and elderly people, was
approximately twice that of unemployment. In 1988, about 470,000 Filipinos
left the country to work abroad in contract jobs or as merchant seamen.

The economy had grown at a relatively high average annual rate of 6.4 percent
during the 1970s, financed in large part by foreign-currency borrowing.
External indebtedness grew from $2.3 billion in 1970 to $24.4 billion in 1983,
much of which was owed to transnational commercial banks.

In the early 1980s, the economy began to run into difficulty because of
vc
the declining world market for Philippine exports, trouble in borrowing
on the international capital market, and a domestic financial scandal. The
problem was compounded by the excesses of President Ferdinand E.
Marcos's regime and the bailing out by government-owned financial
institutions of firms owned by those close to the president that
encountered financial difficulties. In 1983 the country descended into a
political and economic crisis in the aftermath of the assassination of
 Marcos's chief rival, former Senator Benigno Aquino, and circumstances
had not improved when Marcos fled the country in February 1986.

Economic growth revived in 1986 under the new president, Corazon C.

Aquino, reaching 6.7 percent in 1988. But in 1988 the economy once again
began to encounter difficulties. The trade deficit and the government budget
deficit were of particular concern. In 1990 the economy continued to
experience difficulties, a situation exacerbated by several natural disasters, and
growth declined to 3 percent.

The structure of the economy evolved slowly over time. The agricultural sector
in 1990 accounted for 23 percent of GNP and slightly more than 45 percent of
the work force. About 33 percent of output came from industry, which
employed about 15 percent of the work force. The manufacturing subsector had
developed rapidly during the 1950s, but then it leveled off and did not increase
its share of either output or employment. In 1990, 24 percent of GNP and 12
percent of employment were derived from manufacturing. The services sector,
a residual employer, increased its share of the work force from about 25 percent
in 1960 to 40 percent in 1990. In 1990 services accounted for 44 percent of
GNP.

The Philippines is rich in natural resources. Land planted in rice and corn
accounted for about 50 percent of the 4.5 million hectares of field crops in
1990. Another 25 percent of the cultivated area was taken up by coconuts, a
major export crop. Sugarcane, pineapples, and Cavendish bananas also were
important earners of foreign exchange. Forest reserves have been extensively
exploited to the point of serious depletion. Archipelagic Philippines is
surrounded by a vast aquatic resource base. In 1990 fish and other seafood from
the surrounding seas provided more than half the protein consumed by the
average Filipino household. The Philippines also had vast mineral deposits. In
1988 the country was the world's tenth largest producer of copper, the sixth
largest producer of chromium, and the ninth largest producer of gold. The
country's only nickel mining company was expected to resume operation in
1991 and again produce large quantities of that metal. Petroleum exploration
continued but discoveries were minimal, and the country was required to
import most of its oil.

Prior to 1970, Philippine exports consisted mainly of agricultural or mineral

products in raw or minimally processed form. In the 1970s, the country began
to export manufactured commodities, especially garments and electronic
components, and the prices of some traditional exports declined. By 1988
nontraditional exports comprised 75 percent of the total value of goods shipped
abroad.

Economic Theory