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Philippines Martial Law and its Aftermath, (1972-86)
The Philippines found itself in an economic crisis in early
1970, in large part the consequence of the profligate spending of
government funds by President Marcos in his reelection bid. The
government, unable to meet payments on its US$2.3 billion
international debt, worked out a US$27.5 million standby credit
arrangement with the International Monetary Fund
(IMF--see Glossary)
that involved renegotiating the country's external debt
and devaluing the Philippine currency to P6.40 to the United
States dollar. The government, unwilling and unable to take the
necessary steps to deal with economic difficulties on its own,
submitted to the external dictates of the IMF. It was a pattern
that would be repeated with increasing frequency in the next
twenty years.
In September 1972, Marcos declared martial law, claiming that
the country was faced with revolutions from both the left and the
right
(see Proclamation 1081 and Martial Law
, ch. 1). He gathered
around him a group of businessmen, used presidential decrees and
letters of instruction to provide them with monopoly positions
within the economy, and began channeling resources to himself and
his associates, instituting what came to be called "crony
capitalism." By the time Marcos fled the Philippines in February
1986, monopolization and corruption had severely crippled the
economy.
In the beginning, this tendency was not so obvious. Marcos's
efforts to create a "New Society" were supported widely by the
business community, both Filipino and foreign, by Washington,
and, de facto, by the multilateral institutions. Foreign
investment was encouraged: an export-processing zone was opened;
a range of additional investment incentives was created, and the
Philippines projected itself onto the world economy as a country
of low wages and industrial peace. The inflow of international
capital increased dramatically.
A general rise in world raw material prices in the early
1970s helped boost the performance of the economy; real GNP grew
at an average of almost 7 percent per year in the five years
after the declaration of martial law, as compared with
approximately 5 percent annually in the five preceding years.
Agriculture performed better that it did in the 1960s. New rice
technologies introduced in the late 1960s were widely adopted.
Manufacturing was able to maintain the 6 percent growth rate it
achieved in the late 1960s, a rate, however, that was below that
of the economy as a whole. Manufactured exports, on the other
hand, did quite well, growing at a rate twice that of the
country's traditional agricultural exports. The public sector
played a much larger role in the 1970s, with the extent of
government expenditures in GNP rising by 40 percent in the decade
after 1972. To finance the boom, the government extensively
resorted to international debt, hence the characterization of the
economy of the Marcos era as "debt driven."
In the latter half of the 1970s, heavy borrowing from
transnational commercial banks, multilateral organizations, and
the United States and other countries masked problems that had
begun to appear on the economic horizon with the slowdown of the
world economy. By 1976 the Philippines was among the top 100
recipients of loans from the World Bank and was considered a
"country of concentration." Its balance of payments problem was
solved and growth facilitated, at least temporarily, but at the
cost of having to service an external debt that rose from US$2.3
billion in 1970 to more than US$17.2 billion in 1980.
There were internal problems as well, particularly in respect
of the increasingly visible mismanagement of crony enterprises. A
financial scandal in January 1981 in which a businessman fled the
country with debts of an estimated P700 million required massive
amounts of emergency loans from the Central Bank of the
Philippines and other government-owned financial institutions to
some eighty firms. The growth rate of GNP fell dramatically, and
from then the economic ills of the Philippines proliferated. In
1980 there was an abrupt change in economic policy, related to
the changing world economy and deteriorating internal conditions,
with the Philippine government agreeing to reduce the average
level and dispersion of tariff rates and to eliminate most
quantitative restrictions on trade, in exchange for a US$200
million
structural adjustment loan (see Glossary)
from the
World Bank (see Glossary).
Whatever the merits of the policy shift, the
timing was miserable. Exports did not increase substantially,
while imports increased dramatically. The result was growing
debt-service payments; emergency loans were forthcoming, but the
hemorrhaging did not cease.
It was in this environment in August 1983 that President
Marcos's foremost critic, former Senator Benigno Aquino, returned
from exile and was assassinated. The country was thrown into an
economic and political crisis that resulted eventually, in
February 1986, in the ending of Marcos's twenty-one-year rule and
his flight from the Philippines. In the meantime, debt repayment
had ceased. Real GNP fell more than 11 percent before turning
back up in 1986, and real GNP per capita fell 17 percent from its
high point in 1981. In 1990 per capita real GNP was still 7
percent below the 1981 level.
Data as of June 1991
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