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Philippines The Aquino Government
In 1986 Corazon Aquino focused her presidential campaign on
the misdeeds of Marcos and his cronies. The economic correctives
that she proposed emphasized a central role for private
enterprise and the moral imperative of reaching out to the poor
and meeting their needs. Reducing unemployment, encouraging
small-scale enterprise, and developing the neglected rural areas
were the themes.
Aquino entered the presidency with a mandate to undertake a
new direction in economic policy. Her initial cabinet contained
individuals from across the political spectrum. Over time,
however, the cabinet became increasingly homogeneous,
particularly with respect to economic perspective, reflecting the
strong influence of the powerful business community and
international creditors. The businesspeople and technocrats who
directed the Central Bank and headed the departments of finance
and trade and industry became the decisive voices in economic
decision making. Foreign policy also reflected this power
relationship, focusing on attracting more foreign loans, aid,
trade, investment, and tourists
(see Foreign Affairs
, ch. 4).
It soon became clear that the plight of the people had been
subordinated largely to the requirements of private enterprise
and the world economy. As the president noted in her state-of-
the-nation address in June 1989, the poor had not benefited from
the economic recovery that had taken place since 1986. The gap
between the rich and poor had widened, and the proportion of
malnourished preschool children had grown.
The most pressing problem in the Philippine international
political economy at the time Aquino took office was the
country's US$28 billion external debt. It was also one of the
most vexatious issues in her administration. Economists within
the economic planning agency, the National Economic and
Development Authority (NEDA), argued that economic recovery would
be difficult, if not impossible, to achieve in a relatively short
period if the country did not reduce the size of the resource
outflows associated with its external debt. Large debt-service
payments and moderate growth (on the order of 6.5 percent per
year) were thought to be incompatible. A two-year moratorium on
debt servicing and selective repudiation of loans where fraud or
corruption could be shown were recommended. Business-oriented
groups and their representatives in the president's cabinet
vehemently objected to taking unilateral action on the debt,
arguing that it was essential that the Philippines not break with
its major creditors in the international community. Ultimately,
the president rejected repudiation; the Philippines would honor
all its debts.
Domestically, land reform was a highly contentious issue,
involving economics as well as equity. NEDA economists argued
that broad-based spending increases were necessary to get the
economy going again; more purchasing power had to be put in the
hands of the masses. Achieving this objective required a
redistribution of wealth downward, primarily through land reform.
Given Aquino's campaign promises, there were high expectations
that a meaningful program would be implemented. Prior to the
opening session of the first Congress under the country's 1987
constitution, the president had the power and the opportunity to
proclaim a substantive land reform program
(see Constitutional Framework
, ch. 4). Waiting until the last moment before making an
announcement, she chose to provide only a broad framework.
Specifics were left to the new Congress, which she knew was
heavily represented by landowning interests. The result--a
foregone conclusion--was the enactment of a weak, loophole-ridden
piece of legislation
(see Unsolved Political Problems
, ch. 4).
The most immediate task for Aquino's economic advisers was to
get the economy moving, and a turn around was achieved in 1986.
Economic growth was low (1.9 percent), but it was positive. For
the next two years, growth was more respectable--5.9 and 6.7
percent, respectively. In 1986 and 1987, consumption led the
growth process, but then investment began to increase. In 1985
industrial capacity utilization had been as low as 40 percent,
but by mid-1988 industries were working at near full capacity.
Investment in durable goods grew almost 30 percent in both 1988
and 1989, reflecting the buoyant atmosphere. The international
community was supportive. Like domestic investment, foreign
investment did not respond immediately after Aquino took office,
but in 1987 it began to pick up. The economy also was helped by
foreign aid. The 1989 and 1991 meetings of the aid plan called
the Multilateral Aid Initiative, also known as the Philippine
Assistance Plan, a multinational initiative to provide assistance
to the Philippines, pledged a total of US$6.7 billion.
Economic successes, however, generated their own problems.
The trade deficit rose rapidly, as both consumers and investors
attempted to regain what had been lost in the depressed
atmosphere of the 1983-85 period. Although debt-service payments
on external debt were declining as a proportion of the country's
exports, they remained above 25 percent. And the government
budget deficit ballooned, hitting 5.2 percent of GNP in 1990.
The 1988 GNP grew 6.7 percent, slightly more than the
government plan target. Growth fell off to 5.7 percent in 1989,
then plummeted in 1990 to just over 3 percent. Many factors
contributed to the 1990 decline. The country was subjected to a
prolonged drought, which resulted in the increased need to import
rice. In July a major earthquake hit Northern Luzon, causing
extensive destruction, and in November a typhoon did considerable
damage in the Visayas. There were other, more human, troubles
also. The country was attempting to regain a semblance of order
in the aftermath of the December 1989 coup attempt. Brownouts
became a daily occurrence, as the government struggled to
overcome the deficient power-generating capacity in the Luzon
grid, a deficiency that in the worst period was below peak demand
by more than 300 megawatts and resulted in outages of four hours
and more
(see Energy
, this ch.). Residents of Manila suffered
both from a lack of public transportation and clogged and
overcrowded roadways; garbage removal was woefully inadequate;
and, in general, the city's infrastructure was in decline.
Industrial growth fell from 6.9 percent in 1989 to 1.9 percent in
1990; growth investment in 1990 in both fixed capital and durable
equipment declined by half when compared with the previous year.
Government construction, which grew at 10 percent in 1989,
declined by 1 percent in 1990.
The Aquino administration appeared to be unable to work with
the Congress to enact an economic package to overcome the
country's economic difficulties. In July, as the government
deficit soared Secretary of Finance Jesus Estanislao introduced a
package of new tax measures. Then in October, stalemated with
Congress, Aquino agreed to seek a reduction in the budget gap
without new taxes. The agreement met with resistance from the
Congress for being an onorous imposition on an economy in crisis,
growth would be stifled and the poor would be impacted
negatively. The willingness of the Congress to pass the tax
package called for in the IMF agreement was in doubt. In 1990
Congress placed a 9 percent levy on all imports to provide
revenues until an agreement could be reached with the
administration on a tax package. In February 1991, however, it
was learned that in its agreement with the IMF for new standby
credits, the government had promised that it would indeed
implement new taxes.
Accusations were widespread in Manila's press about the
1990-91 impasse. On the one hand, it was claimed that Aquino and
her advisers had no economic plan; on the other hand, the
Congress was said to be unwilling to work with the president.
Traditional political patterns appeared to be reasserting
themselves, and the technocrats had little ultimate influence.
One study of the first Congress elected under the 1987
constitution showed that only 31 out of 200 members of the House
of Representatives, were not previously elected officials or
directly related to the leader of a traditional political clan.
Business interests directly influenced the president to overrule
already established policies, as in the 1990 program to simplify
the tariff structure. Business and politics have always been
deeply interwoven in the Philippines; crony capitalism was not a
deviant model, but rather the logical extreme of a traditional
pattern. As the Philippines entered the 1990s, the crucial
question for the economy was whether the elite would limit its
political activities to jockeying for economic advantage or would
forge its economic and political interests in a fashion that
would create a dynamic economy.
Data as of June 1991
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