Erratic Philippine Economic Growth
Mismanagement, Corruption, and Political Instability Cause Downturns
Dec 21, 2007
The Philippines has posted a mixed record of economic growth and development since the end of World War II. While once one of the richest countries in Asia, the Philippines has fallen behind many developing Asian nations. This country is fairly rich in natural resources, has a large and literate population/workforce, and operates a substantial light industrial base. Although susceptible to international economic forces like any other nation, many of the downturns of the Philippine economy have resulted from domestic problems. The following is a brief glimpse of economic performance during three periods of two decades each.
1945-1965
Three and a half years of Japanese occupation and battles for liberation in 1945 took a tremendous toll, especially on Manila, the most destroyed Allied capital except Warsaw.[1] In spite of wartime devastation of the economic, political, and cultural capital, U.S.-assisted postwar reconstruction yielded rapid economic growth immediately after the war. This reconstruction growth slowed over time.
1965-1986
The two decades under President Marcos saw serious decline in economic growth and development due to years of economic mismanagement, political instability, martial law, corruption, and cronyism. Advances in infrastructure development and agrarian reform were offset by the country incurring enormous foreign debt. Macroeconomic stability was adversely affected, and a severe recession in 1984-85 saw the economy shrink by more than 10%.[2]
1986-2006
Since the overthrow of Marcos in 1986, economic reforms including foreign exchange deregulation, foreign investment and banking liberalization, and tariff reduction have significantly opened the Philippine economy, allowing foreign entry into the retail trade sector and even participation in the power industry. However, economic growth and national development have been hampered by massive national debt, government corruption, and political instability. A quick review of the four post-Marcos administrations follows.
While Corazon Aquino’s government needed to lead the nation out of the negative economic growth of the last Marcos years, political instability hindered economic recovery. Upheaval of the well-established “crony capitalism” system led to power struggles resulting in at least 6 coup attempts in her first four years in office.[3] This destabilization discouraged foreign and domestic investment.
President Fidel Ramos introduced many economic reforms and initiatives to stimulate business growth and foreign investment. These measures, along with greater political stability, resulted in a period of higher growth rates. However, economic growth slowed at the onset of the East Asian Financial Crisis in 1997, and dropped to virtually zero in 1998.[4]
Some of the Ramos reforms continued under President Joseph Estrada, and his administration enacted laws to better regulate the banking system and securities markets, liberalize foreign participation in the retail trade sector, and promote and regulate electronic commerce. Expected growth and development did not materialize because Philippine Stock Exchange scandals, widespread corruption, and the President's impeachment for ties to illegal gambling and certain disreputable businessmen discouraged investment.
President Gloria Macapagal-Arroyo, formerly an economics professor at University of the Philippines, and her team have made considerable progress in restoring macroeconomic stability and an environment for growth. Recent performance has been strong, with the GNP growing annually at 5% or better for the last 5 years.[5, 6] Long-term growth, however, remains threatened by widespread poverty, severe under-spending on infrastructure, education systems, and social services, and remaining trade and investment barriers.
Conclusion
The Philippines is currently experiencing a period of economic growth with an optimistic outlook. Although we might expect national development to accompany economic growth, various economic, political, and socio-cultural conditions in the Philippines still present challenges to national development, to be explored in subsequent essays.
References
1. U.S. historian William Manchester, as quoted in “28 Days of Horror in Fight for Manila,” Agence France Presse Manila, Aug 15, 2005
2. Penn World Tables 6.2, Center for International Comparisons of Production, Income, and Prices, University of Pennsylvania, accessed Dec 21, 2007
3. Fisher, Richard D. Jr., “America’s Message to Cory Aquino: Take Four Steps for Survival,” Heritage Foundation, Feb 13, 1990
4. Asia (South and East) and the Pacific, World Bank Economic Data Tables, accessed Dec 21, 2007
5. “Philippines: Invigorating Growth, Enhancing Its Impact,” World Bank Report No. 39226-PH, May 18, 2007, p. 12, Table 1 “Selected Economic Indicators”
6. “2007 economic growth seen at 6.9%-7.3%,” Philippine Inquirer, Dec 9, 2007
