Major structural reforms, Philippine economy, crony capitalism, largest trading partners, international loans
Before World War II (1939-1945) the economy of the Philippines was based on the production and export of a narrow range of primary commodities, mainly agricultural and forest products. The Supreme Court of the United States ruled in the early 20th century that Philippine goods could enter the American market without tariff restraints. In the trade that followed, the United States imported Philippine agricultural goods and provided the Philippines with most manufactured items. The Philippines had virtually no manufacturing other than the processing of food products, primarily for the United States market.
After independence in 1946, the Philippines initially remained dependent on free-trade access to United States markets for its agricultural commodities, especially sugar. Government restrictions on import spending spurred an increase in manufacturing for the domestic market. During the 1950s the Philippines tried to become an industrialized nation. In the long term, however, protectionist economic policies provided little incentive for the development of labor-intensive export manufacturing. In the 1970s the government implemented a policy to encourage export manufactures and foreign investment, and the rate of economic growth accelerated. The country’s foreign debt rose dramatically, however, and by the mid-1970s the country faced problems meeting payments on its international loans. This problem was compounded by a worldwide recession in the early 1980s. The recession resulted in less demand for Philippine manufactures, and the economy moved into a deep recession in the mid-1980s.
At this time the Philippine economy also suffered from more than a decade of economic mismanagement under President Ferdinand Marcos, who ruled by decree after declaring martial law in 1972. Under Marcos the government greatly expanded the number of public-sector enterprises. Government-mandated monopolies were set up in various sectors, while subsidies and special privileges were awarded to close associates of Marcos. This concentration of ownership and control among the president’s closest business associates, friends, and relatives became known as crony capitalism. The system allowed for rampant corruption. During the economic recession of the 1980s, many of the crony enterprises experienced severe financial difficulties. This in turn undermined the viability of the big government-owned banks and led to an economic crisis.
Major structural reforms implemented during succeeding government administrations dismantled the monopolies and promoted privatization. Measures to stabilize the economy involved compliance with a severe austerity program of the International Monetary Fund (IMF). Economic reforms reduced government intervention in the economy and stimulated the private sector. By the mid-1990s the Philippine economy had largely recovered and was experiencing steady growth. It contracted much less dramatically than other Asian countries from the regional financial crisis of 1997. It was also slower to rebound, however, due to drought conditions that caused a sharp fall in agricultural output in 1998. The modest pace of economic recovery was adversely affected by corruption in government and a global economic downturn in the early 2000s that reduced demand for Philippine manufactures by the country’s two largest trading partners, the United States and Japan.
In the early 2000s the government was pursuing economic reforms to help the Philippines match the pace of development in the so-called newly industrialized economies of East Asia. The strategy includes improving infrastructure, revamping the tax system to increase government revenues, promoting further deregulation and privatization of the economy, and expanding trade ties in the region.
The estimated governmental budget in 1999 included revenues of $12.1 billion and expenditures of $15 billion. Gross domestic product (GDP) in 2000 was $74.7 billion, or $990 per person.
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