The Dark Age for the Philippine Economy

Posted on Posted in 2022-2023

Ferdinand Marcos Sr.’s reign as President remains a polarizing memory. The Philippines was marred with countless human rights violations under the guise of peace-keeping and a silenced opposition. As we continue to live on and move forward from the consequences of the late Marcos’ regime, we must recall the economic plight the country continues to recover from to this very day. This is best done by breaking down the state of the economy as represented by analyzing the: macroeconomic variables, major economic policies and strategies employed (and their ramifications), and state of national financing.


Three macroeconomic variables are useful in unraveling the position of an economy: gross domestic product (GDP), inflation rate, and the balance of payments. 


GDP reveals the overall trends in the national output of a particular economy, and so measuring its rate of growth is indicative of the economic growth an economy may be experiencing. One way to measure the inflation rate is by getting the rate of change between the consumer price indices of two consecutive years, in doing so it highlights the rate of change to the aggregate prices within an economy. Finally, the balance of payments serves as the record of the value of all transactions between one economy and another within a period. For this article, the current account is focused upon as it depicts the trade balance (the quantity of exports versus imports). The data below had been compiled by James K. Boyce and primarily comes from National Economic Development Authority (NEDA) and the International Monetary Fund (IMF).



Regarding the GDP growth rate, there are a few key points to highlight here. First, there had been negative growth from 1983 to 1985. Secondly, the average growth rate over this timespan is just 4.32% as opposed to the Aquino’s and (pre-pandemic) Duterte’s average growth rates of 6.23% and 6.46%. This contrasts the notion that the Philippines had undergone unprecedented levels of growth under Marcos Sr. 



The inflation rate above highlights the extreme volatility of aggregate price levels under Marcos Sr, peaking at as high as 50% in 1984 using 1978 as the base year. To put it into perspective, the inflation rate as of September 2022 is 6.9% using 2018 as the base year. From the consumer price indices, it highlights that the prices of goods in 1986 are 3.55 times the prices of goods in 1978.



Finally, the current account balance above highlights the net exports of the economy including income and current transfers. The graph shows that the country’s current account had been in deficit for the majority of Marcos Sr’s reign. It is not just the issue that the Philippines was in a deficit, but how deep the deficit was amounting to $3.2 billion in 1982.


The economy under Marcos Sr. is largely defined by the following factors: deviation from conservative monetary, fiscal, and trade-financing policies, expansion of the role of government in financial and product markets, and production of government-mandated monopolies chosen by Marcos Sr. himself.


Throughout the 1970s, the Central Monetary Authority had permitted the money supply to grow annually at 17% on average. This increase in money supply was traced back to Central Bank credit, meaning that it was used to finance government expenditure. Granted this, not unless this monetary expansion is accompanied by an increase in national output, it will lead to greater inflation, which it did as shown by the Quantity Theory of Money. The theory argues that an increase in money supply will lead to an increase in aggregate prices in an economy.


Similarly, the government had taken on regressive fiscal policies. The tax structure relied heavily on indirect taxes, disenfranchising the poor further. Fiscal spending mostly went to projects that do not particularly justify their cost as they had mostly gone to the military, public buildings and monuments, subsidies to a few firms, maintenance of large bureaucracies, tourist structures, etc. Contrasting this, government spending on social services (education, health, housing, and population) dropped from 33.5% in 1970 to 21.5% in 1982. 


This edifice complex attempting to manifest a “Golden Age of Infrastructure” was primarily used as means of further romanticizing the late Marcos’ administration. Infrastructure projects were used as means to appease the elites to maintain a political foothold over the country. They were used to portray the optics of progress but did very little for long-term development. Ultimately, they were simply a parade of white elephants built upon a shaky foundation. 


That foundation is the unprecedented amount of loans taken to finance these grandeur projects and expenses. Under Marcos Sr, the government began rapidly accelerating the rate of foreign borrowing and of Central Bank lending, both of which were used to finance the growing share of government in total expenditure. By 1980, the Philippines was the 8th place as a recipient of loans from the World Bank among 113 developing countries. Putting this into perspective, at the dawn of the ‘70s, the Philippines had an external debt of about $2.3B, but by the end of the decade, it skyrocketed to $17.2B. 


However,  these loans were not just ordinary loans. Two conditional loans particularly contributed to the adverse economic conditions of the country. The austerity measures imposed upon conditional loans by the International Monetary Fund (IMF) and the structural adjustment loans (SAL) provided by the World Bank. 


What are austerity measures? These are a set of economic policies meant to control deficits and public debt by promoting government revenue through the increase in taxes and the reduction of government spending. These austerity measures enforced proper fiscal discipline, reduced government expenditure, and devaluation the peso for the Philippines to be able to repay their debts. The peso’s exchange rate to the dollar rose from ₱3.91 in 1965 to ₱19.03 in 1985. This was especially problematic granted the heavy emphasis placed upon importation as a means to “boost” domestic industries as will be explained in the SAL discussion. Consequently, this greatly stunted national output, reduced government spending, and raised taxes, reducing aggregate demand in the economy. This is paired with mounting debt servicing continuing to drain the government and the economy’s finances.


The latter had pushed for extreme liberalization of the economy while keeping the government’s hands tied. However, this liberalization took the form of tariff cuts, export promotion to “restructure” the economy, lowering domestic firm protections, and removal of import licenses and quantitative restrictions. Granted the weakening of protections for domestic industries, this had greatly exacerbated the import dependency of the economy, thus showing how the devaluation of the peso makes these costs generate inefficiencies.. Concerning the tariff cuts, this had only continued to worsen the aforementioned import dependency which, in turn, continued to harm domestic industries. 


To illustrate, the nominal tariffs had shrunk from 44.3% in 1975 to just about 27.6% in 1985. Meanwhile, the share of domestic production to GDP had plunged. Take the manufacturing sector’s share, for example, it had fallen from 29.1% in 1974 to 24.8% in 1986. But the most concerning aspect is how deeply in deficit the current account was in considering this growing import dependence. It had reached its worst as it constituted -6.9% of GDP in 1975 and then eventually -6.6% of GDP in 1983. These chronic trade deficits have remained since then and have only been covered up by the Philippines’ cheap labor export and overseas Filipino workers’ remittances.


What made all these even worse was the occurrence of the 1970s energy crisis which had raised global prices considering the role fuel has in the production of all goods in the economy. The US Federal Reserve fought to quell this inflation by raising key interest rates. In doing so global interest rates eventually followed suit. What this means is that countries in debt had to pay so much more in servicing their international debt, the most glaring example being the Philippines. 


Though the government did not just stop there. Marcos Sr actively pushed for foreign plunder of Philippine resources. To either potentially aid in servicing their debt repayment or to deepen their pockets even further, that is left a mystery. Marcos Sr had devised the service contract that bypassed constitutional restrictions on foreign exploitation of Filipino petroleum and gas resources. Similarly, Marcos Sr also gave foreign capital profitable opportunities by enacting laws on investment and export incentives to foreign investors. Thus, the export processing zones he started are the predecessors of the hundreds of special economic zones found throughout the country today. Similarly, Marcos Sr contributed to the uncontrolled exportation of lumber resulting in a great reduction of Philippine forest cover from 11.85 million hectares in 1965 to just about 7.13 million hectares in 1986.


This mass deforestation was not done alone but with the help of Marcos Sr’s assigned cronies. These cronies had extremely privileged positions, great influence, and immense wealth. As Marcos Sr declared martial law, he surrounded himself with a group of businessmen, relatives, fraternity brothers, close friends. From there, he proceeded to use presidential decrees and letters of instruction to provide them with land, government positions, government subsidies and protections, and, most worryingly, monopoly positions throughout the economy. Then they began channeling resources to himself and his associates, resulting in crony capitalism.


Marcos Sr’s cronies’ firms were simply shielded from competition. The most notable of which being Roberto Benedicto who monopolized the sugar industry, Danding Cojuangco who took over the coconut sector, and Antonio Floirendo who controlled the banana trade. Since these were commodities, it did not promote growth and exports nor was it as sustainable compared to our East Asian counterparts with primarily manufactured exports.


State-controlled monopolies are not inherently bad considering the instances where industries have incredible amounts of start-up costs or require a lot of research and development, both of which are unprofitable and unsustainable for a private firm to take over. However, these monopolizations were not of this ilk. For the consumer, higher prices and potentially lower quality granted the lack of competition resulting in inefficiencies in the industry. The monopolist may reap a higher-than-average profit from such transactions or may choose to use its privilege in the form of inefficiency or inertia. Government decrees have also been applied to exempt some corporations from existing laws and regulations. Such privileges also grant unfair advantages to favored firms in terms of lower costs of imported components. Essentially, crony capitalism greatly benefitted the monopolist/crony at the cost of all other stakeholders involved such as the following: businessman, middle class, workers, and farmers.


At the end of the day, the dictatorial political milieu, insecure property rights, rampant corruption, and unproductive and fraudulent debt led to an economic collapse that we, the Filipino people, are still recovering from to this day. Under Marcos Sr, we indeed were the “Sick Man of Asia”.





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