I. Introduction
Background of the Study Throughout the decade of the 1950s, the Philippines was known for being one of the fast growing growing economies in Asia. Asia. By the end of that decade, decade, the Philippines, Philippines, together together with Taiwan, had the most progressive economies among the underdeveloped countries in East and Southeast Asia. Asia.
However However,, nowaday nowadays, s, the countr country y has been playing playing catch-up catch-up most of the time time as it
depended depended mostly on agricultur agriculture, e, while others reduced reduced their dependence dependence on that sector. sector. The industrial sector, on the other hand, had little expansion since the 1960s. It is thus important important to know of the changes that happened in the 1950s and 1960s that shaped the economy, how the economy had a promising potential in the 1950s and how the potential shattered in the 1960s. Studying the administration of Carlos P. Garcia, which was from 1957-1961, would be of utmost utmost significance significance and contributi contribution on to the problem stated above. above. By 1962, when Diosdado Diosdado Macapagal assumed the presidency, the period of control, especially on import and foreign exchange, that characterized the Quirino, Magsaysay, and Garcia administrations, had ended as Macapagal implemented decontrols. Focusing on the economic policies of Garcia, it was in his term that the government government took the first steps steps towards heavy industriali industrializatio zation. n. Noteworthy Noteworthy of course was Garcia’s promulgation of the Filipino First Policy.
Objectives of the Study Being the last administration to be under the 1949-1961 period of control, the study seeks to esta establ blis ish h and and disc discus usss the the econ econom omic ic deve develo lopm pmen entt that that happ happen ened ed duri during ng the the Garc Garcia ia admnistration. This paper shall also try to achieve the following: following:
1.
To discuss the context of the period that characterized the years of Garcia’s administration
2.
To examine the major policies and programs of the Garcia administration.
Significance of the Study The study is an attempt to narrate and discuss the economic policies of the Garcia Administration. The study will help readers understand the significance of the actions done before the Garcia administration which lead to the economic policies approved during the Garcia administration. The study also will inform the readers of the importance of the economic policies during that era.
Scope and Limitations The study limits itself to the historical background of the period of control, starting with the Bell Trade Act, until the end of Garcia’s presidency in 1961. The context of the said period will be discussed to establish properly its effects and implications on the Garcia administration. This paper is limited to few economic policies and programs and will not be dealing with Macapagal administration.
II. Historical Background of the Period of Control
The Bell Trade Act and the Economic Dependency on the US The Bell Trade Act implemented during the Roxas administration enabled free trade between the Philippines and United States. It also meant a flood of imports, huge amount of capital fleeing the country, and the perpetuation of economic dependency on the United States.
The Bell Trade Act therefore operated against Philippine development efforts since all dollars that the country received, through aid, war compensation and earnings from export products had evaporated due to massive and unlimited importation of goods. The effort to put up industries was prevented by the utilization of post-war funds received on importation. As a requirement for receiving war reconstruction assistance from the United States, the Philippine government agreed to a number of items that, in effect, kept the Philippines closely linked to the United States economy and protected American business interests in the Philippines. Manila promised not to change its overvalued exchange rate from the prewar P2 to the dollar, or to impose tariffs on imports from the United States without the consent of the president of the United States. By 1949 the situation had become untenable. Imports greatly surpassed the sum of exports and the inflow of dollar aid. These resulted to the bankruptcy of the Philippine economy.
The Need for Controls The government then had to institute a system that would limit imports of the country and that would control the dollars that could be transferred abroad. Thus, the foreign exchange control came to existence.
Under this system, all dollars earned by Filipinos and foreign
residents, and by exports as well, had to be surrendered to the Central Bank and exchanged to pesos at the rate of P2 is to $1. Although the declaration of controls did not come easily, especially with the opposition of the American Chamber of Commerce in the Philippines, the United States had to agree with the implementation to save the Philippines from bankruptcy. To allow the Philippines to go to bankrupt would be tantamount to handing over the country to
Communists, something that the United States feared. If the Philippines fall to the Communists, American businesses in the country would be lost forever. The controls initially reduced the inflow of goods dramatically. Between 1949 and 1950, imports fell by almost 40 percent to US$342 million and surpassed the 1949 level in only one year during the 1950s. Being constrained, imports of goods and nonfactor services as a proportion of GNP declined during the 1950s, ending the decade at 10.6 percent, about the same percentage as that of exports. The imposition of import and exchange controls in the late 1940s had a significant impact on the economy of the Philippines. In the first four years, from 1949 to 1953, 5,000 industries sprouted. The industrial sector’s contribution to Gross National Product rose from 8 percent in 1949 to 17 percent in the late 1950s. Industry grew by 12 per cent per annum between 1950 and 1957.
III. Economic Policies and Programs of the Garcia Administration
Garcia’s as the New President Indeed the period of control would continue until the presidency of Carlos P. Garcia, and thus, he was a beneficiary of the good effects that this system brought with it. However, the Philippines was still very dependent for its local needs, especially to the United States. The controls were still not enough. As Carlos P. Garcia assumed the presidency once again after winning the 1957 elections, it was the problems of the economic sector that he wanted to address the most, seeing the need for economic independence through development. In his inaugural address on December 30,
1967, Garcia enumerated the problems being faced by the Philippine economy and he proposed solutions on how to solve them. Garcia pointed out the problem of self-sufficiency in food, wherein a substantial part of the supply of rice and fish had to be imported from abroad, with rice and fish being the basic articles of the Philippine economy. He thus wanted the reorientation of national economic policies towards doing first things first. He urged the production be done in the country by and for Filipinos to provide enough of the fundamental needs of life. Another problem was the apprehension that the international reserves of the country were deteriorating citing the over-eagerness to push forward industrialization as the cause. Garcia saw the need to restore the correct proportion between dollar reserves and industrialization, while also submitting to measures of austerity. Nonetheless, Garcia wanted the industrialization program to continue. He pointed out that a well-balanced agro-industrial economy is the best for the country. He recommended the hastening of establishing agricultural industries so as to utilize with least delay the abundant natural resources of the country.
For an industrial economy, he rightly called for the
establishment of the basic steel industry, which can support a hundred more industries. It is also through the steel industry that Garcia hopes machineries would be generated for the entire Philippine agro-industrial structure. Realizing that the dollar reserves of the country could not do double role of providing for the normal requirements of foreign trade and the tremendous financing of the economic and industrial development, Garcia saw the need to generate development funds from sources other than taxes and proceeds from export. He also saw the importance of the collaboration between
the government and the private enterprise for deficiencies in finances and scientific and industrial research.
The Filipino First Policy and Industrialization On August 21, 1958, Resolution No. 204 or The Filipino First Policy of the National Economic Council was adopted.
As the word itself entails, the Filipino First Policy gave
preferential treatment to Filipinos in the Philippine economy. For example, in the allocation of dollars which were used to buy machineries, Filipinos or corporations with Filipino equity were given preference. Moreover, the government encouraged Filipinos to take part in enterprises and industries which were vital towards economic growth, stability and security of the Philippines. It was known that in 1958, 2% of the entire population were non-Filipinos. This 2% of foreigners controlled 4/5 of the domestic trade in the Philippines. The National Economic Council tried to correct this by providing for the promotion of substantial Filipino participation in commercial and industrial businesses in 1958 and in the future. This gave preference over to Filipino applicants for foreign exchange allocations, aided Filipino enterprises which seek to enter a field which was predominantly in foreign contro,l and helped give recognition to joint-venture enterprises of both Filipino and foreign capital which the Filipino participation would be at least 60% of the stock ownership. More and more Filipinos thus began to own factories. Together with the foreign exchange control, the policy enabled the government to assist Filipino entrepreneurs to assume control of the economy and break the hold the foreigners exercised on the economy. The country was able to produce its own captains of industry such as Salvador Araneta who pioneered the flour and engine industries; Hilarion M. Henares, Jr., who was into industrial
chemicals and school supplies; Filemon Rodriguez, who founded a prestigious management company and the co-founder of FILOIL, the first Filipino-owned oil refining company; Col. Severo Santiago, who pioneered the production of telecommunications equipment; Meneleo Carlos, who was into industrial resins, Pablo Silva, who pioneered in foundries and steel pipes, Jose Concepcion, who pioneered the manufacture of air conditioners, the del Rosarios, who worked on household appliances, and the Marcelo, Martel and Jacinto families, who pioneered the steel industry. To establish the foundations for heavy industrialization, the Garcia administration approved a resolution calling for the establishment of an integrated steel industry in which the government would hold a controlling interest of 51%. The decision led to the formation of the Iligan Integrated Steel Mills, which was a joint venture with the private sector, particularly the Jacinto Steel Incorporated, with little equity from the foreigners. With this, the government hoped that it would not only make the country independent from steel imports but would eventually make it produce the various machineries and factories needed in the country. Since its enactment in 1958, new Filipino-owned business organizations continued to sprout. Total capital investments of new Filipino businesses in 1958 was only P108,831,000 whereas the Americans had P2,537,000. By 1959, new Filipinos businesses’ investments rose to P143,012,000 and those of the Americans declined to P2,433,000.
In the 1960, the trend
continued. Filipinos had P157,631,000 and Americans had P1,375,000. Although, investments of new American businesses rose to P2,881,000 in 1961, those of Filipinos still had the bigger advantage with an increase to P209,398,000. With regards to capital increases of corporations and partnerships in general, the trend was always positive since. The increase during 1957 was only $29,144,000, by 1958, it the
increase was $74,315,000 and in 1959, it was $99,092,000. The increase reached the centennial mark when in 1960 it was $103,763,000 and $162,155,000 in 1961.
Support to Local Industries To show how the government prioritized and gave preference to Filipino industries, there were policies enacted to fund and help locals to develop their industries. One of which was the P30M Coconut Financing Fund, or Republic Act 2282, approved on June 19, 1959. It was an act to rapidly develop the Philippine coconut industry. This policy was administered by the Development Bank of the Philippine and the fund was used to grant loans at 2% annual interests for capital requirements of farmers and cooperatives. Republic Act 2233, concerning Philippine Tobacco Administration, was an amendment of Republic act 1135 of 1954. The law states that taxpayers pay a total of Php60M for the promotion of the Tobacco industry, 15% of the amount will be spent for operating expenses, 75% of the total amount will be spent for native tobacco cigar fillers trading and 10% of the amount will be spent for research to improve the tobacco industry. The Philippine Tobacco Administration was the agency which was responsible for the spending and allocations of the total budget. The objective of the act was to establish the Philippine Tobacco Administration’s objectives, powers and functions and it also created the Tobacco Classification Council. Republic Act 2265, on the other hand, established the Virginia Tobacco Administration as a self sustaining agency which would handle the Virginia Tobacco industry. The creation of this body did not entail the appropriation of fund but it permitted the agency to borrow money from the Central Bank to use as capital. As a result of these two resolutions on tobacco, the physical volume of production of tobacco products increased by about 35% from 1958 to 1961.
Further Controls More controls were implemented by the government to achieve its economic goal of being self-sufficient and independent. The controls also helped in the continued economic and industrial development of the country. Approved in May 15, 1959, Republic Act 2207, or the Rice and Corn Import Ban, prohibited the importation of corn and rice by any person, association, corporation and government agency at any point of the archipelago. Violations of the ban were subjected to penalties. The importation of rice and corn was banned unless there is an inadequacy of local supply which would constitute a national emergency. In case of such emergency based on findings of the Office of Statistical Coordination, the President must designate a government agency to facilitate the importation. This policy protected local rice and corn producers and promoted the interests of local producers and planters in a way which is also consistent to the welfare of the buyers or consumers. The policy helped to accelerate the self sufficiency of the country in terms of rice and corn production. From 3,204,000 metric tons of rice produced in 1958, there was a 16% increase to 3,685,000. Rice production continued to increase to 1.5% in 1960, and remained relatively the on the same level during 1961. For corn, the 852,000 metric tons produced in 1958 grew by 19.2% to 1,016,000 in 1959. It increased by 14.7% in 1960 and by 3.8% in 1961. Republic Act 2240 was the new amendment on export control law, approved on June 18,1959. The law provided that export control shall continue until December 31, 1962 unless cancelled by Congress. The goods Filipinos may not export, re-export and tranship outside the country unless with a permit from the President are uranium and other atomic energy materials,
machineries and their spare parts, scrap metals, medicine, food, abaca seedlings, fuel, oil, lubricants, military equipment and items which are essential for industrialization and economic development. This policy led to the regulation of control and prohibited certain exports. It promoted economic and industrial development as well as national security, since the country was prioritized for its use of its own resources.
Other Means of Bolstering the Economy The Garcia administration, being a beneficiary of the import and foreign exchange controls, was able to initiate heavy industrialization and to implement the famous Filipino First Policy. Through these, the government was able to initiate and implement policies and programs for the further development of the economy. However, the Garcia administration did not rely solely on the advantages that the controls gave to develop the economy of the country. One instance was the austerity program that was known for being the first step Garcia took as he was elected in 1959 after finishing the remaining term of President Magsaysay. The program called for the reduction of government expenses on account of the almost bankrupt treasury that was inherited from the Magsaysay administration. By this program, he meant a government with utmost economy, and he fairly succeeded doing so. Garcia’s negotiations with the United States also helped to prop up the country’s sagging economy. In 1958, he undertook a successful State visit to the United States to negotiate loans and other forms of economic aid. The Philippine Government, who demanded jurisdiction over cases in military installations of the United States in the Philippines, also demanded payment of $900 million from the United States government for claims arising from the balance of war
damage payments, for differential pay of military service men in the U.S. Army, the oil excise tax, and the devaluation of the dollar. Although the Philippines did not get all the demands, it showed the independent and firm policy of the country. When Garcia returned from his State visit, he came back with great hope of being able to tide the country over its precarious economic situation. Realizing that no program could succeed in bolstering the economy of the country without insuring honesty in the government, especially in the revenue-producing departments, the President launched an intensive effort to eradicate reported frauds in the Bureau of Customs, Bureau of Internal Revenue, and a few other offices. During the Garcia presidency, there were also negotiations with Japan as the Reparations Agreement was made. This agreement provided that the Philippines shall be paid by Japan in the amount of U.S. $550 million as war damage payment. A supplementary agreement also allows the Philippines to secure loans from Japan in the amount of $250 million. The reparations payment from Japan was an addition to the country’s foreign exchange reserves. Reparations were sources of capital formation and could be channelled to be used for economic development. Thus, for an effective employment of reparations resources, the Reparations Law (R.A. 1789) provided the utilization to be guided and regulated by the priority system formulated by the National Economic Council. The law also provided that proceeds from sale of reparations goods and utilization of services shall constitute a Special Economic Development Fund. From this, the Congress may appropriate amounts for a Special Trust Fund to which the Development Bank of the Philippines and the Philippine national Bank shall have access for their use in extending loans for economic and industrial development projects, construction, and repair and improvement of public school buildings.
As of the end of 1959, from the reparations, the total amount of goods and technical services received in Manila was P164,426,636. Of this sum, the private sector received P61,419,582.68 placed into agricultural, fishing, mineral resources, industrial, transportation, communication and other developmental projects.
The government received a total of
P103,043,053.32 for the country’s electric power, industrial development, transportation and communications, public works, and other projects.
Effects on Employment The Filipino First Policy and the industrialization program of the Garcia administration was criticized for only being advantageous to the elite and the business sector, while being harsh to the working and lower classes. However, as the capital of many industries increased during the Garcia administration, the employment rate saw a similar trend as well. The steady growth of production in recent years has improved further the underemployment problem in the Philippines. Agricultural employment expanded at a rate of 7.8% in 1958 and 3.8% in 1959. While non-agricultural employment increased by 7.7% in 1958 and 0.7% in 1959. Thus, by 1959 unemployment was reduced by 14.7%. Employment reached 8.959 million in 1959, an expansion of 2% from the previous peak established in 1958. There were favourable labor developments as average monthly earnings of wage earners and salaried employees made a good showing, while the money wage rates of agricultural, skilled and unskilled laborers also rose moderately. The reaction of manufacturing production to the expansionary policies of the government had a proportional increase in employment in 1960-61.
Employment for manufacturing
increased by 1.5% in contrast to the 7.6% expansion in the volume of production between 1960 and 1961. The productivity gains for the non-agricultural sector was shared by the employed unskilled labor in the form of increases in money wages which averaged 2.5% between 1960 and 1961, while the wages of the skilled labor remained sustained. Agricultural wages also increased by 3.6% on the average between 1960 and 1961. Planters received the largest wage boost of 5.6%, followed by plowmen who had 4.8% increase. Harvesters and common labourers also received increments in their wages, with increases of 3% and 1.9%, respectively.
IV. Conclusion
It was the period of control that started in 1949 that characterized the administration of Carlos P. Garcia, from 1957-1961. The Bell Trade Act and the economic dependency of the Philippines to the United States proved to be detrimental to the economy and thus import and foreign exchange controls had to be implement to save the country. As the years passed and the Garcia administration came to existence in 1957, the economic condition of the system of controls has shaped the period and thus helped the government under Garcia to push through economic and industrial development projects. However, huge dependency on the United States was still felt that controls were not enough to become truly economically independent. This gave rise to the Filipino First Policy and heavy industrialization soon followed. The enactment of such policy resulted in the implementation of other policies that spurted economic growth. Statistics would show this g rowth was achieve, with increased capital, more Filipino ownership of businesses, preference given to Filipinos to fund
their industries, increased employment, and through other programs that bolstered the economy such as the austerity program, reparations and negotiations.
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