Economic Situation

Critics claimed that overspending in the 1969 elections led to higher inflation and the devaluation of the
Philippine peso but the assertion was never verified. Media also discounted the fact that Marcos had
already accumulated a lot of wealth prior to his entering politics and had invested in precious metals
prior to running for office. In addition, the Philippine economy suffered from the effects of the Cold War,
as there was an increased uprising of the "leftist" movement that created widespread chaos throughout
the provinces. Further, the decision of the oil-producing Arab countries to cut back oil production, in
response to Western military aid to Israel in the Arab-Israeli conflict, resulted in higher fuel prices
worldwide. Also, natural calamities brought havoc to infrastructures and agricultural crops and
livestock. The combined external and internal economic forces led to uncontrolled increase in the prices
of prime commodities. But it was only during the term of President Marcos that for the first and last time
until now the Philippines experienced overproduction and oversupply of the people's basic staple food,
rice, which then became an export instead of being an import commodity for the country.

Economy
Economic performance during the Marcos era was strong at times, but when looked at over his whole
regime it was not characterized by strong economic growth. Penn World Tables report real growth in
GDP per capita averaged 3.5% from 1951 to 1965, while under the Marcos regime (1966 to 1986) annual
average growth was only 1.4%. To help finance a number of economic development projects, such as
infrastructure, the Marcos government engaged in borrowing money. Foreign capital was invited to
invest in certain industrial projects. They were offered incentives, including tax exemption privileges and
the privilege of bringing out their profits in foreign currencies. One of the most important economic
programs in the 1980s was the Kilusang Kabuhayan at Kaunlaran (Movement for Livelihood and
Progress). This program was started in September 1981. Its aim was to promote the economic
development of the barangays by encouraging its residents to engage in their own livelihood projects.
The government's efforts resulted in the increase of the nation's economic growth rate to an average of six
percent or seven percent from 1970 to 1980.[28] The rate was only less than 5% in the previous decade.
The Gross National Product rose from P55 billion ($7.7 billion) in 1972 to P193 billion ($27 billion) in 1980.
Tourism rose, contributing to the economy's growth. Most of these "tourists" were
Filipino balikbayans (returnees) who came under the Ministry of Tourism's Balikbayan Program,
launched in 1973.

Economic growth was largely financed, however, by U.S. economic aid and several loans made to the
Marcos government as the country's foreign debts increased by over 27 billion USD when Marcos
assumed the presidency. A sizable amount of this money went to Marcos family and friends in the form
of behest loans. These loans were assumed by the government and still being serviced by taxpayers.
[29] Today, more than half of the country's revenues are outlaid for the payments on the interests of loans
alone.
Another major source of economic growth was the remittances of overseas Filipino workers. Thousands
of Filipino workers, unable to find jobs locally, sought and found employment in the Middle
East,Singapore and Hong Kong. These overseas Filipino workers not only helped ease the country's
unemployment problem but also earned much-needed foreign exchange for the Philippines.
The Philippine economy suffered a great decline after the Aquino assassination in August 1983. The wave
of anti-Marcos demonstrations in the country that followed scared off tourists. The political troubles also
hindered the entry of foreign investments, and foreign banks stopped granting loans to the Philippine
government.
In an attempt to launch a national economic recovery program, Marcos negotiated with foreign creditors
including the International Bank for Reconstruction and Development, World Bank, and the International
Monetary Fund (IMF), for a restructuring of the country's foreign debts – to give the Philippines more
time to pay the loans. Marcos ordered a cut in government expenditures and used a portion of the
savings to finance the Sariling Sikap (Self-Reliance), a livelihood program he established in 1984.

However, the economy experienced negative economic growth from the beginning of 1984 and continued
to decline despite the government's recovery efforts. The recovery program's failure was caused by civil
unrest, rampant graft and corruption within the government, and Marcos's lack of credibility. Marcos
himself diverted large sums of government money to his party's campaign funds. The unemployment
rate ballooned from 6.30% in 1972 to 12.55% in 1985.

Conclusion
Thus, the initial hypotheses posed test positive for the different periods of Marcos’ reign. We are now in a
position to understand how shifts in the nature of the commitment problem of the Philippines under
Marcos led to the shift in his power from elected president to dictator. Between 1966 and 1972, the
commitment problem was partially resolved through Vertical Political Integration, with non-Marcos elite
enforcing Marcos’ commitment to property rights. However, during this time, Marcos was able to take
advantage of the international environment to secure funding by making solid commitments to the US,
allowing him to distribute patronage and enlarge the government to consolidate his power. As his power
became consolidated to the point that the third party no longer posed a credible threat, VPI no longer
resolved the commitment problem, and Marcos declared martial law in 1972 to become a stationary
bandit. With only long-term self interest constraining him, Marcos did not have a long enough time
horizon to cause him to tax society at revenue-maximizing levels. Instead, he transferred massive
amounts of rent from the economy to himself and his cronies, liberally violating the property rights of
non- Marcos elite as well the general populace.

Although economic growth during the Marcos era was largely influenced by external factors such as
global commodity prices and the international debt crisis in the 1980s, both VPI and any form of banditry
will cause productive investment levels to be much lower than under limited government. Therefore, if it
can be determined that neighbouring countries had more effective solutions to the commitment problem,
even if not to the level of limited government, we can understand growth rates in the Philippines to be
fundamentally constrained. This study has provided a basis for further inquiry into the nature of the
commitment problem in the Philippines before and after Marcos. It has been suggested here that VPI
existed before Marcos came to power, and no systematic study has been performed on the nature of the
commitment problem after Marcos. I hope that this study serves as a beginning to understand not only
shifts in the nature of commitment and its implications for growth in the Philippines, but also as a
beginning in the process of applying literature on commitment to important empirical cases as a means to
understanding power shifts and economic growth.