Economics is the science that concerns itself with economies, from how societies produce

goods and services to how they consume them. It has influenced world finance at many
important junctions throughout history and is a vital part of our everyday lives. The
assumptions that guide the study of economics, have changed dramatically throughout
history. In this article, we'll look at the history of how economic thought has changed over
time, and the major participants in its development.

The Father of Economics

Adam Smith is widely credited for creating the field of economics. However, he was
inspired by French writers who shared his hatred of mercantilism. In fact, the first
methodical study of how economies work was undertaken by these French physiocrats.
Smith took many of their ideas and expanded them into a thesis about how economies
should work, as opposed to how they do work.

Smith believed competition was self-regulating and governments should take no part in
business through tariffs, taxes or any other means, unless it was to protect free-market
competition. Many economic theories today are, at least in part, a reaction to Smith's
pivotal work in the field. (For more on this influential economist, see: Adam Smith: The
Father Of Economics.)

The Dismal Science of Marx and Malthus

Karl Marx and Thomas Malthus had decidedly poor reactions to Smith's treatise. Malthus
predicted that growing populations would outstrip the food supply. He was proven wrong,
however, because he didn't foresee technological innovations that would allow production
to keep pace with a growing population. Nonetheless, his work shifted the focus of
economics to the scarcity of things, versus the demand for them.

This increased focus on scarcity led Karl Marx to declare the means of production were
the most important components in any economy. Marx took his ideas further and became
convinced a class war was going to be initiated by the inherent instabilities he saw in
capitalism. However, Marx underestimated the flexibility of capitalism. Instead of creating
a clear owner and worker class, investing created a mixed class where owners and
workers hold the interests of both classes, in balance. Despite his overly rigid theory,
Marx did accurately predicted one trend: businesses grew larger and more powerful, in
accordance to the degree of free-market capitalism allowed.

History of Economics

by John P. Reisman — last modified Aug 23, 2012 06:58 PM

A brief history of economics allows us valuable perspective on the nature and methods
used in economic reality.

It is worthy to note that economics is not merely a monetary reality. Economy by definition
encompasses management of affairs and expenses, thrifty use of material resources,
efficiency.

Most notably, the definition includes the mode of operation of something and systems of
interaction and exchange. By extrapolation we can see that economy deals with how
things interact. This includes money and material.

In the context of human exploitation of resources, which is the basis of human material
productivity, our understanding of economy, in order to be complete, must include global
resource capacity, and rate of human consumption of those resources along with our
monetary economy and well being of our human society.

Only in a complete consideration of all economies of material wealth of earths resources

and human capacities can we begin to understand what a healthy economy might actually
be.
http://www.merriam-webster.com/dictionary/economy

Main Entry:

1econ·o·my Listen to the pronunciation of 1economy

Pronunciation:

\i-ˈkä-nə-mē, ə-, ē-\

Function:

noun

Inflected Form(s):

plural econ·o·mies

Etymology:

Middle French yconomie, from Medieval Latin oeconomia, from Greek oikonomia, from
oikonomos household manager, from oikos house + nemein to manage — more at
vicinity, nimble

Date:

15th century

1archaic : the management of household or private affairs and especially expenses

2 a: thrifty and efficient use of material resources : frugality in expenditures ; also : an
instance or a means of economizing : saving b: efficient and concise use of nonmaterial
resources (as effort, language, or motion)

3 a: the arrangement or mode of operation of something : organization b: a system

especially of interaction and exchange <an economy of information>

4: the structure or conditions of economic life in a country, area, or period ; also : an

economic system

Economic Theory & Some History

Keep in mind that economic theories are more of a guide than a rule. While used to guide
policy and principle, natural tendencies of systems are influenced by human factors and
interventions, whether it be state, social or market manipulation that falls outside the
boundaries of "fair trade of goods and services". In reality, economies will go to any extent
granted, or taken, to gain wealth or advance value.

We do not live in an ideal world although we hope that the principles of fair trade and
balance will become endemic in order to level the playing field in achieving better quality
of life based on earning and value.

A Brief History of Economics

Free Market (late medieval and early-modern Europe)

A free market describes a theoretical, idealized, or actual market where the price of an
item is arranged by the mutual non-coerced consent of sellers and buyers, with the supply
and demand of that item not being regulated by a government (see supply and demand);
the opposite is a controlled market, where government sets or regulates price directly or
through regulating supply and/or demand. However, while a free market necessitates that
government does not regulate supply, demand, and prices, it also requires the traders
themselves do not coerce or mislead each other, so that all trades are morally voluntary.
This is not to be confused with a perfect market where individuals have perfect information
and there is perfect competition.

Somewhat idealistic in its concept, a free market assumes that participants do not mislead
or coerce aspects of the market price, supply, demand, do not participate in price fixing
and do not mislead investors. In actual practice history has repeatedly shown that this
ideal world does not exist, price fixing is still practiced and all market aspects are
manipulated by coercion, in the political arena as well as the marketing to investors and
the recipients of goods and services.

The precept of the free market is that government does not regulate, supply, demand or
prices. With special interests paying for political campaigns it is obvious that this ideal is
confounded by market realities and the natural tendency or desire for wealth and power.

Mercantilism (16th - 18th century)

Mercantilism is an economic theory that holds that the prosperity of a nation depends
upon its supply of capital, and that the global volume of trade is "unchangeable".
Economic assets, or capital, are represented by bullion (gold, silver, and trade value) held
by the state, which is best increased through a positive balance of trade with other nations
(exports minus imports). Mercantilism suggests that the ruling government should
advance these goals by playing a protectionist role in the economy, by encouraging
exports and discouraging imports, especially through the use of tariffs. The economic
policy based upon these ideas is often called the mercantile system.

Classical Economics (1776)

Classical economics is widely regarded as the first modern school of economic thought.
Its major developers include Adam Smith, David Ricardo, Thomas Malthus and John
Stuart Mill. Sometimes the definition of classical economics is expanded to include
William Petty, Johann Heinrich von Thünen, and Karl Marx.

The publication of Adam Smith's The Wealth of Nations in 1776 is usually considered to
mark the beginning of classical economics. The school was active into the mid 19th
century and was followed by neoclassical economics in Britain beginning around 1870.

Classical economists attempted and partially succeeded to explain growth and

development. They produced their "magnificent dynamics" during a period in which
capitalism was emerging from a past feudal society and in which the industrial revolution
was leading to vast changes in society. These changes also raised the question of how
a society could be organized around a system in which every individual sought his or her
own (monetary) gain.

Classical economists reoriented economics away from an analysis of the ruler's personal
interests to a class-based interest. Physiocrat Francois Quesnay and Adam Smith, for
example, identified the wealth of a nation with the yearly national income, instead of the
king's treasury. Smith saw this income as produced by labor applied to land and capital
equipment. Once land and capital equipment are appropriated by individuals, the national
income is divided up between laborers, landlords, and capitalists in the form of wages,
rent, and interest.

Laissez-faire Economics (19th century - 1867 treaty marked use)

Laissez-faire is a French phrase meaning "let it be" (literally,"Let do"). From the French
diction first used by the 18th century physiocrats as an injunction against government
interference with trade, it became used as a synonym for strict free market economics
during the early and mid-19th century. It is generally understood to be a doctrine that
maintains that private initiative and production are best allowed to roam free, opposing
economic interventionism and taxation by the state beyond that which is perceived to be
necessary to maintain individual liberty, peace, security, and property rights. Free-market
anarchists take the idea to its full length by opposing all taxation.

In the laissez-faire view, the state has no responsibility to engage in positive intervention
to force equal wealth distribution or to create a welfare state to protect people from
poverty, instead relying on charity. Laissez-faire also embodies free trade, namely that a
state should not use protectionist measures, such as tariffs and subsidies, in order to
curtail trade through national frontiers. It also contains the idea that the government
should not create legal monopolies or use force to damage de facto monopolies.

In the early stages of European and American economic theory, laissez-faire economic
policy was contrasted with mercantilist economic policy, which had been the dominant
system of the United Kingdom, Spain, France and other European countries, during their
rise to power.

The term laissez-faire is often used interchangeably with the term "free market". Some
use the term laissez-faire to refer to "let do, let pass" attitude for matters outside of
economics.

Laissez-faire is associated with classical liberalism, libertarianism, and Objectivism. It was

originally introduced in the English-language world in 1774, by George Whatley, in the
book Principles of Trade, which was co-authored with Benjamin Franklin. Classical
economists, such as Thomas Malthus, Adam Smith and David Ricardo did not use the
term—Bentham did, but only with the advent of the Anti-Corn Law League did the term
receive much of its (English) meaning.

Austrian Economics (1871)

Austrian Economics (founded by Carl Menger) otherwise known as "The Austrian

School", "Vienna School" or the "Psychological School", is a school of economic thought
that derives from an Aristotelian/rationalist approach that derives from basic principles of
human nature and action.
This Aristotelian/rationalist approach differs both from the currently dominant
Platonic/positivist approach of contemporary neo-classical economics and the once
dominant historical approach of the German historical school and the American
institutionalists.

A student of Austrian Economics and Eugen von Böhm-Bawerk was Ludwig von Mises.
George Reisman, author of "The Government against the Economy" and "Capitalism"
(wherein he endeavored to reconcile Keynesean and Austrian economics) was mentored
by Mises.

Along the lines of thought within this economic theory, Mises felt that the market would
self regulate if given free reign. In many ways he was correct but some points seem to be
missing. The model does not consider mainly the immediate needs and desires of the
businesses and the people without due consideration of long term needs. All in all the
theory is strong but fails to serve the people when weighed with long term need. This is
mainly due to the lack of foresight that desire tends to engender.

In "Interventionism, An Economic Analysis" (1940), Ludwig von Mises wrote:

The usual terminology of political language is stupid. What is 'left' and what is 'right'? Why
should Hitler be 'right' and Stalin, his temporary friend, be 'left'? Who is 'reactionary' and
who is 'progressive'? Reaction against an unwise policy is not to be condemned. And
progress towards chaos is not to be commended. Nothing should find acceptance just
because it is new, radical, and fashionable. 'Orthodoxy' is not an evil if the doctrine on
which the 'orthodox' stand is sound. Who is anti-labor, those who want to lower labor to
the Russian level, or those who want for labor the capitalistic standard of the United
States? Who is 'nationalist,' those who want to bring their nation under the heel of the
Nazis, or those who want to preserve its independence?

Neoclassical Economics (1871-1877)

Neoclassical economics refers to a general approach in economics focusing on the

determination of prices, outputs, and income distributions in markets through supply and
demand. These are mediated through a hypothesized maximization of income-
constrained utility by individuals and of cost-constrained profits of firms employing
available information and factors of production. Mainstream economics is largely
neoclassical in its assumptions, at least at the microeconomic level. There have been
many critiques of neoclassical economics, often incorporated into newer versions of
neoclassical theory as human awareness about economic criteria change. Neoclassical
economics is often called the marginalist school.

Keynesean Economics (1921-1936)

Keynesian economics promotes an economy where the state and the private sectors play
an important role. The theory promotes the idea that demand for goods is the driving
factor of the economy. This theory, which happens to be the main economic theory of our
current economy concludes that there is no impetus to achieve full employment or drive
output and that the state and private businesses must work toward driving policies to
encourage such ends. This seems to be in contrast to the tenets of classical and supply-
side economics as well as the Austrian School.

Wikipedia

The Failure of the "New Economics" (1959) is a book by Henry Hazlitt offering a detailed
critique of John Maynard Keynes's work The General Theory of Employment, Interest and
Money (1936).

Bettina Bien Greaves, in A Man for All Seasons says:

In Economics in One Lesson, Hazlitt demolished various Keynesian programs in a rather

low-key manner. Then in 1959, in The Failure of the "New Economics," he critiqued
Keynes' major work, The General Theory of Employment Interest and Money (1936) in
detail, citing chapter and verse. The Failure of the "New Economics" (1959) is much more
scholarly than Economics in One Lesson, its market narrower, but it is by no means less
important.
To refute each Keynesian error, Hazlitt expounded sound economic theory in a way
academia couldn't ignore. John Chamberlain, who reviewed the book in The Freeman,
titles his review "They'll Never Hear The End of It." The dean of the Department of
Economics at a leading university questioned Hazlitt's credentials for critiquing the noted
Keynes. Mises came to Hazlitt's defense. Hazlitt, Mises responded, was "one of the
outstanding economists of our age," and his anti-Keynes book was "a devastating
critique" of the Keynesian doctrines.

Critics of Hazlitt have asserted that he repeatedly fails to understand Keynes properly
and also never possessed sufficient mathematical ability to critique Keynes.

Supply-Side Economics (1975)

Supply-side economics is a school of macroeconomic thought that argues that economic

growth can be most effectively managed using incentives for people to produce (supply)
goods and services, such as adjusting income tax and capital gains tax rates. This can
be contrasted with the classic Keynesian economics or demand side economics, which
argues that growth can be most effectively managed by controlling total demand for goods
and services, typically by adjusting the level of Government spending. Supply-side
economics is often conflated with trickle-down economics.

The term was coined by journalist Jude Wanniski in 1975, and further popularised by the
ideas of economists Robert Mundell and Arthur Laffer. Supply-side economics is
controversial because its typical recommendation, reduction of the higher marginal tax
rates, offers benefits to the wealthy, which commentators such as Paul Krugman see as
politically rather than economically motivated.

This may have marked the beginning of the advancement of artificial inflation. By placing
incentives to produce (supply) goods and services into the market, a host of things were
inspired to change. Legislative manipulation and even the production of things that were
not needed can easily spawn from such an idea. If the idea was introduced in 1975 and
took a little while to catch hold it may not be unreasonable to assume that this policy direct
may have led to or be a principle factor in the legislative changes that have enabled the
conditions described above.

This dramatic change in incomes in the upper class was not shared even in the upper
middle class and negligible to null in the middle and lower income class segments.

Reaganomics (1981)

Reaganomics (a portmanteau of "Reagan" and "economics," coined by radio broadcaster

Paul Harvey) is a term that has been used to both describe and decry free market
advocacy economic policies of U.S. President Ronald Reagan, who served from 1981 to
1989 and economic policies perceived as similar. A term parallel in use and import is
Thatcherism, which refers to the economic philosophy of British Prime Minister Margaret
Thatcher (1979–1990), who was Reagan's contemporary. Reaganomics is most closely
associated with neoliberal economic thought.

Trickle-down Economics (1981)

"Trickle-down economics" and "trickle-down theory," in political rhetoric, are

characterizations by opponents of the policy of lowering taxes on high incomes and
business activity. Proponents of these policies claim that they will promote new
investment and economic growth, thereby indirectly benefiting people who do not directly
pay the taxes. Opponents characterize this as a claim that the people who would
otherwise pay the tax will distribute their benefit to less wealthy individuals, so that a
fraction will reach the general population and stimulate the economy. Proponents of the
policies generally do not use the terms "trickle-down economics" themselves.

Today "trickle-down economics" is most closely identified with the economic policies of
the Ronald Reagan administration, known as Reaganomics or supply-side economics. A
major feature of these policies was the reduction of tax rates on capital gains, corporate
income, and higher individual incomes, along with the reduction or elimination of various
excise taxes. David Stockman, who as Reagan's budget director championed these cuts
but then became skeptical of them, told journalist William Greider that the term "supply-
side economics" was used to promote a trickle-down idea.
The term "trickle-down" comes from an analogy with a phenomenon in marketing, the
trickle-down effect.

Natural Capitalism (1990's)

Natural capitalism is a set of trends and economic reforms to reward energy and material
efficiency and remove professional standards and accounting conventions that prevent
such efficiencies. It emerged in the 1990s as a coherent theory of how to exploit market
systems and mechanisms of neoclassical economics to save energy, discourage waste,
mimic ecology (biomimicry), and in general to support the goals of environmentalism by
reframing commodity and product relations towards a strictly service economy, thereby
extending the services of natural capital.

When capitalized, the term Natural Capitalism usually refers to the specific set of reforms
described in 1999 by Paul Hawken, Amory Lovins, and Hunter Lovins in the book of the
same name. There is a well-developed theory of natural capital that predates this work
and some generic use of the phrase to apply to environmental economics. A related,
sometimes overlapping, movement believes that networks are inefficient ways to provide
services and advocates autonomous buildings.

DEFINITIONS

Planned (Command) Economy

A planned economy (also known as a command economy or centrally planned economy)

is an economic system in which the state or government controls the factors of production
and makes all decisions about their use and about the distribution of income. In such an
economy, the planners decide what should be produced and direct enterprises to produce
those goods. Planned economies are in contrast to unplanned economies, i.e. a market
economy, where production, distribution, and pricing decisions are made by the private
owners of the factors of production based upon their own interests rather than upon
furthering some overarching macroeconomic plan.

Market Economy
A market economy (aka. free market economy or free enterprise economy) is an
economic system in which the production and distribution of goods and services take
place through the mechanism unconstrained markets. Businesses and consumers decide
what they will produce and purchase; how much to produce, what to charge goods and
services, what to pay employees, etc. In the ideal market economy the government does
not constrain the market. Price and production are naturally regulated by supply, demand
and competition.

Generally, all economies are mixed economies combining varying degrees of market and
command economy traits. For example, in the United States there are more market
economy traits than in Western European countries.

Mixed Economy

A mixed economy typically contains a mix of economic systems, either private-owned and
state-owned enterprises or combined elements of competing economic theories.

Relevant aspects might include: various degrees of private economic freedom (including
privately owned industry) intermingled with centralized economic planning (which may
include intervention for environmentalism and social welfare, or state ownership of some
of means of production).\

A brief History of Economics:

The modern Economics, which we still study now, is the result of the efforts of ancient or
Pre classical (384BC-1776), classical (1776-1871) , Neoclassical (1871-Today) and
Islamic Economists.

Ancient or Pre classical (384BC-1776):

The study of the economy in western civilization was begun largely with the Greeks,
particularly Aristotle (384-322 BC) and Xenophon (420?-355? BC). The ancient economic
thinkers concerned with the theories of money, Taxation, usury, property rights,
Entrepreneurship, Price differentials, Justice in economic exchange and analyzed the
impact of ethics in economics.
Famous economists of the ancient school include St. Thomas Aquinas(1225-1274?),John
Duns Scotus (1265-1308), Jean Buridan(1295 – 1358), Jean Buridan, (1295 –
1358),Nicole de Oresme, (1320-1382),Gabriel Biel, (1425-1495), Sir William Petty (1623-
1687).

Classical (1776-1871):

The classical economists developed the theories about how markets and market
economies work focusing the dynamics of economic growth which stressed economic
freedom and promoted ideas such as laissez-faire and free competition. They introduced
the labor theory of value, theory of distribution (Smith),, Principles of Political Economy
and Taxation((Ricardo 1817, Mill 1848), the theory of surplus value(Karl Marx), principle
of comparative advantage ,international-trade theory (Ricardo) and Monetary theories.

Famous economists of the classical school include Adam Smith, David Ricardo, W.
Jevons, Jean-Baptiste Say, John Stuart Mill, Thomas Malthus, Professor Pigou, and
Alfred Marshall.

Neoclassical (1871-Today):

Neoclassical economists first introduced the theories of Rationality & individual

preferences, utility maximization (Utilitarianism, Jeremy Bentham) and Information
economics, Theories of market forms and industrial organization, general equilibrium
theory, indifference curves and the theory of ordinal utility. Neoclassical economics also
increased the use of mathematical equations in the study of various aspects of the
economy.

Famous economists of the Neoclassical school are William Stanley Jevons (Theory of
Political Economy (1871), Carl Menger (Principles of Economics (1871), Leon Walras
(Elements of Pure Economics (1874 – 1877), Joan Robinson (The Economics of
Imperfect Competition (1933), Edward H. Chamberlin (the Theory of Monopolistic
Competition (1933), Paul Samuelson and so on.

Islamic Economics:
The practice of Islamic Economics was begun in the state of Medina in the 6th century.
After that, the process of Development of this discipline was handled by the different
scholars and Economists in different centuries. many of them are Abu Yusuf (731-798),
Al Farabi (873-950), Al Ghazali (1058-1111), Al mawaridi (1675-1158), Nasir Al-Din Al-
Tusi (1201-1274), Ibn Taymiyyah (1263-1328), Ibn Khaldun (1334-1406) History of the
World (Kitab al-Ibar), Asaad Davani (1444). They amplified the Ideas of consumer theory,
supply and demand, Elasticity, Taxation (Khaldun-Laffer Curve (the relationship between
tax rates and tax revenue) etc in the light of Islamic Economics. Ibn Khaldun was
considered as a Forerunner of modern economics.

The tools of Islamic economics are also employed in modern economics by some
economic thinkers. Among of them, the contributions of M .Umer chapra (Islam
&economic challenges), Monzer Kahf. Najat Ullah Siddiqui, M.A. Mannan, Fahim
Khan,Anas Zarqa are well known to the recent world.

ECONOMIC HISTORY OF THE PHILIPPINES

The Philippines was once a model of development and second only to Japan among east
Asian economies. In the 1960s, when South Korea was a land of peasant, the Philippines
was one of Asia's industrial powerhouses. It produced consumer goods, processed raw
materials and had assembly plants for automobiles, televisions and home appliances.
Chemical plants produced drugs. Scrap metal was imported and made into steel for ships
and factories produced cement, textiles and fertilizer.
Prior to 1970, Philippine exports consisted mainly of agricultural or mineral products in
raw or minimally processed form. In the 1970s, the country began to export manufactured
commodities, especially garments and electronic components, and the prices of some
traditional exports declined. By 1988 nontraditional exports comprised 75 percent of the
total value of goods shipped abroad. *
In the 1970s and 80s, the Philippines declined while its neighbors grew and became one
of the poorest non-Communist governments in Southeast Asia. The gains made in the
1950s and 60s were lost to corruption, cronyism, and mismanagement during the Marcos
years and ineptitude of the Aquino years Now the Philippines is sometimes referred to as
"sick man of Asia" and a "Latin-style banana republic in the South China Sea." Its per
capita income is about one tenth of that of Taiwan. Many of its most talented people work
overseas.
According to The Economist: “What distinguishes Manila from other South-East Asian
capitals is the ubiquitous Jeepney, the loud rickety bus used by the city's poorer
inhabitants. Once modified American Jeeps, nowadays most Jeepneys are cobbled
together from second-hand Japanese lorries. They have become a metaphor for the
Philippine economy: inefficient and easily overtaken. In the 1970s the Philippines was
richer than its neighbours. Yet while it chugged along at growth rates of around 2 percent,
other countries stepped on the gas: it was passed by Singapore, Malaysia, Thailand and,
more recently, by China. A former American colony, it could have made more of its cultural
affinities with the United States, including the widespread use of English. The incompetent
and crooked rule of Ferdinand Marcos from 1965 to 1986 bears some of the blame for its
failure to do so. A sluggish economy combined with a fast-growing population has forced
some 8m Filipinos—equivalent to almost a tenth of the resident population—to seek jobs
abroad.[Source: The Economist, August 16, 2007]
See Agriculture, See History, The Philippines under Spain and the United States.

Economic Development in the Philippines in the Early 20th Century

In the mid-nineteenth century, a Filipino landowning elite developed on the basis of the
export of abaca (Manila hemp), sugar, and other agricultural products. At the onset of the
United States power in the Philippines in 1898-99, this planter group was cultivated as
part of the United States military and political pacification program. The democratic
process imposed on the Philippines during the American colonial period remained under
the control of this elite. [Source: Library of Congress *]
Access to political power required an economic basis, and in turn provided the means
for enhancing economic power. The landowning class was able to use its privileged
position directly to further its economic interests as well as to secure a flow of resources
to garner political support and ensure its position as the political elite. Otherwise, the state
played a minimal role in the economy, so that no powerful bureaucratic group arose that
could pursue a development program independent of the wishes of the landowning class.
This situation remained basically unchanged in the early 1990s. *
At the time of independence in 1946, and in the aftermath of a destructive wartime
occupation by Japan, Philippine reliance on the United States was even more apparent.
To gain access to reconstruction assistance from the United States, the Philippines
agreed to maintain its prewar exchange rate with the United States dollar and not to
restrict imports from the United States. For a while the aid inflow from the United States
offset the negative balance of trade, but by 1949, the economy had entered a crisis. The
Philippine government responded by instituting import and foreign-exchange controls that
lasted until the early 1960s. *

Economic Development in the Philippines in the 1950s and 60s

Import restrictions stimulated the manufacturing sector. Manufacturing net domestic
product (NDP) at first grew rapidly, averaging 12 percent growth per annum in real terms
during the first half of the 1950s, contributing to an average 7.7 percent growth in the
GNP, a higher rate than in any subsequent five-year period. The Philippines had entered
an import-substitution stage of industrialization, largely as the unintended consequence
of a policy response to balance-of-payments pressures. In the second half of the 1950s,
the growth rate of manufacturing fell by about a third to an average of 7.7 percent, and
real GNP growth was down to 4.9 percent. Import demand outpaced exports, and the
allocation of foreign exchange was subject to corruption. Pressure mounted for a change
of policy. *
In 1962 the government devalued the peso and abolished import controls and exchange
licensing. The peso fell by half to P3.90 to the dollar. Traditional exports of agricultural
and mineral products increased; however, the growth rate of manufacturing declined even
further. Substantial tariffs had been put in place in the late 1950s, but they apparently
provided insufficient protection. Pressure from industrialists, combined with renewed
balance of payments problems, resulted in the reimposition of exchange controls in 1968.
Manufacturing recovered slightly, growing an average of 6.1 percent per year in the
second half of the decade. However, the sector was no longer the engine of development
that it had been in the early 1950s. Overall real GNP growth was mediocre, averaging
somewhat under 5 percent in the second half of decade; growth of agriculture was more
than a percentage point lower. The limited impact of manufacturing also affected
employment. The sector's share of the employed labor force, which had risen rapidly
during the 1950s to over 12 percent, plateaued. Import substitution had run its course. *
To stimulate industrialization, technocrats within the government worked to rationalize
and improve incentive structures, to move the country away from import substitution, and
to reduce tariffs. Movements to reduce tariffs, however, met stiff resistance from
industrialists, and government efforts to liberalize the economy and emphasize export-
led industrialization were largely unsuccessful. *

Philippines Economy Under Marcos

The Philippines economy grew at a relatively high average annual rate of 6.4 percent
during the 1970s, financed in large part by foreign-currency borrowing. External
indebtedness grew from $2.3 billion in 1970 to $24.4 billion in 1983, much of which was
owed to transnational commercial banks. In the 1980s the Philippine economy was hurt
by political instability, authoritarianism, increasing foreign debt, falling commodity prices,
corporate mismanagement and vast unemployment.
The Philippines found itself in an economic crisis in early 1970, in large part the
consequence of the profligate spending of government funds by President Marcos in his
reelection bid. The government, unable to meet payments on its US$2.3 billion
international debt, worked out a US$27.5 million standby credit arrangement with the
International Monetary Fund (IMF) that involved renegotiating the country's external debt
and devaluing the Philippine currency to P6.40 to the United States dollar. The
government, unwilling and unable to take the necessary steps to deal with economic
difficulties on its own, submitted to the external dictates of the IMF. It was a pattern that
would be repeated with increasing frequency in the next twenty years. *
In the early 1980s, the economy began to run into difficulty because of the declining world
market for Philippine exports, trouble in borrowing on the international capital market, and
a domestic financial scandal. The problem was compounded by the excesses of
President Ferdinand E. Marcos's regime and the bailing out by government-owned
financial institutions of firms owned by those close to the president that encountered
financial difficulties. In 1983 the country descended into a political and economic crisis in
the aftermath of the assassination of Marcos's chief rival, former Senator Benigno Aquino,
and circumstances had not improved when Marcos fled the country in February 1986. *

Impact of Martial Law on the Philippine Economy in the 1970s and 80s
In September 1972, Marcos declared martial law, claiming that the country was faced
with revolutions from both the left and the right. He gathered around him a group of
businessmen, used presidential decrees and letters of instruction to provide them with
monopoly positions within the economy, and began channeling resources to himself and
his associates, instituting what came to be called "crony capitalism." By the time Marcos
fled the Philippines in February 1986, monopolization and corruption had severely
crippled the economy. *
In the beginning, this tendency was not so obvious. Marcos's efforts to create a "New
Society" were supported widely by the business community, both Filipino and foreign, by
Washington, and, de facto, by the multilateral institutions. Foreign investment was
encouraged: an export-processing zone was opened; a range of additional investment
incentives was created, and the Philippines projected itself onto the world economy as a
country of low wages and industrial peace. The inflow of international capital increased
dramatically. *
A general rise in world raw material prices in the early 1970s helped boost the
performance of the economy; real GNP grew at an average of almost 7 percent per year
in the five years after the declaration of martial law, as compared with approximately 5
percent annually in the five preceding years. Agriculture performed better that it did in the
1960s. New rice technologies introduced in the late 1960s were widely adopted.
Manufacturing was able to maintain the 6 percent growth rate it achieved in the late
1960s, a rate, however, that was below that of the economy as a whole. Manufactured
exports, on the other hand, did quite well, growing at a rate twice that of the country's
traditional agricultural exports. The public sector played a much larger role in the 1970s,
with the extent of government expenditures in GNP rising by 40 percent in the decade
after 1972. To finance the boom, the government extensively resorted to international
debt, hence the characterization of the economy of the Marcos era as "debt driven."
After martial law was declared Marcos's cronies amassed huge fortunes while the
Philippines ran up a huge national that brought the economy to edge of collapse. Real
incomes declined by half between 1956 and 1985 as the wealth of richest 10 percent rose
from 27 percent to 37 percent. In the latter half of the 1970s, heavy borrowing from
transnational commercial banks, multilateral organizations, and the United States and
other countries masked problems that had begun to appear on the economic horizon with
the slowdown of the world economy. By 1976 the Philippines was among the top 100
recipients of loans from the World Bank and was considered a "country of concentration."
Its balance of payments problem was solved and growth facilitated, at least temporarily,
but at the cost of having to service an external debt that rose from US$2.3 billion in 1970
to more than US$17.2 billion in 1980. *
There were internal problems as well, particularly in respect of the increasingly visible
mismanagement of crony enterprises. A financial scandal in January 1981 in which a
businessman fled the country with debts of an estimated P700 million required massive
amounts of emergency loans from the Central Bank of the Philippines and other
government-owned financial institutions to some eighty firms. The growth rate of GNP fell
dramatically, and from then the economic ills of the Philippines proliferated. In 1980 there
was an abrupt change in economic policy, related to the changing world economy and
deteriorating internal conditions, with the Philippine government agreeing to reduce the
average level and dispersion of tariff rates and to eliminate most quantitative restrictions
on trade, in exchange for a US$200 million structural adjustment loan from the World
Bank. Whatever the merits of the policy shift, the timing was miserable. Exports did not
increase substantially, while imports increased dramatically. The result was growing debt-
service payments; emergency loans were forthcoming, but the hemorrhaging did not
cease. *
It was in this environment in August 1983 that President Marcos's foremost critic, former
Senator Benigno Aquino, returned from exile and was assassinated. The country was
thrown into an economic and political crisis that resulted eventually, in February 1986, in
the ending of Marcos's twenty-one-year rule and his flight from the Philippines. In the
meantime, debt repayment had ceased. Real GNP fell more than 11 percent before
turning back up in 1986, and real GNP per capita fell 17 percent from its high point in
1981. In 1990 per capita real GNP was still 7 percent below the 1981 level. *

Impact of U.S. Military Bases on the Philippines Economy

The economy of the Philippines in the Marcos years in many ways was propped by the
Subik and Clark American military bases, trade with the United States and income from
overseas workers. The World Bank played a major role in planning and running the
Filipino economy under martial law.
In early 1991, the Philippine government was in ongoing negotiations with the United
States on the future status of United States naval and air facilities at Subic Bay and Clark
Air Base. What would normally be an issue of foreign policy and national security became
a major domestic political issue and took on an economic dimension of considerable
importance. At the domestic level, the conflict was between those who argued that the
continuing presence of the United States bases was an infringement on Philippine
sovereignty and a continuation of a neocolonial relationship and those who, for a
combination of internal security, foreign relations, and economic reasons, saw the need
for maintaining the presence of the bases. President Aquino, through 1990, refused to
publicly commit herself to a position; however, it was clear that her government was
working to reach accommodation with the United States. As negotiations progressed, the
economic issue became prominent. [Source: Library of Congress *]
There were three economic considerations from the point of view of the Philippine
government. First, the proportion of the Philippine budget allocated for its armed forces
was the smallest in the region, a fact linked to the presence of United States air and naval
forces in the Philippines, as well as direct military assistance. Second, in the latter half of
the 1980s, the bases directly employed between 42,000 and 68,000 Filipinos and
contracted for goods and services from Filipino businesses. During this period, yearly
base purchases of goods and services in the Philippine economy (when corrected for the
estimated import content of the goods purchased) was in the range of P6.0 billion to P8.3
billion. *
A third and politically very important consideration, was the sum given to the Philippines
by the United States in connection with the presence of the bases, referred to as aid by
United States officials and as rent by the Filipinos. Base-related payments were first
agreed to in 1979 when United States president Jimmy Carter made a "best effort" pledge
to secure US$500 million for the Philippines from the United States Congress over a five-
year period. In 1983 another five-year commitment was made, this time for US$900
million. In October 1988, the Philippines' Secretary of Foreign Affairs Raul Manglapus
and United States' Secretary of State George Schultz signed a two-year agreement for
US$962 million, an amount double the previous compensation but substantially less than
the US$2.4 billion that the Philippines initially demanded. In 1991 talks over the future of
the bases and the size and terms of the aid or rent that would be given in consideration
for continued United States access to military facilities in the Philippines was the most
important unresolved issue. The decision of the Philippine administration to bring
Secretary of Finance Jesus Estanislao into the negotiations in March 1991 was a further
indication of the economic importance of the bases to the Philippine government. *

Philippines Economy Under Cory Aquino

The Philippines economy floundered under Corazon Aquino. Power shortages and
brownouts were common. The American military bases were closed down. Economic
growth revived in 1986 under Aquino, reaching 6.7 percent in 1988. But in 1988 the
economy once again began to encounter difficulties. The trade deficit and the government
budget deficit were of particular concern. In 1990 the economy continued to experience
difficulties, a situation exacerbated by several natural disasters, and growth declined to 3
percent. [Source: Library of Congress *]
The Philippine economy experienced considerable difficulty in the 1980s. Real gross
national product (GNP) grew at an annual average of only 1.8 percent, less than the 2.5
percent rate of population increase. The US$668 GNP per capita income in 1990 was
below the 1978 level, and approximately 50 percent of the population lived below the
poverty line. The 1988 unemployment rate of 8.3 percent (12.3 percent in urban areas)
peaked at 11.4 percent in early 1989, and the underemployment rate, particularly acute
for poor, less-educated, and elderly people, was approximately twice that of
unemployment. In 1988, about 470,000 Filipinos left the country to work abroad in
contract jobs or as merchant seamen. *
In 1990 the Philippines had not yet recovered from the economic and political crisis of
the first half of the 1980s. At P18,419, or US$668, per capita GNP in 1990 remained, in
real terms, below the level of 1978. A major thrust of Aquino's 1986 People Power
Revolution was to address the needs of impoverished Filipinos. One of the four principles
of her "Policy Agenda for People-Powered Development," was promotion of social justice
and poverty alleviation. Government programs launched in 1986 and 1987 to generate
employment met with some success, reversing the decline of the first half of the decade,
but these efforts did little to alleviate the more chronic aspects of Philippine poverty.
After Aquino took office the most immediate task for here economic advisers was to get
the economy moving, and a turn around was achieved in 1986. Economic growth was
low (1.9 percent), but it was positive. For the next two years, growth was more
respectable--5.9 and 6.7 percent, respectively. In 1986 and 1987, consumption led the
growth process, but then investment began to increase. In 1985 industrial capacity
utilization had been as low as 40 percent, but by mid-1988 industries were working at
near full capacity. Investment in durable goods grew almost 30 percent in both 1988 and
1989, reflecting the buoyant atmosphere. The international community was supportive.
Like domestic investment, foreign investment did not respond immediately after Aquino
took office, but in 1987 it began to pick up. The economy also was helped by foreign aid.
The 1989 and 1991 meetings of the aid plan called the Multilateral Aid Initiative, also
known as the Philippine Assistance Plan, a multinational initiative to provide assistance
to the Philippines, pledged a total of US$6.7 billion. *
Economic successes, however, generated their own problems. The trade deficit rose
rapidly, as both consumers and investors attempted to regain what had been lost in the
depressed atmosphere of the 1983-85 period. Although debt-service payments on
external debt were declining as a proportion of the country's exports, they remained above
25 percent. And the government budget deficit ballooned, hitting 5.2 percent of GNP in
1990. *
The 1988 GNP grew 6.7 percent, slightly more than the government plan target. Growth
fell off to 5.7 percent in 1989, then plummeted in 1990 to just over 3 percent. Many factors
contributed to the 1990 decline. The country was subjected to a prolonged drought, which
resulted in the increased need to import rice. In July a major earthquake hit Northern
Luzon, causing extensive destruction, and in November a typhoon did considerable
damage in the Visayas. There were other, more human, troubles also. The country was
attempting to regain a semblance of order in the aftermath of the December 1989 coup
attempt. Brownouts became a daily occurrence, as the government struggled to
overcome the deficient power-generating capacity in the Luzon grid, a deficiency that in
the worst period was below peak demand by more than 300 megawatts and resulted in
outages of four hours and more. Residents of Manila suffered both from a lack of public
transportation and clogged and overcrowded roadways; garbage removal was woefully
inadequate; and, in general, the city's infrastructure was in decline. Industrial growth fell
from 6.9 percent in 1989 to 1.9 percent in 1990; growth investment in 1990 in both fixed
capital and durable equipment declined by half when compared with the previous year.
Government construction, which grew at 10 percent in 1989, declined by 1 percent in
1990. *

Economic Policy Under Cory Aquino

In 1986 Corazon Aquino focused her presidential campaign on the misdeeds of Marcos
and his cronies. The economic correctives that she proposed emphasized a central role
for private enterprise and the moral imperative of reaching out to the poor and meeting
their needs. Reducing unemployment, encouraging small-scale enterprise, and
developing the neglected rural areas were the themes. [Source: Library of Congress *]
Aquino entered the presidency with a mandate to undertake a new direction in economic
policy. Her initial cabinet contained individuals from across the political spectrum. Over
time, however, the cabinet became increasingly homogeneous, particularly with respect
to economic perspective, reflecting the strong influence of the powerful business
community and international creditors. The businesspeople and technocrats who directed
the Central Bank and headed the departments of finance and trade and industry became
the decisive voices in economic decision making. Foreign policy also reflected this power
relationship, focusing on attracting more foreign loans, aid, trade, investment, and
tourists. *
It soon became clear that the plight of the people had been subordinated largely to the
requirements of private enterprise and the world economy. As the president noted in her
state-of- the-nation address in June 1989, the poor had not benefited from the economic
recovery that had taken place since 1986. The gap between the rich and poor had
widened, and the proportion of malnourished preschool children had grown. *
The most pressing problem in the Philippine international political economy at the time
Aquino took office was the country's US$28 billion external debt. It was also one of the
most vexatious issues in her administration. Economists within the economic planning
agency, the National Economic and Development Authority (NEDA), argued that
economic recovery would be difficult, if not impossible, to achieve in a relatively short
period if the country did not reduce the size of the resource outflows associated with its
external debt. Large debt-service payments and moderate growth (on the order of 6.5
percent per year) were thought to be incompatible. A two-year moratorium on debt
servicing and selective repudiation of loans where fraud or corruption could be shown
were recommended. Business-oriented groups and their representatives in the
president's cabinet vehemently objected to taking unilateral action on the debt, arguing
that it was essential that the Philippines not break with its major creditors in the
international community. Ultimately, the president rejected repudiation; the Philippines
would honor all its debts. *
Domestically, land reform was a highly contentious issue, involving economics as well
as equity. NEDA economists argued that broad-based spending increases were
necessary to get the economy going again; more purchasing power had to be put in the
hands of the masses. Achieving this objective required a redistribution of wealth
downward, primarily through land reform. Given Aquino's campaign promises, there were
high expectations that a meaningful program would be implemented. Prior to the opening
session of the first Congress under the country's 1987 constitution, the president had the
power and the opportunity to proclaim a substantive land reform program. Waiting until
the last moment before making an announcement, she chose to provide only a broad
framework. Specifics were left to the new Congress, which she knew was heavily
represented by landowning interests. The result--a foregone conclusion--was the
enactment of a weak, loophole-ridden piece of legislation. *
The Aquino administration appeared to be unable to work with the Congress to enact an
economic package to overcome the country's economic difficulties. In July, as the
government deficit soared Secretary of Finance Jesus Estanislao introduced a package
of new tax measures. Then in October, stalemated with Congress, Aquino agreed to seek
a reduction in the budget gap without new taxes. The agreement met with resistance from
the Congress for being an onorous imposition on an economy in crisis, growth would be
stifled and the poor would be impacted negatively. The willingness of the Congress to
pass the tax package called for in the IMF agreement was in doubt. In 1990 Congress
placed a 9 percent levy on all imports to provide revenues until an agreement could be
reached with the administration on a tax package. In February 1991, however, it was
learned that in its agreement with the IMF for new standby credits, the government had
promised that it would indeed implement new taxes. *
Accusations were widespread in Manila's press about the 1990-91 impasse. On the one
hand, it was claimed that Aquino and her advisers had no economic plan; on the other
hand, the Congress was said to be unwilling to work with the president. Traditional political
patterns appeared to be reasserting themselves, and the technocrats had little ultimate
influence. One study of the first Congress elected under the 1987 constitution showed
that only 31 out of 200 members of the House of Representatives, were not previously
elected officials or directly related to the leader of a traditional political clan. Business
interests directly influenced the president to overrule already established policies, as in
the 1990 program to simplify the tariff structure. Business and politics have always been
deeply interwoven in the Philippines; crony capitalism was not a deviant model, but rather
the logical extreme of a traditional pattern. As the Philippines entered the 1990s, the
crucial question for the economy was whether the elite would limit its political activities to
jockeying for economic advantage or would forge its economic and political interests in a
fashion that would create a dynamic economy. *

Economy Under Ramos

President Fidel Ramos (1992-1998) was given high marks for handling the economy. By
breaking apart monopolies, liberalizing foreign investment laws and privatizing business
and industries by controlled powerful families, Ramos was crediting with transforming the
Philippines from a country with a history of poverty, corruption, rebellion, foreign ineptness
and tax evasion into an economic powerhouse that was not yet an Asian tiger but was
sometimes referred to as Asian tiger cub.
Oliver Teves of Associated Press wrote: “For a brief period of the 1990s, the Philippines
under the presidency of Fidel Ramos registered high growth rates and was touted as the
next Asian "tiger" economy. But the ingrained poverty, corruption and crime rate, and the
abiding threat of another popular uprising conspire to scare away investors and drain the
country of its best brains and hardest workers. [Source: Jim Gomez and Oliver Teves
Associated Press, February 25, 2006 +^+]
The Philippine economy showed some improvement in early 1992, spurred by increases
in agricultural production and in consumer and government spending. Budget deficits
were well within IMF guidelines--P3.2 billion in the first two months. At the end of April,
the treasury posted a P5.5 billion surplus as a result of higher than programmed revenue
receipts, mainly from the sale of Philippine Airlines. The increased revenue permitted the
early repeal of the 5 percent import surcharge, stimulating both import spending and
export growth. The money supply grew more rapidly than desired, but was kept under
control. Treasury bill rates fell to 17.3 percent in March 1992 from 23 percent in November
1991, and inflation was down to 9.4 percent for the first quarter of 1992, from 18.7 percent
in 1991. *
One of the greatest threats to the Philippine economy in 1992 was the power shortage.
The fall in the water level in Lake Lanao caused a 50 percent reduction in the power
supply to Mindanao in December 1991, and the resumption of full power was not expected
until almost the end of 1992. The power shortage in Luzon continued to be chronic. Power
cuts of four to five hours per day have been common; in May they reached six hours on
some days in Manila, the country's industrial hub. To help to meet this chronic shortage,
the government reactivated the contract with Westinghouse Corporation to restart
construction on a 620 megawatt nuclear power plant on the Bataan Peninsula that had
been abandoned in 1986. This plant however was not scheduled to go on line until 1995.
*
To get the Philippines economy going, Ramos and the Philippine Congress abolished
tariffs and preferential terms that enriched the rich families. He reformed the banking
system and drove down interest rates. He overhauled the electricity infrastructure so that
energy shortages and brown outs became a thing of the past.
The growth rate during the Ramos years was a robust 5 percent a year and inflation was
in the single digits, down from 25 percent in 1990. Under his leadership, fiber optic lines
were installed, property values soared, five star hotels and condominiums were built, the
stock market showed big gains, overseas workers began returning home and the former
American military bases at Subic and Clark became thriving trade and industrial centers.
Foreign investment increased. Companies like Acer (a Taiwanese company) and Intel
moved into the Philippines Much of the prosperity was linked to investments from Hong
Kong by tycoons like Gordon Wu, who shipped their money to Manila before the
reunification with China. In the early 1990s, the Philippines was regarded as an economic
rival of Thailand and Malaysia now it lags far behind them.

Asian Economic Crisis in the Philippines in 1997-98

During the Asian Economic Crisis in 1997-98, the Philippines the stock market declined
by 32 percent and the currency against the dollar had depreciated by as much as 48
percent and later level off at 30 percent at end of December 1997. Because many of its
exports went to Europe it was not hurt that badly by a lack of demand from crisis-hit Asia.
The level of bad loans never got that high. Money sent home by Filipino workers abroad
helped stabilize the currency. Most currency speculators were Filipinos.
The IMF offered some help. Foreigners were not allowed to sell pesos. Businesses
responded to the crisis in a favorable way. They reduced debt, closed money-losing
factories, and agreed to mergers and joint ventures with foreigners. Even so the
Philippines recovered more slowly after the cris than some other Asian countries that
were much harder hit.

Economy Under Estrada

There was a sense of optimism when Joseph Estrada was elected. Investors shared this
sense of hope and initially poured money into the Philippines but it didn’t take long for this
optimism to evaporate. Foreign investors were turned off by cronyism, scandals and
favoritism towards Philippines companies.
Estrada moved to tighten securities regulations, liberalize the trade of grains and privatize
the electricity industry. His effort to change laws limiting foreign ownership of businesses
to 40 percent was halted by his impeachment trial.
In the end Estrada proved to be a friend of big business. He revived the culture of
corruption and was plagued by charges of cronyism. This was on top of inconsistent
monetary policy, slow economic growth, and uncertainty brought about by terrorists and
insurgencies. He said he was a friend of the poor yet he failed to launch one meaningful
anti-poverty program. Most of his efforts consisted of parading around with movie stars
that were reminiscent of what Imelda Marcos did. There also wasn’t much of an effort to
pave roads, set up irrigations projects or build school or collect taxes to pay for them.
As Estrada became embroiled in scandal, the peso, the stock markets and confidence in
the Philippines as a place to invest dropped as did his approval ratings dropped. Foreign
companies like Philips Electronics and Johnson & Johnson pulled out of the Philippines.
After his ouster in 2001 he left behind a huge budget deficit and debt payments that were
double what the country sent on health, education and agriculture combined. The sick
man of Asia was sicker than ever.
See Corruption

Economy Under Arroyo

Gloria Macapagal-Arroyo was welcomed with great fanfare when she became president
in 2001. The day she was sworn in, the stock market surged 30 percent and businessmen
praised her skills and abilities, Arroyo launched free market and anti-corruption policies
that were welcomed by both the local and international business communities. Again
there was a sense of hope.
 But again the sense optimism didn’t last long. Investment dried up as a result of global
slowdowns and security concerns. Direct foreign investment was only $319 million in
2001 compared to $1.8 billion in 1992.
Growth was 3.4 percent in 2001, 4.3 percent in 2002 and 4.5 percent in 2003. In 2004
the economy was hurt by high oil prices. Still more growth was needed just to keep pace
with 2.36 percent population growth rate. Inflation was less than 6 percent but the deficit
grew at an alarming rate as the government spending increased and tax revenues fell.
Raising revenues became one of the main problems. In 2003, the deficit reached $3.6
billion and debt was estimated to be over $100 billion. The government’s debt burden
reached its peak in 2004 when it settled at 74 percent of GDP.
Arroyo began her second term in 2004 with promises of “austerity and simplicity” and the
announcement of a reform package to fight corruption, attract foreign investment, and
make the Philippines less dependent on foreign energy. She promised to create 10 million
jobs by 2010 and announced that power rates would be doubled to avert an energy crisis,
She also promised to provide clean water and electricity to every village in the Philippines
and build 3,000 schools. The plan called for the seemingly impossible combination of
increased spending, higher taxes and a balanced budget in five years.
Arroyo’s economic drive quickly lost momentum. She was unable to over come political
opposition to privatizing companies like the National Power Corporation, which lost $1.8
billion in 2003. Instead an effort was made to make them efficient. By the end of her term
much of her time was spent responding to charges that she rigged the 2004 elections and
he was husband was involved in kickback scheme with a Chinese company involving
millions of dollars.
Growth in 2003 and 2004 was around 5 percent due in art to rising demand for Philippines
electronic exports. Growth occurred despite continued hikes in oil and consumer prices
on top of typhoons and floods. Growth was 4.7 percent in 2005. That year exports
amounted to 40 percent of GDP. Many of the export items were electronics. Two-thirds
of Philippine imports are used to build exported computer parts, disks and other electronic
products made by local units of companies such as Texas Instruments Inc. and Toshiba
Corp.
See Debt and Deficit, Taxes, Tax Evasion

Philippines Economy Picks Up in the Mid-2000s

Arroyo was an economics professor after all and not everything that happened under her
watch was a failure. In fact she had many good ideas and policy schemes but they were
overshadowed by her political troubles and bogged down in Congress. In 2007, before
the global economic crisis took hold, The Economist reported: Things are looking up. The
economy has grown by at least 5 percent in each of the past three years, for the first time
since the 1970s. In the first quarter of this year, growth was 6.9 percent, year-on-year.
Soaring remittances from Filipinos overseas help. Last year they added up to $12.8
billion, equivalent to 11 percent of GDP. Exports—especially to China and most
particularly of microchips—are also booming. [Source: The Economist, August 16, 2007
*-*]
“Better economic management also helps. Inflation is now 2.6 percent, down from 8.6
percent in 2004. Changes made in 2005 have increased tax revenues without hurting
growth. Despite recent wobbles, the government should still come close to balancing the
budget next year, compared with a deficit of over 5 percent of GDP in 2002. The country's
banks, hurt badly in the 1997 Asian financial crisis, have been slow to recover, but now
they are starting to lend again. Foreign direct investment is picking up from a low base.
Texas Instruments recently chose the Philippines over China for a $1 billion electronics
factory, while Hanjin, a South Korean shipbuilder, will spend $1.7 billion on its Philippines
yard. Foreign mining firms have started to develop huge untapped mineral reserves. *-*
“The Philippines has rapidly emerged as India's main rival in business-process
outsourcing (BPO) and now hosts the call-centres of many American firms. A recent study
by the Asian Development Bank reckoned that BPO could provide jobs for up to 11
percent of those joining the Philippines' labour force between now and 2010. *-*
All good news, but worries remain. However welcome the growth in call-centre jobs, it is
engineering and business graduates who are queueing to take them. A recent
International Labour Organisation study noted that the country's average annual
productivity growth between 2000 and 2005 was just 0.9 percent, compared with 10.3
percent in China and 4.9 percent in India, suggesting that “many new job entrants are
underemployed”. *-*
“A chief problem, despite foreign interest, is a rate of investment that is at 20-year lows
as a share of GDP. Poor infrastructure, especially roads, hampers businesses of all sorts.
Gil Beltran, a senior finance-ministry official, says the government intends to increase
annual infrastructure spending from 2.8 percent of GDP to 5 percent. Successive
administrations have had a poor record of keeping such promises. The public finances
still need a lot of fixing. Tax revenues as a share of GDP are still below pre-1997 levels,
while public debt is high, at around 75 percent of GDP. The next big job, says Mr Beltran,
is to simplify the mess of illogical tax breaks that cost a fortune in lost revenues. Efforts
to drag big-business tax-dodgers to court have so far got nowhere. A swingeing tax rise
on Jeepney owners looks like squeezing the poor to spare the rich.
Perhaps a virtuous cycle will develop. The government might boost revenues and spend
them on sensible works, so encouraging business, which would boost tax revenues
further. It is easier to imagine the Philippines slipping back into complacency, relaxing its
efforts and letting this golden opportunity pass by. *-*
Philippines and the Global Economic Crisis in 2008 and 2009
The Philippines was affected by global economic crisis in 2008 and 2009 as was nearly
everywhere. Clarissa Batino of Bloomberg wrote in December 2008: “The Philippine peso
headed for its worst year since 2000 and stocks had their biggest annual loss in at least
two decades on signs the global slowdown is hurting sales of the nation’s exports”. A
“drop in trade flows is a bad sign that the economy will be slowing pretty rapidly,” said
Simon Wong, an economist at Standard Chartered Plc in Hong Kong. “The global
downturn puts pressure on Asian economies and currencies, including the peso.”
[Source: Clarissa Batino, Bloomberg, December 24, 2008 |::|]
“The currency is poised for a 13.4 percent loss this year, the most since shortly before
former President Joseph Estrada was ousted in a revolt. The Philippine Stock Exchange
Index slumped 48 percent this year to 1,872.85, the biggest annual drop since Bloomberg
started tracking the data in 1988.Overseas sales account for a third of the $144 billion
economy. The Philippines imports electronics components and exports mobile-phone
chips and computer parts. Gross domestic product may expand 0.7 percent next year,
compared with an estimated 3.8 percent this year, Wong said, citing contractions in
exports and remittances in 2009. The government expects growth of as little as 4.1
percent this year and 3.7 percent in 2009, versus last year’s three-decade high of 7.2
percent. |::|
“The World Bank expects global trade to shrink in 2009 for the first time in more than 25
years, threatening export-reliant economies in Asia. The Philippines last week cut interest
rates to support growth as the global slump weakened demand for Intel Corp.’s computer
chips and other electronics goods, which account for two-thirds of the nation’s overseas
sales. |::|

Philippine Economy Picks Up in the 2010s Under Benigno Acquino III

The Philippines economy picks up in the 2000s under Benigno Acquino III. The Philippine
economy expanded by 7.2 percent in 2013, 6.8 percent in 2012, 3.7 percent in 2011 and
7.6 percent in 2010. In 2012, gross domestic product surpassed the government’s
forecast for growth of 5 percent to 6 percent. The Philippines had the second-highest
growth rate in the world 2012, after China, according to Reuters. Government expenditure
in the Philippines jumped nearly 12 percent in 2012, while private spending, which was
bolstered by remittances from abroad, was up 6.1 percent, Reuters reported.
In 2012, Floyd Whaley wrote in the New York Times, “With $70 billion in reserves and
lower interest payments on its debt after recent credit rating upgrades, the Philippines
pledged $1 billion to the International Monetary Fund to help shore up the struggling
economies of Europe. “This is the same rescue fund that saved the Philippines when our
country was in deep financial trouble in the early ’80s,” said Representative Mel Senen
Sarmiento, a congressman from Western Samar. [Source: Floyd Whaley, New York
Times, August 27, 2012 /^\]
“The Philippines has certainly had a steady flow of positive economic news recently. On
July 4, 2012, Standard & Poor’s raised the country’s debt rating to just below investment
grade, the highest rating for the country since 2003 and equivalent to that of Indonesia.
The Philippines is the 44th-largest economy in the world today, according to HSBC
estimates. But if current trends hold, it can leap to the No. 16 spot by 2050. The Philippine
stock market, one of the best performers in the region, closed at a record high after the
recent S.& P. rating upgrade, and the country’s currency, the peso, reached a four-year
high against the dollar at about the same time. /^\
“The gross domestic product of the Philippines grew 6.4 percent in the first quarter,
according to the country’s central bank, outperforming all other growth rates in the region
except China’s. Economists expect similarly strong growth in the second quarter. “We
have made a very bold forecast for the Philippines, but I think justifiably so,” said Frederic
Neumann, a senior economist at HSBC in Hong Kong. /^\
“ Trinh D. Nguyen, an economist with HSBC in Hong Kong, said the Philippines had
benefited from an increase in government efficiency and revenue collection, as well as
aggressive actions to address corruption, like the impeachment of the chief justice of the
Supreme Court and the arrest of former President Gloria Macapagal Arroyo on suspicion
of accepting kickbacks and of misusing government lottery money. “It is not only short-
term growth that draws investors to the Philippines,” Ms. Nguyen said. “The fundamentals
are there.”/^\
“But there are also real weaknesses in the country. Recent flooding, which by some
estimates submerged 50 percent of Manila, illustrates a shortage of modern infrastructure
that makes the Philippines highly vulnerable to disasters. “The Philippines is hit with
several deadly and devastating natural disasters every year,” Ms. Nguyen said. But
government officials have said that the recent flooding might actually help economic
growth, because reconstruction will require an increase in public spending and the
country will have to put into place programs to make it more resistant to the effects of
natural disasters. /^\
“Another hurdle is the fact that the Philippines has traditionally underexploited its natural
resources. The government estimates that there are 21.5 billion tons of metal deposits in
the country, including large deposits of nickel, iron, copper and gold. But they have never
been a significant driver of economic growth because extraction has been mismanaged,
Mr. Neumann said. In the shorter term, there are concerns that the country’s newfound
prosperity has not sufficiently eradicated poverty. /^\

Philippines Economy Improves But Doesn’t Create So Many Jobs

 Floyd Whaley wrote in the New York Times, “At his vegetable stand on a busy street in
the Philippine capital, Lamberto Tagarro is surrounded by gleaming, modern skyscrapers,
between which a river of luxury vehicles flows. “The Philippines is the rising tiger economy
of Asia,” Mr. Tagarro said. “But only the rich people are going up and up. I’m not feeling
it.” Mr. Tagarro earns the equivalent of about $5 a day working before dawn and after
dark, battling petty corruption to maintain his improvised sidewalk stand and dealing with
rising wholesale prices for the onions and tomatoes he sells. [Source: Floyd Whaley, New
York Times, June 19, 2013 ==]
“The Philippines, with a 7.8 percent expansion of gross domestic product in the first
quarter of 2013, has the fastest-growing economy in East Asia, surpassing even China’s.
The country has a red-hot stock market, a strong currency and a steady stream of
accolades and upgrades from international ratings agencies. But Mr. Tagarro’s
experience — of being left behind by the country’s newfound prosperity — mirrors that of
many Filipinos, according to the latest government poverty and employment data. ==
“An estimated seven million Filipinos, about 17 percent of the work force, have gone
overseas in search of jobs, according to the Asian Development Bank. For those who
stay home, options are few. Despite the rapidly expanding economy, the country’s
unemployment rate increased to 7.5 percent in April, from 6.9 percent at the same time a
year earlier. About three million Filipinos who want to work are unemployed. “Higher rates
of economic growth over recent years have not made a serious dent in the employment
problem in the Philippines,” the Asian Development Bank reported in its recent Asian
Development Outlook report.” ==
In some cases the number of unemployed has risen as the economy has grown. Earlier
Whaley wrote in New York Times, “The robust growth in the Philippines in 2012 has not
translated into significant job growth, according to government figures. Unemployment
was at 6.8 percent in October, up from 6.4 percent a year earlier, and the number of
unemployed in the country rose to 2.76 million from 2.64 million.” [Source: Floyd Whaley,
New York Times, January 31, 2013]

President Benigno Acquino III and the Failure to Create Jobs

Floyd Whaley wrote in the New York Times, “President Benigno S. Aquino III ran on a
platform of clamping down on corruption, improving the business environment in the
country and addressing widespread poverty. In his first three years in office, Mr. Aquino
removed high-level government officials accused of corruption, cracked down on tax
evaders and aggressively courted foreign investment. Though his efforts to improve the
economy have received accolades, he has had less success in addressing the country’s
persistent, widespread poverty. [Source: Floyd Whaley, New York Times, June 19, 2013
==]
 “Mr. Aquino’s political opponents argued before recent legislative elections that his
actions had further enriched the wealthy and left the poor behind. The Philippines still has
a strong service sector. In 2011, it overtook India as a top provider of offshore call centers.
But the country lacks the manufacturing base that has lifted millions of people out of
poverty in other Asian countries. In countries like China, the rural poor increased their
income by finding jobs in factories. That is rarely an option in the Philippines, and few
poor people from the countryside are qualified to work in a call center.” ==
In early 2013, Amando Doronila wrote in the Philippine Daily Inquirer, “The Aquino
administration flooded the media with the report that the economy expanded 6.6 percent
in 2012. The result however was not good enough to have any significant social impact
on alleviating poverty and reducing the wide wealth chasm between the rich and the poor.
Growth in the past two years of the Aquino administration has not translated into creating
enough jobs for the poor that will allow them to break out of the poverty trap.[Source:
Amando Doronila, Philippine Daily Inquirer, February 4, 2013 /*/]
“The President, however, acknowledged that “the gap between the powerful and the
powerless” has become too huge. Too many people are being left behind and it has also
become clear that inequity is borne of corruption. “The few at the top have been allowed
to run roughshod over the many and have [manipulated] the system to benefit
themselves, while the rest wallow in poverty,” the President said. “The greatest challenge
for any modern society, then, is how to stem the corruption that has feasted on the very
moral fabric of our society,” he added. /*/
“Socioeconomic Planning Secretary Arsenio Balisacan said the “impressive” 6.5-percent
growth for 2012 should be sustained for several years to allow its effects to filter down to
the grassroots and benefit ordinary Filipinos. Asked about how long would it take for the
broad section of the population to benefit from the growth, Balisacan was evasive. “It
should be happening, but don’t expect a miracle [where poverty would be] wiped out or
substantially reduced,” he said.The 6.5-percent growth figure reflected “only one year”
performance of the economy. “If you note experiences of countries around us, it takes
several years of sustained … or rapid growth before you can reduce poverty, say by one-
half for the population,” Balisacan said. /*/
“Benjamin Diokno, a professor at the University of the Philippines’ School of Economics,
agreed that 6.6 percent for 2012 was “a strong growth,” he expressed doubt that the
growth rate would be sustainable. Diokno pointed out that based on the October labor
statistics, the recent growth may be characterized as “labor-shedding growth. Close to 1
million jobs were lost.” Most Filipinos still depend on agriculture and related sectors for a
living, he said.” /*/

Philippine Economy Grows 7.2 Percent in 2013

 Beating government expectations, the Philippine economy expanded by 7.2 percent in
2013. Combined with 2012 Philippines experiences its strongest two years of growth
since the 1950s. Karl Lester M. Yap and Cecilia Yap of Bloomberg wrote: “Gross domestic
product rose 7.2 percent in 2013, the Philippine Statistics Authority said, after gaining 6.8
percent in the previous year. That was the fastest two-year pace since 1954-1955, data
compiled by Bloomberg show. A recovery in advanced economies may help President
Benigno Aquino achieve his goal of bolstering growth to as much as 8.5 percent by 2016
as he transforms the country into a manufacturing hub. Rising exports have helped
counter the impact of Super Typhoon Haiyan, and the central bank said today it will act if
needed to contain inflation expectations. “The Philippine economy clearly still has strong
momentum despite the typhoon,” said Edward Teather, an economist at UBS AG who
covers Southeast Asian markets from Singapore. “That sort of strength in the context of
an acceleration in developed nations increases the risk of overheating, something policy
makers should keep an eye on.” [Source: Karl Lester M. Yap and Cecilia Yap, Bloomberg,
January 29, 2014]
“The Philippines won its first investment-grade scores from Moody’s Investors Service,
Fitch Ratings and Standard and Poor’s last year. Aquino’s pledge to curb corruption and
spur faster growth has seen foreign direct investment almost double to $2.8 billion in 2012
from 2008, World Bank data show. Consumer spending rose 5.6 percent last quarter from
a year earlier, according to today’s report. Investment gained 5.7 percent, while
manufacturing increased 12.3 percent. [Ibid]
Jovan Cerda wrote in philstar.com: “Socioeconomic Planning Secretary Arsenio
Balisacan said the economy grew better than the government's official target of 6 to 7
percent for 2013, but added that it could have been higher had the country not been
affected by various disasters. "Indeed, growth could have been better, had we not been
perturbed by various disasters that hit the country such as the Bohol earthquake, the
Zamboanga siege and typhoon Yolanda," he said. [Source: Jovan Cerda, philstar.com,
January 30, 2014 ||||]
“The Philippines remains as one of the best performing economies in the Asian region in
the fourth quarter of 2013, second only to China, which grew by 7.7 percent, Balisacan
said. On the supply side, the services and industry sectors continued to be the drivers of
economic growth, expanding by 7.1 percent and 9.5 percent in 2013, respectively. "The
services sector contributed 3.6 percentage points of the real GDP growth in the fourth
quarter of 2013. This was followed by the industry sector with 2.8 percentage points and
agriculture with 0.1 percentage point. Fourth-quarter growth on the supply side was
mainly propelled by manufacturing, trade, finance and real estate," Balisacan said. ||||
“Meanwhile, on the demand side, growth was boosted by household consumption, which
contributed 4.2 percentage points, and net exports, which contributed 1.6 percentage
points. Despite the better-than-expected growth, however, some sectors tamed overall
growth for 2013, Balisacan said. "Construction had the biggest setback in the fourth
quarter. The subsector contracted by 0.8 percent due to stricter rules imposed on real
estate lending in compliance with prudential regulations. The Board of Investments has
also tightened mass housing incentives. The rule requiring developers to allot 20 percent
of their total housing investment for low-cost mass housing units is now being closely
monitored and enforced." ||||
“Government spending also slowed down by 5.2 percent, dipping from the 9.5 percent
growth posted in the fourth quarter of 2012. The deceleration was due to lower
disbursements in personnel services and maintenance and other operating expenditures.
For the full year, however, government spending jumped by 8.6 percent. Imports also
slowed down by 1.9 percent during the last quarter of 2013 from the 8 percent posted in
the same period in 2012. ||||
“Aside from slowdowns in certain sectors, the combined impact of typhoons and other
disasters may have also reduced the full year real GDP growth by at least 0.1 percentage
point, Balisacan said. Looking forward, Balisacan said the agriculture and industry sectors
are expected to be vibrant this year, as the government promotes linkages between the
two sectors to increase value added as a key strategy identified in the Philippine
Development Plan midterm update. Major infrastructure projects, especially in the
transport sector are also expected to boost growth this year and beyond....[W]e are
optimistic that the Philippine economy will remain strong in 2014, especially that the
outlook on the global economy is becoming more favorable and as the domestic economy
remains robust," he said. ||||

Philippines Gets First-Ever Investment Grade Rating

In March 2013, the Philippines achieved its first-ever investment grade rating after
international debt watcher Fitch raised the country’s rating to BBB- from BB+. Daxim L.
Lucas wrote in the Philippine Daily Inquirer, “Fitch Ratings — the first of the three major
international debt watchers to upgrade the Philippines — also assigned a stable outlook
for the country’s credit rating. Fitch cited the country’s sovereign balance sheet as being
comparable to those of ‘A’-rated nations, while a “persistent current account surplus,
underpinned by remittance inflows” has made the country a “net creditor” from its previous
deficit position. Fitch also noted the economy’s 6.6-percent economic growth for 2012
and the expected strong growth for 2013, both of which are “stronger and less volatile”
that BBB-rated peers over the last five years. “Improvements in fiscal management begun
under President Arroyo have made general government debt dynamics more resilient to
shocks,” Fitch said. [Source: Daxim L. Lucas, Philippine Daily Inquirer, March 27, 2013]
In May 2013, Standard & Poor' increased the Philippines a long-term sovereign credit
rating of "BBB" from "BBB-", and upgraded its short-term rating to "A-2" from "A-3". “The
outlook is stable. "We raised the ratings because we now believe the ongoing reforms to
address shortcomings in structural, administrative, institutional, and governance areas
will endure beyond the current administration," Standard & Poor's credit analyst Agost
Benard noted in an e-mailed statement to reporters. [Source: Danessa O. Rivera, GMA
News, May 8, 2014 <=>]
GMA News reported: “The debt watcher also noted the upgrade "reflects the country's
strong external liquidity and international investment position, combined with an effective
monetary policy framework relative to the country's income level," while maintaining low
inflation and interest rates. Malacañang said it was "gratified" by the latest credit rating
upgrade from S&P. "And we are hopeful that this will eventually translate into increased
investments, and accelerated jobs generation," Presidential Communications Operations
Office head Herminio Coloma Jr. said. The Aquino administration is "committed to
strengthen public institutions, and build increased capacity among citizens and
communities, and thereby promote the attainment of inclusive growth. This is the path
that leads to sustained economic development and the raising of the Filipino people’s
quality of life," Coloma added. <=>
“S&P gave the Philippines an investment grade rating on May 2, 2013. It was the second
upgrade from practically junk status since Fitch Ratings gave the Southeast Asian country
its first ever investment grade status in March 2013. In a statement Friday, Budget
Secretary Florencio Abad said S&P basically validated the progress in good governance
reforms under the the Aquino administration. “For one, this credit upgrade recognizes the
gains brought about by the public financial management reforms we have instituted,"
Abad noted "We are on the right track in terms of continuously improving our public
spending efficiency, primarily in ramping up investments for infrastructure projects,
among other key priority and substantial programs and projects," he added. <=>

Philippine Economy in 2014

Karl Lester M. Yap and Cecilia Yap of Bloomberg wrote: “Aquino plans to increase
spending to a record this year while seeking more than $8 billion of investments in
highways and airports to improve infrastructure and create jobs. San Miguel Corp., Ayala
Corp. (AC) and Megawide Construction Corp. are among companies building schools,
power plants and roads. The government estimates reconstruction of the typhoon-
affected areas will cost 361 billion pesos ($8 billion). [Source: Karl Lester M. Yap and
Cecilia Yap, Bloomberg, January 29, 2014]
Disasters slowed the Philippine economic growth down to 5.7 percent in 1st quarter of
2014. Cliff Venzon of Nikkei wrote: “Philippine economic growth slowed a year-on-year to
5.7 percent in the first quarter of 2014, as natural disasters weighed on production, the
government reported. This makes the Philippines the third-fastest growing economy in
Asia after China (7.4 percent) and Malaysia (6.2 percent), National Economic and
Development Authority Secretary Arsenio Balisacan said in a briefing. The growth, the
slowest since the fourth quarter of 2011, was also below market and government
expectations. Meanwhile, the January-March expansion was driven by the services and
industry sectors, which climbed 6.8 percent and 5.5 percent, respectively, the Philippine
Statistics Authority said. Balisacan said natural disasters that hit the country late last year
-- particularly typhoon Haiyan -- pulled economic growth down. "The effects of the typhoon
went beyond the Yolanda-affected areas through the supply chain," Balisacan said, using
the local name for Haiyan. "That affected investment plans of companies and
individuals...so private construction suffered in the first quarter," he added. [Source: Cliff
Venzon, Nikkei, May 29, 2014]
In November 2013, Haiyan killed around 6,300 people in the Philippines and destroyed
$2 billion worth of crops and infrastructure. In October, a 7.2-magnitude earthquake struck
the province of Bohol, also in central Philippines, causing widespread devastation.
Balisacan said the effects of Haiyan are "expected to diminish" while reconstruction
efforts in typhoon affected areas should also prop up the economy in the coming quarters.
"We remain confident that we will meet the growth target of 6.5-7.5 percent for 2014," he
said, pointing out that the Philippines is still poised to become Southeast Asia's fastest
growing economy -- a position it held last year