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.
“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.
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.
CAUSES OF PESO DEVALUATION
In the beginning, the Philippine Peso was equivalent to US$ 1.00. According to official sources,
the Philippines first experienced devaluation of its currency in 1934 when the United States was
undergoing the worst economic crisis in history - the Great Depression. Since our currency was
pegged to the US dollar then, when the US government passed the Gold Reserve Act of 1934
which devalued the US dollar, the peso was consequently devalued at P 2.00 to US$ 1.00.
Then, on November 8, 1965, the International Monetary Fund officially reduced the gold
contents of the peso by half, thereby depreciating its value to P 3.95 per dollar. This action by the
IMF was best described by Filipino economist Dr. Gregorio S. Miranda: "For quite sometime,
the Philippines was in a state of monetary crisis brought about, among others, by government
overspending especially for purposes of political expediency or economic imperatives.. In order
to save itself from bankcruptcy, the government had to buoy itself up by seeking loans for loans
about to mature by the end of 1969. The government did, and in so doing, in effect, surrendered
its monetary sovereignty to the International Monetary Fund from which it sought and got a third
tranche, or a loan to cover a previous loan about to mature then. The floating rate is thereby the
product of the IMF's effort to restructure our foreign obligations premised on certain conditions".
Thus, on February 21, 1970, the Central Bank promulgated CB Circular No. 289 which allowed
the peso to float and seek its true market value. This created an increase in the prices of imported
goods, and locally produced goods with imported components. Eventually, by June 1983, the
Central Bank devalued the peso to P 11.00 to a dollar. After four months, on October 5, 1983,
the peso was further devaluated with a rate of P 14.00 per US$ 1.00. This later depreciation was
decided upon, when the balance of payments deficit increased unexpectedly by $800 million by
the third quarter of 1983, and the Central Bank could no longer afford to finance further deficits.
There was no clear cause as to the devaluation of the peso from P 14.00 to P 25.75 during the
Aquino Administration, but the US stock market crisis in 1987 may hold the key to our
understanding. Called the Black Monday, a fall in stock market prices in the United States on
October 29, 1987 created turbulences in the world capital markets. It triggered a financial crisis
around the world including London and Tokyo. it was a world economic crisis. The same thing
happened in 1997-1998 when Asia experienced a financial crisis which shook and rocked prices
of half the world's currencies, and brought the peso value down to P 28.00 per US dollar.
The YEAR 2000 P 50.00 per dollar exchange rate is the effect of the maturing of our IMF and
World Bank loans which had already ballooned to $ 66 Billion in 2004.
These are just the direct explanations as to why the value of the peso is gradually depreciating.
However, there are still some underlying factors that had brought about these events.
IMF-WORLD BANK LOAN
As of 2004, our total loans from the World Bank and International Monetary Fund (IMF) had
bloated to US$ 63.11 Billion, starting from the US$ 27 Billion aggregate balance immediately
after Marcos left the country in 1986.
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. *