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Alarmed by the huge dollar haemorrhage and with the endorsement of the US and
International Bank for Reconstruction and Development (IBRD)iii the government
instituted sweeping foreign exchange controls and quantitative restrictions on non-
essential manufactured imports (e.g. food, textiles, footwear).
Complemented by discriminating tariffs in the late 50s, controls spurred an
industrial growth rate averaging 12% annually between 1950-57, with sectoral
employment growing in pace. Whereas total rural output decelerated substantially, by
1960 the net domestic product share registered by the import-substitution industrial
sector climbed to an unprecedented 20%. Overall, economic growth was singing to the
rhapsodic tune of 6% average annual GNP-rates until the mid-60s. iv Protectionism and
the quasi-autarchic industrial experiment seemed to be paying off handsomely in favour
of the nascent national bourgeoisie and expanding urban proletariat. Hindsight reveals,
however, that the industrial miracle of the 50s was no more than a passing mirage as
output gains were vengefully offset by veteran BOP and foreign exchange woes.
Consequently, industrial growth sputtered to a halt in the next decade.v
Critical post mortem appraisalsvi exhume several key blind spots on which
the strategy of import substitution industrialisation (ISI) foundered. Germinating under
the protectionist umbrella of controls, import substitution industries - to a large extent
represented by assembly and packaging concerns - rather than being import-saving were
in fact import-consuming. They were capital-intensive, energy expensive enterprises
dependent on imported technology, raw and semi-processed inputs. The failure to fortify
protectionist measures with national controls on investments and remittances (e.g. US
parity rights) not only allowed US and foreign capital to “gatecrash” into the ISI-sector,
but also accorded them (through import control and tariffs) an ideal shield against other
international competitors. By the late 60s, foreign capital owned one-third of the
Philippine industrial sector, 80% of which was American.vii
Ironically still, as one landmark survey of 108 US firms showed, American
investors were able to put up shop by simply tapping into the domestic credit market,
depriving in the process less-merited Filipino industrialists access to scarce local capital:
84% of invested capital between 1956-65 came from domestic sources, while only 16%
including reinvested profits made in the Philippines originated from the US.viii
Neither did initial industrial growth generate any significant spin-off effects
due to the absence of viable backward linkages, since ISI catered to a limited internal
market, whose size and texture were in the final analysis determined by a highly skewed
income and property structure and the propensity of the upper-classes toward luxury
consumption. Assumed to deliver income equalisation, ISIs oft-advertised productivity
gains appeared for all intents and purposes to be “trickling down” disproportionately
away from the underprivileged classes. While the lowest 20% of the population
accounted for 4.5% and the richest 15% cornered 67% of the national income in 1956, by
1961 the respective categories registered a discrepancy of 4.2 and 70%.ix
Mainly an urban phenomenon, the ISI strategy neglected the development
of the agricultural sector, a veteran victim of nadir productivity and income rates, and
the bulk of the market for industrial output was unduly confined to the urban upper and
middle classes.x Internal market constraints and the high import component of ISI were
major disincentives for the rural oligarchy and compradores to shift long-term
investments from tropical export production to industry. These groups came out
relatively unscathed, retaining economic clout when fragile fractions of native
industrialists fell prostrate as industrial output fizzled out and precipitated a spate of
corporate bankruptcies in the ISI sector in the mid-60s. While industry was on the retreat,
tropical export producers in ten traditional commodity sectors historically blessed by yet
expanding international demand (e.g. sugar, coconut, timber) were offensively cashing in
80% of aggregate export earnings.xi
Under conditions of social disarticulation, windfall profits generated by the
exporting classes, which may otherwise have relieved the industrial fallout via the
multiplier effect, simply fuelled the drive towards further concentration of landed
property, speculative and “anti-deluvian” enterprise, marginalisation of the peasantry,
and added pressures on import receipts as a result of extravagant consumption.
In an attempt to dispel a major BOP and foreign exchange disequilibrium,
the 1962 Macapagal government initiated de-protectionist reforms as quid pro quo to a
300 million stabilisation loan from the US and the World Bank-IMF group. xii Applying the
tourniquet of neo-Free Trade policies without seriously addressing ISIs fundamental
structural flaws multiplied rather than arrested the paroxysms of the disease which it
hoped to cure. Spearheaded by a drastic currency devaluation, descending watermarks
on quantum import restrictions, and coupled with tight fiscal and monetary policies and
more auspicious incentives to foreign investments and capital repatriation, official de-
protectionist correctives were the loaded torpedoes which struck the sinking ISI sector
with even quicker and lethal impact.
Devaluation dramatically hiked imported industrial input costs and the peso
equivalent of the debt servicing bill, deflated real wage rates while inflating living
expenditures and ultimately enlarged the net value of dollar investments of foreign firms.
Squeezed hard by tight fiscal and monetary policies, 1,500 native enterprises folded up
in the face of drastically decelerating average 5% annual industrial growth rates between
1960-65. Furthermore, stagnating industry took a heavier toll on urban and displaced
rural labour as massive retrenchments and corporate shut-downs swelled the ranks of
the unemployed and underemployed. Manufacturing sector’s unaltered 11-12% share of
total labour force throughout the 60s is a tale-telling indication of the industry’s labour
absorptive limitations.xiii General economic slowdown crowned by the unabated effluence
of capital remittances, as a result of official holidays enjoyed by foreign investments,
exacerbated BOP deficits and the foreign exchange drain.
Export-oriented Industrialisation:
Trans-nationalising Dependency and the Police State
Notes
iFree trade according to the terms of the Bell Trade Act was in fact a zero-sum affair in favour of
the US since e.g. unhampered entry of manufactured American imports into the Philippines was
unfavourably matched on the opposite side by import quotas imposed on Philippine tropical exports
entering the US market. Constantino b, 1982: 198-201; 291-93.
iiVillegas in Jose, op cit: 49.
iiiIn 1947, the US created the joint Philippine American Finance Commission whose
recommendations would form the basis of a five-year rehabilitation plan to be drawn by the
Philippine government for approval of IBRD (World Bank’s forunner) and the Bell Mission as sine
qua non to a 250 million dollar development loan. Washington emissary, Daniel Bell, heading the
economic study mission to the Philippines in 1950, recommended certain correctives to balance the
economy, two of which would later become the cornerstone of official development strategy in the
1950s: import and exchange controls and import-substitution industrialisation. Villegas, op cit: 39.
ivSee Bello, op cit: 128-29; Mariano in Canlas, op cit: 11; Lichauco, 1981: 37.
vDespite protectionist policies, the Philippines recorded an average annual trade deficit of $9
million with the US until the late 50s, one mitigated ad hoc-ly by World Bank loans in 1957. Jose,
op cit: 50.
viJose, ibid; Bello, op cit; Canlas, op cit; Lichauco, op cit; Broad, 1989; Villegas, op cit, to name
only a few.
viiShalom-Rosskamm, 1986: 98.
viiiBello, op cit: 130.
ixMariano quoted in Canlas, op cit: 20.
xShoesmith, 1986: 200-01.
xiIbid: 40.
xiiLichauco, op cit: 42.
xiiiShoesmith, op cit: 40, 201; Bello, op cit: 17, 132.
xivShoesmith, ibid: 202.
xvThe Investments Incentives Act allowed 100% foreign equity in pioneer and even non-pioneer
industries, provided greater assurance for profit remittances, and exonerated foreign investors from
expropriation and requisition of investments. Also, included here was the passage of a law creating
s-c export-processing zones in 1969. Shoesmith, ibid: 201; Bello, op cit: 134-35.
xviFor example, the Supreme Court decreeing that lands acquired by Americans since 1946 were to
be nullified and subject to forced sale or confiscation on or before 1974 when parity rights would
expire; the banning of foreigners form holding executive jobs in industries reserved for Filipinos.
See Bello, ibid: 138.
xviiRojas, 1987: 6.
xviiiShoesmith, op cit: 203; Bello, op cit; Jose, op cit.
xixIn contrast to the mediocre $326 million in WB loans contracted by the Philippines between
1952-72, more than $2.6 billion was funnelled into 61 development projects between 1973 and
1981 alone. This massive commitment catapulted the Philippines in cumulative terms from 13th to
8th position on a scale of 113 Third World countries indebted to the Bank. Bello, op cit: 24. See also
Broad, op cit: 210.
xxMiranda in Canlas, op cit: 15; Broad, op cit: 205. See also Briones (1984) on the debt issue.
xxiAccording to Loxely (1984) loan conditionalities, particularly those imposed by the IMF on
financially troubled countries like the Philippines translates with striking regularity into a set of
specific measures: devaluation, reduced public spending, elimination of public subsidies for food
and other essentials, wage restraint despite inflation, taxes related to demand curbs, elimination of
state-owned or supported enterprises, greater access for foreign investment, de-protection of local
industries, export promotion and application of new foreign exchange to debt services. Loxely,
quoted by Walton in Smith & Feagin, 1987: 368-69.
xxiiWalton, while cautioning against variegated economic effects derived from austerity program
applied in 22 countries (including the Philippines) studied where the latter precipitated popular
protest movements, sweepingly describes the regressive impact of IMF-imposed austerity programs
from the point of view of social equality. A description which is by all means discernable in the
Philippine case. Similarly, one can there note: wage restraint below levels of inflation penalising
working and salaried middle classes. Domestic demand curbs via e.g. de-subsidization of staple
foods, depriving the slum dwelling underemployed population of the means of survival. Public
spending cuts eliminating services for the same population and jobs for middle-class civil servants;
national entrepreneurs are hurt by ... rising interest rates, reduction of troublesome excessive
domestic demand. Everyone faces higher “undistorted” prices that tend to follow devaluation.
Domestically, only the upper classes benefit and, of this stratum, only a special fraction, namely
exporting interests with the least reliance on imports and the domestic market. When the austerity
measure “work,” and the export-earned foreign exchange is applied to the debt , of course the
international bankers benefit. Walton in Smith & Feagin, ibid.
xxiiiSee the eloquent reviews of Bello, op cit; Miranda in Canlas, op city; Jose, op cit; Lichauco, op
cit; Shoesmith, op cit.
xxivThat foreign firms could raise their local borrowing from $1.9 to 3 billion between 1973-79 can
be deduced from refurbished local credit rules allowing e.g. foreign export manufactures to borrow
up to 150% their equity investments worth. Bello, ibid: 155.
xxvDebt servicing constituted roughly 40% of export earnings and 10% of GNP in 1987, while
almost 47% of total public spending went to ditto during the previous year. Miranda in Canlas, op
cit: 23, 31.
xxviWB country study, 1987, Table 1.3: 74.