THE PHILIPPINE ECONOMY

Reported by: Randy Adviento

Predominantly agricultural During the mid-90's, 46% of the work force was comprised of those in agriculture, fishing and forestry. The service industry comprised almost 40% with manufacturing, construction and mining employing 15%.

Philippine Economic Development

Before World War II (1939-1945) the economy of the Philippines was based on the production and export of a narrow range of primary commodities, mainly agricultural and forest products. the United States imported Philippine agricultural goods and provided the Philippines with most manufactured items. After independence in 1946, the Philippines initially remained dependent on free-trade access to United States markets for its agricultural commodities, especially sugar.

During the 1950s the Philippines tried to become an industrialized nation. In the 1970s the government implemented a policy to encourage export manufactures and foreign investment, and the rate of economic growth accelerated. The countrys foreign debt rose dramatically, however, and by the mid-1970s the country faced problems meeting payments on its international loans. This problem was compounded by a worldwide recession in the early 1980s.

The recession resulted in less demand for Philippine manufactures, and the economy moved into a deep recession in the mid-1980s. At this time the Philippine economy also suffered from more than a decade of economic mismanagement under President Ferdinand Marcos, who ruled by decree after declaring martial law in 1972. There was concentration of ownership and control among the presidents closest business associates, friends, and relatives became known as crony capitalism. The system allowed for rampant corruption.

During the economic recession of the 1980s, many of the crony enterprises experienced severe financial difficulties. Economic reforms reduced government intervention in the economy and stimulated the private sector. By the mid-1990s the Philippine economy had largely recovered and was experiencing steady growth. The modest pace of economic recovery was adversely affected by corruption in government and a global economic downturn in the early 2000s that reduced demand for Philippine manufactures by the countrys two largest trading partners, the United States and Japan.

In the early 2000s the government was pursuing economic reforms to help the Philippines match the pace of development in the so-called newly industrialized economies of East Asia.

A. Labor

In 2002 the labor force of the Philippines numbered 34.2 million people. Employment opportunities associated with the modern economy, mostly services and manufacturing, are concentrated in a few urban centers, especially the Manila metropolitan area. Agriculture, forestry, and fishing employed 37 percent of the labor force; manufacturing, construction, and mining, 16 percent; and services, 47 percent.

Labor Force (2002)

37% 47%

16%
Agriculture, Forestry & Fishing Manufacturing, construction & mining Services

The shortage of employment opportunities has resulted in large-scale migrations of Filipino workers, both sophisticated professionals and unskilled workers, to countries such as the United States and Malaysia. Approximately 6 million Filipinos work abroad.

Many of them send a portion of their earnings to relatives in the Philippines, infusing the economy with a significant source of foreign exchange.

The migration of vitally needed professionals has created a serious brain drain in the Philippines. The Trade Union Congress of the Philippines (TUCP) is the largest union body in the Philippines, with about 1.5 million members and 39 affiliated labor and trade unions In the late 1990s the Philippines had more than 8,000 trade unions with a total membership of 3.6 million.

B. Agriculture, Forestry, and Fishing

About 19 percent of the total land area of the Philippines is arable, or suitable for cultivation. The most important subsistence crops are rice, corn, cassava, and sweet potatoes. Hardwood trees such as mahogany were once one of the countrys most valuable resources, but now this resource is severely depleted.

Fishing is an important industry in the Philippines. The surrounding and inland seas of the Philippines yield crab, sardines, anchovies, tuna, and mackerel. Shrimp, milkfish, and tilapia are raised in artificially created fishponds, in the fish-farming industry known as aquaculture. Shrimp and prawn exports to Japan are a significant source of foreign exchange. The pollution of coastal and inland waters and depletion of fish populations through overfishing have reduced the fishing sectors productivity in some areas of the Philippines.

C. Mining

The Philippines has extensive deposits of valuable metallic and mineral ores, including copper, gold, silver, chromium, lead, and nickel. Copper is the countrys leading mineral product. The nonmetallic sector was stimulated by a rising domestic demand for coal. The countrys plentiful coal deposits were explored as an alternative to costly petroleum imports

D. Manufacturing

In the 1970s the government created four special economic zones designed to stimulate manufacturing for the export market. Industries in these export-processing zones receive incentives to produce nontraditional (mainly nonagricultural) exports. The zones have helped to stimulate foreign investment in the Philippine economy, in part because they are exempt from certain taxes and restrictions on foreign ownership of businesses. Businesses receive tax exemptions and other incentives in these zones.

Nondurable goods such as processed food, textiles, and tobacco products make up the largest percentage of manufacturing output. Other major products include refined petroleum, chemicals, construction materials, and clothing. The Philippines has increased its production of durable items, especially electrical and electronic equipment and components, nonelectrical machinery, transport equipment, and furniture.

E. Services

The services sector includes transportation, wholesale and retail trade, the hospitality and tourism industries, currency and banking, and foreign trade. Skilled Filipino labor has prompted some multinational companies to set up service operations in the country to serve consumers in Europe and the United States.

F. Infrastructure

The infrastructure of the Philippines is inadequate for the economic development sought by the government, international agencies, and multinational corporations. Government investment in infrastructure has not kept pace with population growth and modern technologies. Roads remain unpaved in most rural areas. Cities lack sufficient public transportation, garbage collection, energy resources, potable water, and sewerage treatment. Resources for infrastructuredevelopment projects are often limited because of the countrys huge payments on its foreign debt.

G. Energy

Since the early 1970s the Philippines has developed a variety of domestic energy resources, including geothermal resources, hydroelectric power, offshore oil reserves, and coal fields Oil was discovered near the island of Palawan in 1976, and commercial production began in 1979. A natural-gas field off western Palawan was estimated to contain abundant reserves and held promise for future production.

The major potential of undersea fields in the South China Sea is diminished by competing claims from China, Vietnam, and Malaysia.
The Philippine government has also pursued the development of alternative sources of energy. The Philippines has significant geothermal resources.

H. Transportation

Despite the difficult terrain, the Philippines has an extensive road system; however, only about 21 percent of roads are paved. The Pan-Philippine Highway, also called the Maharlika Highway, is a system of roads, bridges, and ferries that connects the islands of Luzon, Samar, Leyte, and Mindanao. The rail system, concentrated on Luzon, is limited. A light-rail transit system known as Metrorail was opened in Manila in 1985 to help reduce traffic congestion.

I.

Communications

The Philippines has 47 daily newspapers. Many are published in Manila in both Filipino and English. The Manila Bulletin, founded in 1900, is the longest-running daily newspaper. Other large-circulation dailies include Abante, People Tonight, Ang Pilipino Ngayon, Philippine Daily Inquirer, and Tempo. Some regional publications are written in local languages, including Ilocano, Hiligaynon, and Cebuano.

The official Islamic news journal is The Voice of Islam, founded in 1973 and published in Davao. Freedom of the press is guaranteed under the constitution. The country has an extensive broadcasting system, with hundreds of radio stations and several national television networks

Factors that Bring About Economic Growth

Economic Development - is the development of economic wealth of countries or regions for the wellbeing of their inhabitants.

Economic Growth - simply mean increase in per capita income or increase in GNP. In recent literature, the term economic growth refers to sustained increase in a countrys output of goods and services, or more precisely product per capita.

Keynesian Approaches
1.) Savings and Investment
2.) Government-Financed Investment

Market-Based Approaches
3.) Macroeconomic Stability
4.) Trade Liberalisation, Capital Mobility and Exchange Rate Policy

Economic Growth

Economic Growth

Benefits

Improvement in welfare

Pensions Benefits Support Housing Infrastructure

Costs

Environmental Impact

Negative Externalities Pollution Environmental Degradation Non-renewable resources

Opportunity Cost of Growth

Resource allocation
Consumer Goods? Capital Goods?

Models of Development

Models of Development

Rostow - Stages of Growth

Criticisms:

Too simplistic Necessity of a financial infrastructure Need for other infrastructure Efficiency of use of investment Will economies learn from each other?

Market Based

Problems:

Existence of market failure Problems of lack of infrastructure Problems of equity in allocation

International Dependence

Criticism:

Offers causes but no solutions

Structural Change

Lewis 2 Sector model

Agriculture - low value added Industrial sector - higher productivity and wealth generation

Criticisms:

Labour re-allocation not always productive Wealth not re-invested locally Wealth goes abroad Imperfections in the labour market Importance of complementary policies by all countries involved