Economic history of the Philippines

The Philippine economy experienced a downturn between 1973 and 1986 during Ferdinand Marcos's martial law regime. This period saw the assassination of Benigno Aquino Jr., changes in energy law, and the popularity of the EDSA People Power Revolution. Marcos declared martial law citing communist threats and the need for stability, initially gaining support but later facing widespread unpopularity due to corruption and human rights abuses.

During martial law, the Philippines' GDP rose significantly, fueled by massive foreign lending, making it one of the heaviest borrowers. Despite this, the country lagged behind Southeast Asian counterparts in GDP growth per capita. Economic mismanagement, state-run monopolies, misguided exchange rates, imprudent monetary policy, and rampant corruption and cronyism characterized this period. Unemployment and underemployment grew, and income inequality worsened, with accusations of cronyism benefiting those close to the Marcos administration. Poverty incidents increased from 11% in 1965 to 18.9% in 1985.

The Marcos regime's economic development strategy had three pillars: the Green Revolution, export agriculture and forestry, and foreign borrowing. The Green Revolution aimed to increase rice production through new seed-fertilizer technology, bringing temporary relief but facing irrigation constraints. In the coconut industry, a levy system and monopolization by entities close to Marcos, like the United Coconut Planters Bank, were implemented, with little benefit to ordinary farmers. Export agriculture, despite increased acreage, saw earnings decline due to worsening terms of trade. Foreign borrowing was intended to spur growth, but crony abuses led to economic disaster.

After the assassination of Benigno Aquino in 1983, the Philippines faced an economic free-fall. A collapse in confidence and credit ratings led to a debt moratorium, import controls, and foreign exchange rationing. The peso was devalued, and high-interest central bank bills were issued, contributing to high inflation but reducing balance of payments and national account deficits. This period saw significant economic decline and investment reduction, with government expenditure cuts largely offset by central bank bailouts of bankrupt firms. By the end of 1986, the external debt had soared to $28.3 billion, making the Philippines one of the most indebted nations.

The Marcos regime in the 1970s heavily invested in infrastructure, particularly for tourism, to improve the country's image. This initially boosted private investment and foreign direct investment. An export-led industrialization program aimed to shift exports towards non-traditional manufactured goods, leading to growth in both export and import sectors, but also worsening trade deficits, especially after the second oil price shock.

The period after the 1986 EDSA People Power Revolution brought democracy and new development potentials. Subsequent administrations (Aquino, Ramos, Estrada, Arroyo) implemented reforms. This era emphasized liberal ideas, trade reforms, improvements in exports, and decentralization for regional development. Civil society also emerged as a crucial proponent of development.

The Aquino administration inherited an economy in crisis after martial law. Initial efforts focused on reforming the country's image and paying off debts, leading to budget cuts and temporary economic hardship. Growth gradually returned as political stability improved, investor confidence was regained, and trade terms moved positively. Key policies included the 1987 Constitution, an open political framework, international debt rescheduling, and the Comprehensive Agrarian Reform Program (CARP). Trade reforms included abolishing export taxes and liberalizing imports. Infrastructure development focused on private sector participation, and the Local Government Code of 1991 promoted decentralization.

The Ramos administration continued the reform momentum, accelerating liberalization and openness. It established the Bangko Sentral ng Pilipinas and saw the Philippines join the WTO and APEC. Debt reduction efforts included the issuance of Brady bonds. Structural reforms, particularly privatization and deregulation, were prioritized to address a heavy budget deficit and power shortages. The Electric Power Crisis Act and Build-Operate-Transfer Law facilitated 20 new power plants, resolving brownouts. Despite the Asian Financial Crisis contagion, the Philippine economy under Ramos showed resilience, growing at 5.8% in 1996. Policies promoted economic liberalization, institutional strengthening, redistribution, and political reform. Tax enhancements led to budget surpluses from 1994-1996.

The Estrada administration endured continued Asian crisis shocks, but was also marked by economic mismanagement and cronyism, leading to a deterioration of economic stability. Targeted revenues were missed, policy implementation slowed, and fiscal adjustments were inefficient. The 'Jueteng' controversy fueled political instability. Despite these issues, the administration supported a population policy for family planning and contributed to poverty alleviation and agrarian reform through programs like Sustainable Agrarian Reform Communities. However, it lacked notable breakthroughs in regional development.

The Arroyo administration saw good economic growth, partly due to Overseas Filipino Workers (OFW) remittances and Business Process Outsourcing (BPO). However, fiscal deficits grew due to tax avoidance. The administration pushed for the 12% EVAT to increase tax revenue. Political instability, including Abu Sayyaf terrors and legitimacy crises, plagued the government. Despite controversies like the NBN-ZTE deal, political stability was restored with local leader support. Later, high inflation for rice and oil in 2008 and the global recession caused a new fiscal crisis. Key policies focused on regional development, tourism (e.g., holiday economics), and attracting foreign investments.

Under Aquino III, the Philippines managed foreign debts effectively. In 2010, it was the fastest-growing economy globally at 7.3% GDP growth, driven by BPO and remittances. Growth slowed in 2011 due to less emphasis on exports and government infrastructure spending, and disruptions from natural disasters. The Philippines contributed to the IMF's financial crisis assistance program. The economy remarkably grew by 6.59% in 2012, amidst an anti-corruption campaign, and secured a BBB+ investment grade in 2013 due to a resilient economy, remittances, VAT reforms, and good governance.

The 2008 global economic crisis, stemming from the US housing bubble, led to a worldwide recession. The Philippines, already facing structural economic issues and poverty, was impacted by declines in exports, OFW remittances, and foreign direct investments. Its electronics and semiconductor exports suffered due to global recession. However, the Philippine stock market and peso were among the least affected in Asia, thanks to reforms since the 1997 Asian crisis. While personal consumption and fixed investment declined, the banking system remained stable. The fiscal deficit grew due to increased government spending and weak revenues. The crisis forced an additional 2 million Filipinos into poverty. Households resorted to reducing spending, using savings, pawning or selling assets, and borrowing. Education and health were also negatively impacted, with families opting for cheaper alternatives.

Successive administrations implemented various plans to combat poverty. The Ramos administration aimed to reduce poverty from 39.2% to 30% by 1998. The Estrada administration targeted a reduction from 32% to 25-28% by 2004. Arroyo aimed for 17% but failed to create 10 million jobs. Aquino III expanded the conditional cash transfer program and secured a $434 million Millennium Challenge Corporation grant for infrastructure and rural development. To counter the 2008 financial crisis, the Philippine government launched a P330 billion Economic Resiliency Plan (ERP), focusing on stimulating the economy through tax cuts, increased government spending, and public-private sector projects. Regional responses included proposals for an Asia Investment Infrastructure Fund to support industries and promote domestic and intra-regional trade.