Overview of the Philippine Situation

Sustainable economic development continues to be elusive for the Philippines. A wide spectrum of economic policies has been implemented during the past five decades. Yet the boom-bust cycle has remained a constant feature of the economy, along with a relatively high poverty incidence. The overview underscores one of the dilemmas that currently face policymakers in the Philippines: a dominant private sector in the Philippines, but one that not has not lived up to its potential.

Compared with other economies in Southeast Asia, the Philippines’ economic growth record has been disappointing. While the region's middle- and high-income economies experienced at least 2 per cent average growth of real per capita gross domestic product (GDP) during the past fifty years, the Philippines recorded only a 1.9 per cent average (Table 15.1). As a result, the Philippines was not even described as a “high-performing economy” by the World Bank in its 1993 study of the East Asian Miracle, while Thailand, Malaysia, and Indonesia were included in this select group.

Mainstream economists attribute this situation largely to economic protectionism and the import substitution policies that were followed after World War II up to the 1970s. The protection of selected sectors led to the misallocation of the country's resources, that is, the sectors in which the Philippines did not have a comparative advantage benefited from this policy stance. Moreover, the lack of competition removed the incentive of protected firms to become innovative and adopt modern technology. This resulted in monopolistic firms producing poor quality goods and services at relatively high costs, the burden of which was passed on to the Filipino consumer.

In response to this analysis, the Philippines — like many other developing countries — adopted the “openness model”. This reform package began modestly in the early 1970s and was interrupted by the debt crisis in 1983–85. The reform programme, however, was accelerated in the late 1980s and has been the government mantra since. The general thrust of the reforms was closer global economic integration underpinned by liberalization, deregulation, and privatization.