Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
At the opening of the National Economic Summit
[Delivered at the Philippine International Convention Center (PICC), Roxas Boulevard, Manila, February 11, 1998]
Completing the tasks
of modernization
THE DEMOCRATIC PROCESSES of consultation and consensus building—through the conduct of summits, dialogues or problem-solving sessions—have been a hallmark of the Ramos Administration since it assumed power in 1992.
The Administration has sought to overcome the barriers of geography, cultural diversity, economic disparity and political ideology—that had divided us in the past—by reaching out to all sectors of society in the spirit of dialogue and consensus building. The multisectoral people’s economic summit in 1993, which resulted in the “Social Pact for Empowered Economic Development” (SPEED), was the first successful attempt to bring the major players in government together with key leaders and representatives of the basic sectors to discuss our development priorities.
SPEED contained more than 100 commitments from the Government (both executive and legislative) and basic sectors which were pursued up to this date. These commitments—and the accomplishments that were attained through collaboration between Government and civil society—were along eight priority areas:
1. Ensuring national unity, justice, peace and security;
2. Investing in human resources and generating employment;
3. Ensuring infrastructure support and adequate energy for development;
4. Closing the fiscal gap;
5. Mobilizing investments and leveling the playing field;
6. Conserving the environment and ensuring sustainable growth;
7. Accelerating agroindustrial development and promoting food security; and
8. Energizing the bureaucracy.
A new social compact
It may be noted that SPEED gave the momentum to the Government, with the support of basic sectors, to come up with 184 laws of national significance, broken down as follows: 66 in social reform, 50 in political reform and 68 in economic reform (this includes R.A. 8479, the Deregulation of the Downstream Oil Industry Law of 1998, just enacted yesterday).
This National Economic Summit is considered “SPEED II.” And it aims to achieve the following:
1. Review our commitments under SPEED, determine what we have accomplished and what remains to be done;
2. Generate consensus on legislative and executive measures to deal with the effects of the currency crisis on our economic situation; and
3. Firm up the commitments of the Government and civil society on the next stage of our reform program in pursuit of our development goals.
The expected output of the National Economic Summit is a new social compact similar to SPEED which contains the commitments of the Government (executive and legislative branches) and civil society in order to move us toward our economic and social development goals (hence, the term SPEED II). This new social compact will also serve as the Government’s guide in dealing with the current economic situation within our overall development objectives.
The expanded LEDAC
On September 26, 1997, nearly three months after the currency and financial crisis erupted in East and Southeast Asia, I convened an expanded Legislative-Executive Advisory Council (LEDAC) Summit meeting. We invited leaders from business, industry and socio-civic organizations to join the political leaders of the executive and legislative branches of government.
Our objective was threefold.
First, to assess the nature and extent of the problem.
Second, to chart a course of action that would enable the economy to navigate safely through the turbulence.
And third, to ensure that the gains that came with the economic recovery since 1992 would be maintained.
We in Government have been extremely conscious of the potential magnitude of the currency problem. Early on we put in place short-term fiscal, monetary and financial adjustments. But to strengthen the long-term position of the economy we were certain that a concerted approach from all sectors of society was essential.
The currency turmoil was an eye opener for us. It exposed some vulnerable spots in the economy that needed strengthening. And so we crafted the six-point agenda during the September summit meeting. We agreed to do the following:
1. Reduce the current-account deficit;
2. Maintain financial stability;
3. Maintain the growth momentum;
4. Keep prices stable;
5. Keep the momentum of reform; and
6. Support the disadvantaged.
Short-term proactive policies
In pursuit of these goals, we protected the surplus of the National Government by adopting fiscally frugal measures. We instructed Government corporations to remit the dividends and tax payments due from them, enabling the National Government to post a small surplus by the end of 1997. The merged public-sector account, however, fell into a deficit, largely due to hefty increases in interest payments on the public debt. Frugality in Government and in its corporate sector, therefore, must continue.
But even as we reduced Government spending we protected Government programs designed to improve the ability of the low-income groups to cope with the currency turmoil. We speeded up, for instance, the release of the poverty alleviation funds targeted at fifth- and sixth-class municipalities.
The adherence to market-determined exchange rates and interest rates in turn helped narrow the trade deficit. As of end November 1997, the trade deficit declined to US$9.86 billion, a 30 percent drop from the level of the same period in the previous year.
Mopping up excess liquidity
Monetary policy was tightened in conjunction with the observance of frugality in the Government. The good thing that came out of this is the inflation rate stayed at the low single-digit, ranging from 4.5 percent to 6.5 percent between July and December, even though the peso lost about 40 percent of its value against the dollar between July and December 1997.
Moreover, in tightening money supply, the Bangko Sentral ng Pilipinas was able to mop up any excess liquidity that would further weaken the peso against the dollar. Additional measures of the bank in currency risk protection—reached in consultation with the Bankers’ Association of the Philippines—dampened speculative activities of banks with unhedged dollar-denominated loans.
As a result, peso-dollar fluctuations have declined by a wide margin over the past few weeks. Nonetheless, the exchange rate is for the most part market-determined. It can swing toward either a weak or a strong peso. But a price had to be paid for the tightening of fiscal and monetary policy. Interest rates, which had risen with the first wave of exiting internationally mobile capital, went up a few percentage points more. This remains a pressing challenge even at this stage.
We uphold the importance of keeping down inflation. We underscore the importance of minimizing exchange-rate fluctuations. But even as we do so, let us not kill the economic recovery with high interest rates. I urge all of you, bankers and borrowers alike, to work out the additional executive and legislative measures needed in this regard.
The Manila Framework
The severity of the Asian financial crisis made us realize that nothing short of international cooperation was needed to contain the crisis.
For our part, we hosted the meeting of Asian finance and central bank deputies last November 18 and 19. The meeting yielded crucial agreements that are documented in what is today popularly referred to as the “Manila Framework.” On my recommendation, the leaders endorsed the Manila Framework at the APEC leaders’ meeting on November 25, 1997, and instructed their finance ministers to give priority to its early implementation. Since then the IMF has been able to come to the aid of South Korea, Indonesia and Thailand, the three countries considered financially distressed and in need of a bailout.
The internal policy refinements we put in place, plus our initiatives for international cooperation, produced positive results. We have minimized the fallout from the currency crisis. This is evident from recent figures that reflect the overall performance of the country. Defying the predictions of doomsayers, national output adjusted for inflation posted a growth rate of 5.8 percent and an average annual inflation rate of 5.1 percent for the whole of 1997, and per capita income has risen accordingly.
The economy is in good health, owing to the sound socioeconomic policies the Government has pursued and the policy refinements we introduced in response to the currency turmoil in Asia.
Despite this respectable economic performance, we cannot—we must not—drop our guard. We must do more to realize our aspiration to transform our country into a modern and industrialized society.
Raising national savings
The currency turmoil, long after it is gone, will permanently remind us of an important requirement of modernization and industrialization: the need to raise national savings and ensure that only socially efficient investments are undertaken.
Our capital market reforms are in the right direction. New savings instruments are emerging in the financial and equity markets to supplement bank deposits and pieces of real estate, long the traditional choices of individual and household savers.
We must continue to fight inflation. High prices are always a disincentive to save.
Our programs in health and nutrition, since they raise life expectancy, help increase savings because people will save for the future if they expect to live longer.
However, we must strengthen the social insurance system. We must expand coverage, for one. In addition, retirement benefits must allow the elderly to lead their lives in dignity.
All of these mean that revenue collection must be efficient and use of taxpayers’ money is prudent and wise. Along this line, we must emphasize the following measures in the balance of my Administration and in the next:
- Government priorities must include the rightsizing of the bureaucracy.
- We must plug the subsidies to public corporations that drain the Government budget. Let’s privatize those delivering services that can be handled by the private sector, similar to what we did to the Philippine National Bank, Petron, and the Metropolitan Waterworks and Sewerage System. Let’s speed up the privatization of National Power Corporation’s power generation.
- We must also put a cap on tax expenditures, the foregone revenues from special fiscal incentives and duty-free imports.
- Finally, we must make sure that the internal revenue allotments of Local Government units earmarked for development really support devolved activities.
Good governance
As we enter the 21st century we maintain our focus on our vision to build a modern society. To lay the material foundation for this long-range aspiration we must make sure that our industrial transformation continues and accelerates.
Global competition will be enhanced as we enter the new millennium. We can reap the gains from the opening up of markets on a global scale, provided we do not deviate from the policy reforms that are rooted in strong market orientation through privatization, deregulation and liberalization.
Market-friendly policies provide the flexibility called for in responding to shocks like the currency and financial crisis that has engulfed the region. To meet these conditions, good governance at all levels is indispensable. This has several dimensions. We stress the imperative of guaranteed external security, peace and order and of a credible and efficient legal, judicial and administrative system.
Correcting market inadequacies
The Government must be prepared to provide the collective action that corrects market inadequacies. It can do so directly, or it can mobilize groups and coalitions outside of Government that can be relied on to deliver the corrective measures if market outcomes fail to advance society’s well-being.
Speaking from personal experience, my Administration has benefited a lot from this broad-based strategy. When I assumed the Presidency, we knew we had to adopt a new strategy in government to raise the level of prosperity and to spread that prosperity throughout the country.
We work closely with Local Governments so that the delivery of public goods and services devolved to them by the Local Government Code is not compromised. We continue to encourage the partnership with organizations outside of the Government that are intimately acquainted with issues and problems of implementation at the grassroots.
We have learned from experience the far-reaching value of summit meetings like this where the top leaders of government get to sort out issues of national significance in consultation with private-sector leaders of varying persuasions and views, and agree on an appropriate course of action. It is in summit meetings like this where the concerns generated in the presummit consultations in the regions, which are diverse in their political and economic objectives, are distilled and dealt with accordingly.
We still have unfinished business
Let me cite as an example our own SPEED, or the Social Pact on Empowered Economic Development, held in September of 1993. During that summit meeting, we forged a consensus on the priority policy reforms both for stabilizing the economy and for restructuring industries. The commitments were followed up in the meetings of the Legislative-Executive Development Advisory Council, whose regular feature is the common legislative agenda.
And so by 1996, one year ahead of schedule, the public-sector fiscal account was in surplus. And yet, in spite of the deficit reduction, we were able to build more roads, health clinics, ports, airports and bridges. And the private sector, unhampered by heavy Government regulation, was able to create more jobs and raise wages and salaries.
But as I said in my Ulat sa Bayan last January, we still have unfinished business. Even before the currency turmoil broke out, we had already targeted further decline in the unemployment and poverty incidence rates. Hence, this national economic summit, which we call SPEED II.
We who are here today share a common dream. We want present and future generations of Filipinos to enjoy continuing improvements in the quality of life. We want every citizen to emerge economically and socially secure from the century about to close.
Raising our workers’ skills
Let us start at the most fundamental level. We must create more jobs and ensure a rise in productivity over time. This undertaking no doubt must be led by the private sector. Business and industries are the employers of labor. They must encourage and promote industrial discipline and teamwork that lead to productivity gains.
On the part of Government, we will adopt a policy environment conducive to growth. We are reforming the power sector, particularly the pricing of energy and electric power. We are raising investments in the other infrastructures that permit efficient private-sector production. We will respect employment and wage contracts agreed upon privately and voluntarily, an approach to industrial relation we actively promote.
The Government will also play a prominent role in raising the skill composition of our workers. We can do this by raising the quality of education and training. We will invest heavily in improving the quality of basic education. We will hire more qualified teachers and train those already in the service so that they can acquire the teaching skills called for by technological progress. We will reduce class size and improve buildings and other facilities.
For workers displaced by technological progress, we will strengthen the retraining programs in vocational and technical education. This can also deal with the needs of some of our returning overseas workers. Life-long learning is essential in a world that is rapidly changing technologically.
At the tertiary level, we will pay attention to developing a critical mass of scientific manpower. Global competitiveness demands this. We need skilled workers who can master the sophisticated tasks called for by advances in technology. Only through this can we have innovation-led growth.
Helping the disadvantaged
We recognize that the financial requirements of upgrading education and training are huge. The National Government will continue to commit a large part of the budget to these activities, but they must be supplemented. I urge all Local Government executives and legislators to channel development funds at their control to this noble goal.
At this stage, though, economic recovery is at its longest run since the restoration of democratic political institutions at EDSA. There are still disadvantaged members of society who need help from the Government. The strategy for this is spelled out in the Social Reform Agenda.
We have identified the occupation groups in need of affirmative action. These include the agrarian reform beneficiaries, artisanal fisher people and indigenous cultural communities.
The agencies of Government have pursued a convergence approach so that their programs and projects—such as those of the Department of Health; Education, Culture and Sports; Social Welfare and Development—can be focused on these disadvantaged members of society. Congress, in this connection, has passed the following acts: Social Reform and Poverty Alleviation, Agricultural and Fisheries Modernization, and Ancestral Domain. We in the executive branch will make sure that the intent and objectives of these acts are fully realized.
The psychological reasons for success
As we deal with these tasks and challenges before us, we cannot be unmindful that this year is national centennial year. This makes the price of failure prohibitive and the need to succeed the more compelling.
It is not enough to say that we can surmount the crisis and challenges before us: we must surmount them.
Here in this conference we will put our heads together to identify and analyze the challenges we must hurdle in our journey to modernization. But beyond all the economic measures required, I will also emphasize the psychological factors for success in this undertaking: the qualities of courage, commitment and faith in the future.
This belief in ourselves and in the future gave us the independence that we celebrate this year.
The same belief will take us through the present crisis and into the 21st century.
Let us hasten then to the tasks before us.