Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
At the 35th Annual Conference of the Philippine Economic Society (PES)
[Delivered at the Shangri-la EDSA Plaza, Mandaluyong City, Metro Manila, February 27, 1998]
Sustaining growth
in a time of crisis
SOME OF YOU will recall I first spoke before you on December 14, 1992—barely seven months after I became President. How quickly—and how dramatically—those five years now seem to have gone by! And I speak here not only of my own experience in the presidency, which for me has certainly been challenging and eventful, but more so of what this exciting period has meant for our society and our economy
These five years have been a period filled with change, with opportunity, with challenge—a time of growth, of learning, of our country’s coming out of sick bay and claiming its rightful place in the community of nations.
We have been playing catch-up with the Asian tigers, which, one after the other, from the ’60s onward, set records for economic development. But, starting within the first half of this decade, we were able to put in place key reforms in the macro-economic policy environment that steadily integrated the Philippines into the global economy. We undertook reforms in the structure of the economy itself—in agriculture, in industry, and in services—while also pushing a social reform agenda (SRA) to fight poverty and distribute the fruits of economic growth. Structural reforms revitalized private-sector initiatives and reduced Government intervention in business. Monopolies were dismantled. Export bans and price controls were lifted. We did away with regulations, subsidies and Government-dictated pricing issues, notably in the energy, banking, transportation and telecommunications sectors.
A program of privatization
We initiated a program of continuing privatization—using Build-Operate-Transfer schemes—in such diverse fields as water supply, electric power, highways, transport, telecommunications, and health services.
Investment-related reforms, marked by the passage of the Omnibus Investments Code, rationalized incentives, simplified and streamlined procedures for investment registration, and carried out a debt equity conversion scheme. The Foreign Investment Act increased allowable foreign equity participation in areas largely reserved for Filipinos.
Shorter-term investment priorities plans enabled the Board of Investments to concentrate its promotional efforts on selected activities. Government developed and promoted growth corridors and similar centers throughout the country—and built the infrastructure needed to get them going.
Tariff reforms reduced the overall level of protection and dispersed tariff protection to industries. An accompanying import liberalization program improved entry for numerous items. Quantitative restrictions were replaced with tariffs where continued protection was justified—principally for agricultural products—but with a schedule for their phasedown, toward a uniform rate of five percent by 2004.
Reforms in the financial sector encouraged greater competition and more efficient and effective savings mobilization. Regulations on foreign-exchange transactions were liberalized. Rules for the entry of foreign banks were liberalized. A more favorable environment for exporters was also set in place, with refinements in the duty exemption and drawback system, the enhancement of export finance, and support for the establishment of an exporters’ bank.
Devolving authority to local governments
Reforms in the public sector included several tax reform measures, among which was the expansion of value-added taxation. We rationalized or privatized Government-owned or controlled corporations, and streamlined the public investment program.
Substantial authority and resources had been transferred from the central to local governments by the 1991 Local Government Code. Policy consultations became a regular feature of policymaking, with more permanent advisory bodies like the Export Development Council actively soliciting regular inputs from the private sector.
A comprehensive Social Reform Agenda focused Government efforts on delivering basic services, agrarian reform, cooperatives development and support for small and medium enterprises to the communities that need them most.
Our improved economic performance
These policy reforms brought the Philippines into the global economy. And globalization, in general, has been good to us. Over the period 1993-96, we were largely able to overcome the basic weaknesses that impeded our growth in the past and brought about persistent poverty.
Gross national product and gross domestic product, in real terms, recovered from stagnation in 1991 and peaked in 1996—with a real GNP growth of 6.9 percent and GDP growth of 5.7 percent. And in spite of the Asian financial turmoil, the economy continued to grow respectably throughout 1997.
All regions of the country have been contributing to overall growth, which has been fueled by the sustained increase in investments and merchandise exports. Our country’s exports—led by nontraditional manufactures, semiconductors and electronics—have reached new heights and spread to new destinations. Last year, while exports slowed down in neighboring countries, our exports increased by 22 percent, for a total value of US$25 billion.
Growth has brought tangible benefits to ordinary people in terms of jobs. Unemployment declined from 10.5 percent in 1991 to 8.6 percent in 1996, and to 77 percent in 1997.
Prudent monetary management—along with the structural reforms and investments in infrastructure—reduced inflation, which had reached double-digit levels in 1991. Inflation fell to single-digit levels starting early in 1996. We were able to stabilize the prices of food items in particular—inflation shrinking to an average 5.1% for 1997.
The incidence of poverty decline to 35.5 percent in 1994 (the latest year for which we have data available) from about 40 percent in 1991. And we should see further improvement in the 1997 data.
Perhaps, the best acknowledgment that policy reforms have been effective is the acceptance by the International Monetary Fund (IMF) that the country could exit from its 22nd economic program—after 34 years with the Fund—with the enactment of the oil deregulation amendments.
The Asian currency crisis
Stanley Fischer, the First Deputy Managing Director of the IMF, noted that the Asian currency crisis “occurred after several decades of outstanding economic performance,” with high levels of growth in gross and individual domestic product, fueled by strong capital inflows and exports. He traces the roots of the crisis to three developments:
- The failure to dampen overheating pressures, manifested in large external deficits and property and stock-market bubbles;
- The maintenance of pegged exchange-rate regimes for too long, which encouraged external borrowing and led to excessive exposure to foreign-exchange risk; and
- Lax prudential rules and financial oversight which led to a sharp deterioration in the quality of loan portfolios.
To a significant extent, these current difficulties resulted from the earlier successes of the Asian tigers. The Philippines was carried along by the region’s general drift, even though our economic fundamentals were better than most of our neighbors. The outstanding fact is that we did not perform badly at all—certainly not as badly as we might have, had our regime of reforms not been solidly in place.
The outlook for 1998
International financial institutions and foreign experts remain confident about Philippine prospects. Current projections indicate a 3-to-4 percent real GNP growth in 1998, with inflation averaging about 8.0 percent and interest rates at about 17 percent. The growth rates are consistent with the Organization for Economic Cooperation and Development’s forecast of 3.5 percent GNP growth for the Philippines in 1998, and the IMF forecast of 3.8 percent GDP growth. The Philippines has one of the highest growth forecasts among the Asian countries hit by the currency crisis.
Of course, it should be clear that we can no longer retreat from openness in our trade and investment policies and practices. As Peter Drucker noted, while drawing lessons for managers from trends in the world economy: “The one unambiguous lesson of the last 40 years is that increased participation in the world economy has become the key to domestic economic growth and prosperity.”
But Drucker also noted that the most significant factor in the global economy—the massive and virtually instantaneous flows of money and of information—does not fit into any economic theory or policy framework we now have at our disposal.
Restoring confidence in the economy
The first order of business is to restore confidence in the economy This we must do with both word and deed—and not by marketing ads alone. Government must not interfere in setting the exchange rate. The bureaucracy must practice fiscal prudence. The cost of doing business should be brought down and consumer prices kept as low as possible. National savings must increase, and we must ensure that socially effective investments are undertaken.
We should start on restructuring the financial sector by bringing regulation and supervision up to international standards, and by increasing domestic competition and transparency.
We should keep encouraging our exports to become more competitive, which right now means relying more on the domestic economy for inputs. Similarly, we should encourage import substitutes. We should do all these while relying on the new price relationships engineered by the currency crisis, and provide the channels by which investments can be made—the availing of information, the access to financing and technology, the training of Filipinos in the appropriate skills.
Two and a half months from now, our people will take part in the primary political exercise that characterizes our democracy, insures the continuity of freedom of choice, and reassures every Filipino that his individual liberties are respected and preserved. Within the election period, our candidates will offer our people various interpretations of how our liberty can be nurtured by further improving our economic, social, and political life. Yet we must never forget that while the means they offer vary, the underpinning remains the same for all their alternatives—the continuity and preservation of our freedom.
Hope for the elections
It is of primary importance that the Commission on Elections and its deputies, all candidates and political parties, and indeed, the entire electorate work together for honest, orderly and peaceful elections (H.O.P.E.), for only through H.O.P.E. can we be assured that the sanctity of our people’s choices is upheld. As President, this is my commitment to our people.
But when the dust shall have settled on the campaign trail, when our next leaders shall have been chosen, we should talk less about freedom and do more for it.
Over five years, we have been able to build an economy strong enough—and resilient enough—to withstand a regional crisis that has already brought some of our neighbors to their knees.
Over five years, we have been able to secure peace in the South—our most troubled region—and bring new hope to our disaffected countrymen—a peace that had eluded them for years and years.
Over five years, we have succeeded in re-energizing our people—infusing them with a renewed self-confidence they had not felt since we deposed the dictatorship at EDSA.
We pushed for social reform—reaching out to the poorest of our people—and bringing them into a widening circle of development.
We invited vigorous foreign participation in our economy—through astute economic diplomacy and through fair investment incentives.
In other words, we brought our people to where they should have been 30 years ago—had earlier administrations dared to embark on a genuine program of freeing up our people’s talents and energies—of empowering them to act and to grow on their own behalf.
We must move on with reform
We brought our people to the threshold of the 21st century—not only in terms of calendar time—but in terms of a genuine opportunity to realize, within their lifetimes—the benefits of being part of a fully modernized nation. This is of paramount importance to our youth who must, in their time, seize the opportunities and take the initiatives—instead of being tied up with the same struggles that we, their leaders, have undergone.
And this is why we must move on with reform—why we must ensure the transition of national leadership—from one proven performer to another.
We have proven the effectivity of the reform policies we have adopted over the past five and a half years. I repeat: the continuity of our economic, social, political and judicial reforms is our best guarantee that we can improve our lives even more, and that we can continue to breathe the air of freedom.
Preparing ourselves for the future
And we should be more prepared for more of the externally-induced shocks that go with having an open economy. The most pressing threat is that China may have to devalue within this year or next. While it has been trying to be a good neighbor, the massive drop in the value of East Asian currencies will sooner or later affect China’s export competitiveness. And we will be prepared.
Perhaps these are more in the nature of demands on the next President than promises from the one before you now. But I believe our country has no choice but to move forward on this path to open markets that we have started on—while providing safety nets for our disadvantaged sectors without pampering them with dole-outs and subsidies.
I trust that you will capably advise our next President at this time of crucial change. This is also why I have consistently advocated the continuity of our socioeconomic reforms, and the continuity of good governance as key components of our vision for a better future.