Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
At the fifteenth National Conference of the Employer’s Confederation of the Philippines

[Delivered at the Hotel Nikko Manila Garden, Makati, May 5, 1994]

Structural reforms
for progress

WHEN I ASSUMED the Presidency on June 30, 1992, our country was reeling from a serious recession resulting in our gross national product’s dropping to near-zero in 1991. Our economic plight was an aberration in a region experiencing prosperity and dynamic growth.

We consulted many people. Their consensus was that the best—and perhaps the only—path to economic recovery and sustained growth was to put in place an aggressive structural adjustment program. This called for sweeping and basic reforms of our economic structure and institutions.

A program with a human face

How different then is our adjustment program from the failed programs of the past? The basic difference is that our adjustment program has a human face and a political will.

Past structural reforms were predominantly deflationary—which depressed incomes, stunted employment and prevented our physical and social infrastructures from being upgraded. Consequently, they brought about direct negative effects on the welfare of low-income to middle-income groups.

The elite, who made good use of their strong economic and political influence, were largely spared from the painful consequences of adjustment. At the same time, for lack of human will and consensus, the sapping effects of such factors as graft and corruption, inefficient tax collection and economic mismanagement could not be effectively contained.

And so, when I first presented to our people in late 1992 our development agenda for the next six years, I said that if human development needs are incompatible with structural development initiatives, “mitigating measures in economic policy will have to be considered.”

I also said then, and I say it now, that “to achieve growth in the economy at the expense of human development is to miss the point of economic development.”

Indeed the International Labor Organization, which we regard as a bulwark of social justice and tripartism, also stresses this principle. It points out that this humanistic approach is in keeping with the lessons gleaned from countries that carried out structural adjustments: that liberalization of economic policies cannot ignore the need for and must go hand in hand with the protection and development of human resources.

Plans for structural adjustment

We have lived up to the humanistic approach to structural adjustment in the process of formulating our new Philippine model. No matter how daunting it was, we did not shirk from the arduous task of securing consensus from the components of our society, including the so-called marginalized and basic sectors, on the strategies of structural adjustment that we should take.

Thus I convened an Executive-Legislative Economic Caucus on August 20, 1993, at which the country’s top political leaders agreed on the following agenda of concerted action: 1) restructure the economy through coordinated legislative and executive action; and 2) provide safety nets for those who will be adversely affected by structural adjustments.

On September 8, 1993, we embarked on a multisectoral people’s summit to expand the area of consultation and dialogue. The significant outcome of this summit was a Social Pact for Empowered Economic Development (SPEED), which commits every economic, social and political sector to a plan of action to carry out the following eight priority programs so that our country can move forward steadily and speedily:

1) Ensure national unity, justice, peace and security; 2) invest in human resources and generate employment; 3) ensure infrastructure support and adequate energy for development; 4) close the fiscal gap; 5) mobilize investment and level the playing field; 6) conserve the environment and ensure sustainable growth; 7) speed up agroindustrial development and promote food security; and 8) energize the bureaucracy.

These eight priority areas of action are not only contained in the Employers’ Confederation’s concept paper for the conference, but also are topics for serious discussion. These priority areas constitute the framework of the commitments of the various sectors, including employers.

At the last National Tripartite Conference on Structural Adjustments, held on January 10, 1994, the employers, together with labor and Government, not only agreed to collaborate on the structural adjustment program but to fulfill their sectoral commitments through specific action programs for the next four years.

A liberalized market

There is no question that our version of structural reforms is unprecedented and may be considered radical by some. It must be so because we are engaged in overhauling past economic policies which caused the stagnation and decline of previous years. But these are now being carried out within the framework and consensus of our functioning democracy and not by dictatorship.

Our reforms seek to break for good the stranglehold of an entrenched inward-looking and import-led economic structure and to replace it with a fully liberalized system whose growth is trade and investment-led.

This new thrust, which had been paid only lip service in the past, should make the Philippine economy world-competitive. In due course, it will dramatically improve the quality of Filipino life.

The Government recognizes that structural reforms of such magnitude will have short-term costs. Some workers may lose jobs, especially those in highly protected and inefficient industries which may not be able to adjust and compete in a liberalized environment. Prices of goods and services may rise as the relatively weak peso is allowed to compete in the foreign-exchange market.

Recognizing this—and this is a major departure from previous adjustment programs—the Government is determined to cushion the effects of short-term costs by providing specific safety nets for those who would be hurt most by structural changes.

Regional and world developments

But even as we strive to put our house in order, momentous events and developments are taking place in our region and in the world at large, and their effects on us may spell either danger or new opportunities, depending on the actions we take.

These developments lead toward the liberalization of the global economy. Such movements make it even more imperative that our country should be able to compete successfully with others if we are to survive.

The emerging realities of the global marketplace make it clear that for developing countries like the Philippines, sustained economic growth depends on closer cooperation with one another and integration into the global economy.

These realities will force industries to become more efficient so as to be able to offer consumers lower prices and high-quality services. They also make urgent the necessity of implementing structural reforms.

One of the more significant developments was the formal signing on April 5 of the Uruguay Round of the General Agreement on Tariffs and Trade, or GATT. This new accord takes effect on January 1, 1995.

One of the far-reaching provisions of the new agreement is the inclusion of additional areas under GATT: agriculture, services, textiles and clothing, intellectual property rights and investment measures.

According to some forecasts, the agreement could increase global trade by about $750 billion by the year 2005 and thereby boost the world’s total income by $230 to $270 billion a year.

How will this new agreement affect the competitive position of the Philippines in the global market?

There are pluses and minuses for the Philippines, and how we can maintain a favorable position on balance would depend largely on how our people respond to the ongoing structural reforms.

Some major pluses

Some of the major pluses are:

1 Greater access of products such as electronics and agricultural commodities to the markets of our major trading partners, involving concessions in the form of average tariff cuts of 22 percent from the United States, 30 percent from the European Community, 45 percent from Japan and 51 percent from New Zealand.

2 Lower cost of goods for producers, exporters and consumers owing to the eventual phaseout of the home consumption value method of customs valuation.

3 Leveling of the playing field between the rich and poor countries, through the reduction of export subsidies, particularly in agriculture products.

The danger that must be construed as a challenge and opportunity is the real possibility that our country may eventually lose its preferential quotas for its garments and sugar exports to the United States, as well as the removal of tariff discounts under the Generalized System of Preferences.

In this part of the world, the ASEAN Free Trade Area (AFTA) is another reality of the trend toward international trade liberalization.

The Common Effective Preferential Tariff binds the ASEAN countries to remove obstacles to freer trade among them within 15 years from the tariff’s date of effectivity. These include the abolition of high tariff rates of taxes on traded goods and the scrapping of quantitative restrictions and other nontariff barriers that limit the entry of imports.

AFTA confronts Philippine industries with the following challenges:

1 How to compete successfully with foreign companies in the ASEAN markets;

2 How to retain their comparative advantage over ASEAN and non-ASEAN imports in the domestic market;

3 How to achieve greater efficiency in the face of keener regional and worldwide competition.

We will be more prepared to meet these challenges if we carry out structural reforms effectively.

Crucial points

Let me emphasize a number of crucial points on structural adjustment that this conference must consider.

As with other human undertakings, the structural adjustment program is not and cannot be a one-time and perfect social and economic instrument of reform.

While some of the best and noblest minds of the nation from all sectors have labored mightily and collectively to produce this instrument, it is by no means the final one, as it must continue to shape and be shaped by the dynamics of the environment it seeks to change.

Speaking of commitments, I call on all of you—employers, workers and concerned citizens—to keep going back to basics. As agreed upon in the Economic Summit and articulated in more specific terms in the National Tripartite Conference on Structural Adjustments, employers have pledged to provide safety nets especially for workers who may be adversely affected in the short term by structural reforms. A number of these safety nets are now embodied in many executive actions and some legislative proposals, but they all call on employers to take up a significant part of the burden we will have to bear.

I am sure that this time there will be no shirking of responsibilities and commitments by the participating sectors, including, of course, the employers.

Commitment to industrial peace

I commend the Employers’ Confederation for its unceasing efforts to reach out to its sectoral partner, labor, in our collective quest for industrial peace and harmony. Toward this direction, the Confederation has launched the Industrial Harmony Award, also known as the Kapatiran sa Industriya or Kapatid Award, which I strongly endorse.

Labor has publicly pledged its commitment to industrial peace in its covenants forged during last week’s Labor Day observance. Labor leaders, our top businessmen and leaders of the Church also have pushed for industrial harmony at the shop floor, between union and company, and at national level through the Sikap-Gawa Awards of the Bishops-Businessmen’s Conference on Human Development.