Speech
of
His Excellency Fidel V. Ramos
President of the Philippines
At the International Herald Tribune Philippine Summit
[Delivered at the Shangri-La Hotel, Makati City, September 27, 1995]
Building a modern
Filipino nation
THE ORGANIZERS of this Conference asked me to discuss “The Philippine Economic Development Story.” That there is such a story to be told is more reassuring for us than you could imagine.
A few years ago, I read about a tombstone in a little cemetery in Georgia with an interesting epitaph. It says: “I told you I was sick!” That struck me then as a wake-up call for the Philippines. For years our economy had been telling us that it was sick, and yet the Government and the national leadership did not seem to hear. They went on pursuing the same unhealthy policies.
Today, it is my happy task to tell you how and why we did not wind up in the grave—and what we are now doing to ensure the long-term health of the former patient.
A story of decline and recovery
The World Development Report of 1992 noted how wrong policies can turn a country into a basket case—and how, conversely, the right mix of policies can produce exponential growth. Our story of decline and recovery is a classic illustration of this.
We started out in the sixties as the Asian country most likely to succeed—next to Japan. But, by the end of the eighties, we had become a laggard in a continent of dragons.
How, we have often asked ourselves, did we wind up in this situation when we Filipinos are supposed to be among the finest workers and managers in East Asia?
The simple answer is that we let crony politics—not markets—rule over our economy. Mistaking shortsightedness and chauvinism for nationalism, we chose—beginning in the fifties and sixties—to reserve the economy for Filipinos.
We closed our economy—looking inward to our small home market, instead of outward to the large global market. We set stiff restrictions on foreign investments, barring them from many industries.
We stifled competition and enterprise by allowing monopolies and cartels to dominate key sectors of the economy. We made political connections—not competitiveness or talent or hard work—the determinants of economic success.
Down the path to ruin
We followed the same path that led many countries in Latin America, Eastern Europe and Africa to economic ruin—and we achieved precisely the same results.
While our Asian neighbors developed their industries through global competition, we wound up with perpetually “infant industries.” Some of these infant industries had not matured after 40 years!
While our neighbors opened their doors to foreign investments—and thus to new technology and technology transfer—we hung on dearly to what our homebred entrepreneurs and their backward technology could provide.
While others opened the economy to competition, we tilted ours in favor of a few at the expense of the many. Add to these the maladies of insurgency, political instability, mass poverty and social unrest, and we have a snapshot of the Philippines in the postwar era.
The way out of this depression has not been easy: we are a nation that has had to “reinvent” itself.
To begin with, we have lived through a painful period of stabilization—just to get the macroeconomy working right. We learned that the market is the finest weapon in engineering progress and in fighting poverty. This much we have learned from the successes of our Asian neighbors—and, inversely, from the disasters of Communist central planning.
A nation that reinvented itself
We also learned that the most effective way for people to pull themselves up from poverty is through their effective participation in the economy, and through equitable sharing in the fruits of growth. This means creating a market economy that is truly free and fair.
This shift to a market-based development strategy has been matched by our turning economic nationalism on its head and rejecting its parochialism. Today, nationalism leads us to expand our foreign linkages—the better to have access to global information, capital marketing channels and inputs of the best quality and services at the lowest costs.
This basic change in direction has required a degree of economic reform our country has not seen since 1946. We have moved decisively to modernize our telecommunications and end the monopoly that kept it backward. The response of many companies, including foreign participants, to supply the pent-up demand has been phenomenal.
Recently we liberalized banking, which had been closed to foreigners since 1948. This paved the way for the entry of ten foreign banks into branch banking and many other banks into various forms of foreign participation.
Foreigners may now own all types of manufacturing establishments, as well as businesses in indent, import and wholesale trading, travel agencies, tourist inns, life and non-life insurance agencies and insurance brokerage.
We have deregulated the downstream oil sector and we expect to open up the retail trade sector soon.
We have instituted one of the most liberal and imaginative build-operate-transfer (B-O-T) laws to encourage the private sector to take the lead in our infrastructure development program. Our B-O-T Law attracted a large number of investments in electric power plants so that we have now moved to other infrastructure subsectors such as public works, public utilities and transport.
For multinationals locating in our country, we have set up more than 40 growth centers, industrial estates and export zones all over the archipelago, in line with our growth center development program.
Accelerating growth
Because of all these new policies—and their intensive implementation—our economy is now moving steadily along the path of growth. We had now three years of accelerating growth, and this year we should exceed 6 percent GNP growth in real terms.
More important, the long-term outlook is good. As the World Bank has observed: “The Philippine Government has made considerable progress during the last three years in setting the foundation for sustained and broad-based growth over the longer term.”
Moreover, we are attaining above-target performances in key program parameters—budget performance, gross international reserves, inflation, investments and exports.
Our debt-service ratio has declined from 37 percent of export earnings ten years ago to 18 percent last year. We have reentered the capital markets—after 12 years out in the cold—with a series of Eurobonds that raised US$1 billion.
The remarkable thing about this economic turnaround is that we are doing it as a democracy. We are developing as a democracy not as an example to boast to others, but because history has so shaped our political culture that any other way will not work for us.
Our kind of democracy might still be miles away from Westminster’s or Washington’s. But our system already passes what Karl Popper calls “the bottom-line test for democracy”: through the popular vote, we can change our rulers without recourse to violence and bloodshed. I am proof of one such peaceful change of leadership.
There is still much more that we need to do before we can fully realize democracy’s potentials. But already it works sufficiently well for us to improve our situation significantly. We accept—unequivocally—the methods of democratic politics. We regard “politics”—the process of conciliating rival interests and differing opinion—not as an obstacle to governing but as the precondition to concerted action.
We have legislated and carried out economic, political and social reforms by precisely this method of consensus.
Developing according to our circumstances
This is not to suggest that our path to modernization is better than the approach of what some call East Asia’s economically successful “soft authoritarianism.” I think the argument oversimplifies reality. For every authoritarian success, there are as many authoritarian failures. Just as for every democratic success, there are also democratic collapses.
In the last analysis, I believe every country develops according to its special circumstances and conditions. In our case, we Filipinos have remained unswerving in our commitment to democracy. And we believe democracy, social discipline and sustained development are not incompatible, but complementary.
It is true, as some say, that developing as a democracy presents many difficulties and delays. But when you succeed by making politics work—instead of making it disappear—development is more stable.
In the Philippines today, investors can live secure that they are not living with policies that will change overnight, with laws and contracts that are vulnerable to arbitrary political decisions, or with regimes that will be racked by upheaval or sudden shocks.
Democracy provides stability that no authoritarian order can achieve. A democracy builds on firmer ground.
Sustaining development
This brings me to the final part of my remarks: the challenge of sustaining our development.
Over the past three years, we have set the stage for economic takeoff. Over the next three years, we will ensure that our development momentum is not only maintained but accelerated.
We have effected many reforms. But there is more we still must undertake. We must complete reorienting and redirecting our economy—to take full advantage of the markets opening up all around us. We must modernize our industries, our agriculture and our financial markets—and keep in step with the new information technology.
We must move to raise up millions of our poor through education, skills upgrading and other basic services—in order to make them net contributors to development.
We must confront and neutralize or resolve threats to civil society and the rule of law—such as crime, insurgency and weaknesses in our justice system.
Above all, we must raise the political capacity of the State—to increase the responsiveness and effectiveness of Government institutions, especially our National Police and civil service.
Overall, these reforms really have to do with transforming the Philippines into a modern nation, one that can cope with the demands and challenges of the twenty-first century.
There are those who still oppose our reforms—particularly opening the country to foreign investments—and who seek to reverse the wheels of progress. But, for the Philippines, there is no turning back. There is a nationwide constituency for reform today. And it gathers strength as we succeed, step by step, in our endeavors.
It has been asked—what comes after Ramos? Will the reasons for success disappear at the end of my term?
This is flattering, but I ask you not to underestimate our democratic system and people. There are ample reserves of commitment and talent in our democracy. And the Ramos Administration is building for continuity, predictability and enduring stability.
Openness outweighs secrecy
Our remaining problems notwithstanding, we are creating durable institutional arrangements wherein this connection can flourish in the new world trading order.
Harlan Cleveland observes in his book Birth of a New World: “Part of the connection between democracy and market is that people governed by consent want to do business (shop, invest, work, watch television) across borders that are as open as possible. That other part is that a democracy’s economy (the goods and services that are traded, the information that is shared) is necessarily and inevitably more open to the rest of the world, and the rest of the world will be more open to it.”
In the new global economy, openness outweighs secrecy—as the old Soviet Union discovered to its sorrow. And the new measure of development has become the size of information flows to one’s country.
The Philippines is still at the fringes of this knowledge revolution; but we are in a position to take active part because we are an open society with capable citizens—with growing access and connections to the world.
Let me now summarize and conclude.
In the Philippines you may not yet find the degree of success of Asia’s dragon economies, or the political vibrancy of the world’s advanced democracies.
But you will find a developing country with much of both—a free people beginning to rise to their potential with natural and human resources, a strategic location at the gateway of Asia-Pacific—a nation coming into its own.
We have a long way to go, and we realize that we can achieve our vision only if we persist in reform and innovation, adding steadily to our achievements. These we are pursuing with political will and people empowerment.
You must remember that our turnaround is only three years old. We are just two years removed from the severe power shortage, five years from the rash of coup attempts and nine years from a dictatorship. And yet international observers are now talking of the Philippines as the next Asian miracle.
Consider then what we might accomplish in another three years or in a decade of determined effort at building a modern Filipino nation.
An open moment in history
In his book A World Lit Only by Fire, William Manchester notes the great significance of the discovery of the Philippines to the world. “Through this discovery,” he wrote, “[Ferdinand Magellan] closed the nexus between the 123rd and 124th degrees of east longitude and thus completed the encirclement of the earth . . . he proved the earth was round.”
This invests a special meaning to our distinction as a country where East meets West.
Today, five centuries after Magellan, in what historians call another “open moment in history,” it could be that our development, when completed, will also have transcendent significance. Filipinos are showing the world that democracy is the right path to modernization and freedom the most effective weapon in reengineering progress.