The document discusses economic reforms in the Philippines from 1986 to present. It describes how the Aquino government addressed fiscal crisis through spending cuts and tax increases. Subsequent governments pursued privatization, deregulation, and structural reforms to open monopolies to competition. This helped reduce boom-bust cycles and inflation while increasing foreign investment. However, agriculture remains inefficient and a barrier to industrialization. While reforms have boosted growth, opposition arises from uneven benefits leading to delays but not preventing continued growth.

1. Sustaining Economic Reforms :
Is there a reform
constituency?
Current challenges and Issues in
project management
Paul N. Jacob
UST Graduate School

2. INTRODUCTION :
“Economic growth in the Philippines over the past three decades
Has been dominated by a boom-bust cycle” – Philippine economist
Boom & bust cycle is a type of cycle experienced by an economy
Characterized by alternating periods of economic growth and contraction.
During booms, an economy will see an increase in its production and
GDP. During busts, an economy will see a fall in production and an
Increase in Unemployment.

3. The Fiscal Crisis

4. Corazon Aquino Government : 1986 - 1992
The Tight money policy
• The Aquino Government addressed the Fiscal crisis by drastically cutting back on
public spending and quickly raising resources through indirect taxes
• 10% levy across the board on virtually all imports was imposed
• Peso-per-liter tax on all petroleum imports
• Mandatory cuts in spending were also ordered for all government agencies
• Value added tax (VAT), 1986
•Economic Laws Enacted: Built-operate-transfer law, Foreign Investment Act &
Consumer Protection and Welfare Act

5. Privatization and Deregulation
The rationale for the privatization was found in the need to raise revenue’s
and bridge the fiscal gap.
 First Phase :
Retention of corporation’s in the public
sector.
(e.g. Lopezes , Ayala’s & Soriano’s )
 Second Phase :
Disposal of assets that had been traditionally owned or
controlled by the Government
{ e.g. Privatization of the Philippine National Bank (PNB)
through public listing and Petron, then the government
owned oil company }

6. Structural Reforms
The overall climate for investment has undergone dramatic changes, with formerly
regulated, restricted or monopolized industries being opened to competition from
new entrants.
 Power Generation
 Telecommunication
 Inter-island shipping
 Passenger and Commercial Air Transport
 Banking
 Urban water & Sewerage Services
 Oil trading and Refining
The chances for a repetition of the Boom-Bust cycle are lessened by new investmen
entering industries, and firms that are competitive and earn enough exports

7. 1991 : Congress passed Liberal Foreign Investment Law, removing minimum
law, removing minimum nationality requirement in virtually all sectors
of the economy.
Foreign Investment Act (R.A. 7042, 1991, amended by R.A. 8179, 1996)
Liberalized the entry of foreign investment into the Philippines.
Businesses with Foreign Investment Restrictions :
Within the 1991 Foreign Investment Act (FIA) , there are 2 negative list also known
as the “Foreign Investment Negative List” which defines the foreign investments
which are limited or restricted by the constitution and specific laws.
Negative List A & Negative List B

8. Fidel V. Ramos Government : 1992 - 1998
• Keeping the growth of government expenditures in line with the overall growth
of the economy
• Reliance on the Build-Operate-Transfer schemes to implement significant infrastructu
• An Active resort to raising non-tax revenues, primarily in the form of proceeds from
privatization
• Aggressive resort to non-tax revenues through the sale of public assets
• Rehabilitation of the central bank (1993)

9. “ The effects of having gained control over the deficit “
 Lower nominal interest rates
 Moderation of Inflation
 Governments needs for new borrowing was reduced
 Pressure on interest rates was lessened and in turn reduced the debt service
on old debt
 Appreciation of the Peso vs. Dollar
Year Exchange Rate Reserve ($ Million)
1990 PHP 24.31 66
1991 PHP 27.48 2,170
1992 PHP 25.51 3,661
1993 PHP 27.11 3,495
1994 PHP 26.42 7,121
1995 PHP 25.71 7,762
1996 PHP 26.20 11,467
Source : Ba nk Sentra l ng Pi l i pi na s

10. The first structural privatization was the power sector. To solve the power shortages th
had become the principal obstacle to growth:
1992 – 1993 : Ramos Administration
 Opened up the power-generation sector. Built-Operate-Transfer scheme to both
Foreign and Domestic investors
Impact:
** This measure solves the immediate problem of eliminating power outages.
** This also gave the government and public sector a positive experience with priv
sector entry into utilities
** The Foreign Direct Investors Conditions gradually improves
** Stimulated domestic and foreign investor interest & allowed the government to
bridge its fiscal deficits.

11.  Privatization deals that have caught the most
attention :
• Sale of idle government properties:
•Fort Bonifacio
•Stockyards in Alabang
•Reclaimed properties XXXXXX
The hope underlying privatization and deregulation has been that these should provi
new stimuli for both domestic and foreign investors, especially as compared with
investment by government-owned or controlled corporations, which are typically
indebted and strapped for cash.

12. International Competitiveness
Logical moves the government can take in 3 pivotal areas:
• Industrial relation
• Trade and Production
• Infrastructure Investment
Partly reflecting the large gap between domestic savings and investment has been
the worsening of the trade balance ( the difference between exports and imports of goo
nonetheless, the current account deficit has declined owing to the large inflows of facto
earning from overseas. (e.g. earnings from contract workers abroad )

13. The worsening trade performance is merely due to the necessarily heavy imports the
country must undertake in the course of industrialization and its catch-up on
infrastructure.
There are signs that some of the country’s export are losing competitiveness. This is
for agriculture-based commodities ( Coconut oil, sugar, fruits & vegetables), process
foods, furniture’s and other’s. The country was being edge out by other suppliers wit
lower labor cost such as Vietnam, China and Bangladesh.

14. 2 factors bear on the question of current competitiveness
1. Exchange rate
2. Productivity
Neither of which can easily be addressed
The politically correct opinion about solving the trade deficit has now become
that of raising productivity in the export sector

15. Agriculture and Poverty
The Philippine agriculture sector has been growing erratically since the 1980’s, with
overall annual productivity growth averaging 1.1%. There has been very little intensificat
and little expansion in the area under cultivation. There are also market distortions and
Other structural deficiencies.
The price support and trade barriers in the case of rice have meant higher prices for both
urban and rural consumers and limited benefits to larger farmers. The National Food
Authority procures a fraction of the country’s rice production, and hence only a few can e
the higher support prices. The smaller rice producers are either net buyers of rice or hav
little marketable surplus to benefit from higher prices.

16. The fate of Agriculture in Philippines remains unclear. One of the clear disadvantage
in its export drive is its loss of competitiveness in labor-intensive products, because
wages have become high in dollar terms, relative to what other countries offer.
The current inefficiency of agriculture and the high cost of food relative to prices from
abroad represents a severe drag on industrialization. But importing food would
definitely cause severe dislocations among those employed in traditional Agriculture.

17. Opposition and Policy Instability:
Recent economic growth distinguishes itself from past episodes by drawing in large
sectors of the population both in terms of social strata (e.g. the middle classes) and
geographically (e.g. the development of regional centers other than the metropolitan
area). As a result, the recent growth episode has built a constituency for measures
that will sustain that growth.
Nonetheless, this is far from saying there has been or will be no opposition to reforms
There is, owing to extremely uneven distribution of the gains from liberalization progra
The first source of opposition is from those sectors of the economy that are being left
behind. Wealth has been concentrated in the services sector specially finance, real e
retail and whole sale trade, telecommunications and construction.
The grievances and interest involved are disparate and sectional, but more important
because the ideological and organizational split in the Left leaves no workable
ideology to reunite, the resulting protest have delayed but not prevented the growth.

18. Average Economic growth in terms of GDP
Corazon Aquino Admisnistration 3.8% average
Ramos Administration 3.7% average
Estrada Administration 3.7% average
Arroyo Administration 5.0% average
Source : NEDA (Nat'l Economic & Development Authority

19. Philippines business confidence deteriorated to 31.8 in the second quarter of 2011 from
47.5 in the first quarter of 2011.
Result of BES (Business Expectation Survey) provide advance indication of the direction
Change in the over all business activity in the economy and in the various measures of
Companies operations as well as in selected economy indicators

21. Thank You.
Sustaining Economic Reforms : Is there a
reform constituency?

22. References:
• Social Impact of the Global Financial Crisis in the Philippines, 2010 Asian Development Bank
• Impact of the Global Financial and Economic Crisis on the Philippines, 2009, Phil. Inst. For Dev’
• Philippine Economic Growth, Emmanuel S. De Dios
• www.NSCB.gov.ph (National Statistical Coordination Board)
• business.inquirer.net
• www.tradingeconomics.com
• National Statistics Office (NSO)