Economic Planning Report.docx

ECONOMIC DEVELOPMENT OF THE

PHILIPPINES AND

SINGAPORE

Denji G. Cosico Economic Planning

I. Introduction

Economic development is a technical term used to describe that subdivision of the study of economics which deals with the facets of development processes in developing countries1. It leans towards an understanding and creation of strategies and the implementation of measures to alleviate both problems in the internal workings of governments and in the masses themselves. Economic development and history plays a significant role in economic studies. While it does not absolutely predict where a particular economic group (or in the case of this report, a country) will end up, it does provide for the likely trajectory for its future development, granted the status quo is maintained. This report will dwell on the economic development of two countries, namely the Philippines and Singapore, and will discuss at length the countries’ development in the postcolonial period, in order to give a more recent and relatable overview. The report is an attempt to delineate and distinguish pivotal points in the development of the two countries, and how their respective governments and people responded to these circumstances.

II. Economic Development of the Philippines

The Philippines is an archipelagic country in Southeast Asia, with an area of 300,000 km2 . It is currently the eighth-most populated country in Asia and the 12th most populated country in the world. The economic history of the Philippines can be divided into six parts: the pre-colonial period, the Spanish period, the first American period, the Japanese period, the second American period and the post-colonial period. 2

The pre-colonial period dates back to the 900’s. At the time, there was no fixed currency, no Philippine peso; there was only the “barter system,” a method of exchange of goods and/or services, for goods and/or services in return3. From the 12th century onwards, the influence of Indian, Arab, Chinese and Japanese merchants brought about the manufacture and trade of clay pots, and at the same time, agriculture and farming started to be discovered, and prospered, with the center being in the Pasig River Delta4. International trade was rampant in the country, using to its advantage the oceans surrounding the archipelago as its natural highways 5. At this time, the country stood as one of the economic centers of Asia.

1

Bell, Clive (1987). "development economics," The New Palgrave: A Dictionary of Economics, v. 1, pp. 818, 825. "World Development Indicators - DataBank". databank.worldbank.org. 3 https://www.mint.com/barter-system-history-the-past-and-present 4 Dery, Luis Camara (2001). A History of the Inarticulate. Quezon City: New Day Publishers. ISBN 971-10-1069-0. 5 From the mountains to the seas Archived 21 May 2009 at the Wayback Machine.. Mallari, Perry Gil S. The Manila Times. 18 January 2009. 2

Colonization by Spanish conquistadors led to greater economic development, ushering concepts of trading ships6, increasing exponentially not only chronologic efficiency in transportation of goods, but also efficiency in volume transported. Knowledge of Spain in crops contributed greatly to the already thriving agricultural status of the country. The convergence of Spain’s already great economic connections at the time with the Philippines’ strategic location in the world map, which was along almost all routes taken by Spanish ships (galleons) in the transportation of its goods, made the Philippines one of the global centers of economic development7. Steady growth was observed in the American Era, the Commonwealth Era, as schools, transportation, tourism and infrastructure became the central concern of the war-torn country. This growth however was stunted and had receded during the Japanese occupation, as food shortages became rampant and the typhoons and tropical depressions hitting the country became more frequent and impactful, especially to the agriculturally-inclined Philippines. Re-establishment of the country after the Japanese occupation brought about new hope for its development. Legislatory measures were passed greatly enhancing capacity of the country to rebuild, focusing on banks8, tourism9 and taxation10. A great cash inflow was experienced as the provisions of the Bell Trade Act enabled United States to utilize the country’s resources in exchange for financial support in our economic recuperation from war11. Diplomatic relations were also strengthened as ties with the United Nations General Assembly, the United Nations Educational, Scientific and Cultural Organization (UNESCO), the World Health Organization (WHO) are formed and fortified12. President Carlos P. Garcia’s term brought about the “Filipino First Policy,” aimed at utilization of the Philippine workforce along with importation control policies13. Trends on anti-corruption and shortening of lease of US forces in Philippine soil continued until 1964, with a slow but gradual growth in economy across the board. Abnormal concentration of power in the government during the term of Marcos led to the Philippines getting left behind by its neighboring countries. Rise of the GDP of the Philippines by almost quadruple, while on its face was a sign of good economic growth, was a mere facade, a mask, as it was merely due to heavy borrowing of the government from international financial institutions such as the World Bank14. Poverty levels reached an all-time high, and the administration was largely unaccountable. The erection of infrastructures using the borrowed money worked little to alleviate what was largely a broken country, neck-deep in debt. The Aquino administration was faced with one of the worst economic recessions of the history of the country. The primary focus was one on image and payment of debts, leading to a drive to privatize whichever government assets can be privatized, which led to massive unemployment and budget cuts. Major typhoons and earthquakes in the Philippines and around Asia increased demand for rice, and Asian countries were forced to import from other continents, 6

"Forced Migration in the Spanish Pacific World" By Eva Maria Mehl, page 235. NationMaster (2010). "GDP per capita in 1900 by country. Definition, graph and map". Retrieved August 19, 2018. 8 History of the Development Bank of the Philippines, About DBP accessed on August 17, 2018. 9 Executive Order No. 18 10 Blue Book of the First Year of the Republic, Manila: Bureau of Printing, 1947, p. 27. 11 Schirmer, Daniel B; Shalom, Stephen Rosskamm (1987), The Philippines reader: a history of colonialism, neocolonialism, dictatorship, and resistance, South End Press, p. 88, ISBN 978-0-89608-275-5 12 Castro, Pacifico A., Diplomatic Agenda of the Philippine Presidents, Foreign Service Institute, Manila, 1985. 13 Abinales, Patricio N., Amoroso, Donna J., State and Society in the Philippines. Maryland: Rowman & Little Publishers, Inc., 2005. p. 182. 14 De Dios, Emmanuel (1984). An Analysis of the Philippine Economic Crisis. Diliman, Q.C.: University of the Philippines Press. 7

leading to a substantial economic downfall15. At the end of the Aquino administration, a glimmer of hope was seen with the economy of the country; it was a slow recovery, but the Philippine peso once more became relatively competitive. A substantial debt, however, still remained with the Ramos administration, coupled with changes in arrangement with the International Monetary Fund, the eruption of Mt. Pinatubo and electric power shortage across the country. Privatization of public assets was once more the name of the game, and just as the country was experiencing its first steady economic growth in decades, the continent was hit with the Asian Crisis Contagion, an economic meltdown which threatened the world economy itself16. Currency devaluation and risky financial ventures put the country at an economically-skewed state, but intelligent financial maneuvering of the administration enabled the country to survive the crisis better than its neighbors. We were termed the “next Asian tiger economy”, but poverty, corruption and crime rate drove away potential investors17. The establishment of the Bangko Sentral ng Pilipinas also operated as a stop-gap measure to prevent the country from hemorrhaging assets it cannot afford to lose. The aftermath of the Asian Crisis contagion still plagued the country at the time Estrada assumed office, worsened by the debilitating mismanagement and cronyism characteristic of the administration18. Expositions of the corrupt workings in the government led to EDSA Revolution; economy was in a steady decline, despite the increase in the country’s population. The beginning of the Arroyo administration showed a glimmer of hope with respect to economic development, with an improving economy together with that of the United States, due mainly to outsourcing and overseas Filipino workers. Arroyo was able to maneuver through the worldwide recession through an increase in taxation through the VAT. However, political turmoil was the downfall of the administration, as once again, corrupt practices and electoral duplicitousness caused the economist to step down from her post. While politically the battle seemed lost, economically, the Philippines was once again thriving, with regional development and tourism coupled with good investments19 leading the drive. The economic benefits of the Arroyo administration was not felt until Aquino III’s term, with the foreign debts reduced by 9%, although still remaining substantial. At the present time, the Philippines is the 34th largest economy in the world, with an estimated GDP of $ 313.60 billion20. It is categorized as a “newly-industrialized country”, mainly thriving on agriculture but venturing upon manufacturing businesses and service-oriented mechanisms21. Crime rate and poverty still continues to drive away potential investors and inflation is at an all-time high22, mainly attributed to budgetary mismanagement and rampant corruption, and tax reform laws crippled the middle-class by increasing taxation without any exchange in benefit.

15

http://factsanddetails.com/southeast-asia/Philippines/sub5_6g/entry-3916.html. Accessed August 17, 2018. https://www.investopedia.com/terms/a/asian-financial-crisis.asp. Accessed August 18, 2018. 17 http://factsanddetails.com/southeast-asia/Philippines/sub5_6g/entry-3916.html Accessed August 17, 2018. 18 Balisacan and Hill, The Philippine Economy, p. 19 19 Balisacan and Hill, The Dynamics, p. 378 20 https://tradingeconomics.com/philippines/gdp Accessed August 17, 2018. 21 "Compare currencies in South East Asia". aroundtheworldinaday.com. Retrieved August 17, 2018. 22 https://tradingeconomics.com/philippines/inflation-cpi Accessed August 17, 2018. 16

III. Economic Development of Singapore

Singapore is a sovereign state islands in Southeast Asia, with 63 islands and an aggregate area of 721.5 km2, still undergoing reclamation projects. Its economic history can be divided into two parts: the colonial and post-colonial periods. British colonization in 1819 and the end of the First World War put Singapore at the economic map of the world, though only a few thousand people were living in the islands. It became a docking area of transport and cargo ships, with the largest dry dock in the world and third-largest floating dock, along with the defense provided by the British empire23. The end of World War II, however, put Singapore in a state of financial disaster, as the war took a heavy toll on its colonizer, and looting and revenge-killing in Singapore became rampant. Economic growth became stagnant and for a period receded as the Singapore natives lost faith and respect in their colonizers, as they clamor for independence of the Republic of Singapore, resulting to Lee Kuan Yew becoming their first prime minister24. The country’s GDP growth of a steady 12.7% from 1965 to1973 was unprecedented. This was largely attributable to industrialization. Their growth, the same as the other members of the “Four Tigers of Asia”, began in sweatshops which produced undergarments, toys and other cheap products25, but investments in public health resulted to reduction of poverty and lengthening of the lifespans of its people, which will eventually be material contributions to its success26. In 1965, Singapore faced all-time high levels of unemployment and labor and social unrest, due primarily to its post-war status. Moreover, its ties with Malaysia and Indonesia was either severed or substantially incapacitated as financial crises hit the mentioned countries. Industrialization, however, showed promise and provided the country with arms to execute the export-oriented policies that the administration envisioned27. Industrialization brought Singapore slowly and gradually to the economic limelight. Even in the advent of the Oil Shock Crisis in 1973 and 1979, the country’s economy seemed unfazed and unaffected, most likely due to good global investments as well as its own petroleum-servicing enterprise, which made it more of an oil-producing country rather than an oil-consuming one. In the 1980’s, under Lee Kuan Yew, the economy of Singapore prospered. From a wartorn country, wages were seen to be increasing and strikes and unemployment were near negligible. Labor-intensive industries were relocated to other ASEAN nations and were replaced by high-technology industries and services28. Singapore was a global city, serving world markets and major international corporations, with a heavy focus on its international banking and financial services sector.

23

Kevin Tan (2008). Marshall of Singapore: A Biography. ISBN 978-9812308788. "Headliners; Retiring, Semi". The New York Times. 2 December 1990. Retrieved 27 December 2008. 25 http://factsanddetails.com/southeast-asia/Singapore/sub5_7c/entry-3782.html Accessed August 19, 2018. 26 Ibid. 27 "Statistics Singapore - Latest Data". 7 December 2017. Archived from the original on 29 November 2015. Retrieved August 17, 2018. 28 Supra at note 25. 24

However, in 1985, its relative dependence on the world economy, by virtue of its global investments, backfired. The worldwide recession resulted to a negative economic growth of the country, which was in the next year offset with a 1.9% growth. The government responded promptly and firmly by lowering employer contributions to the Central Provident Fund, “freezing overall wage levels for 1986 and 1987, reducing corporate income taxes from 40 to 30 percent, reducing personal income taxes in line with corporate taxes, and introducing an across-the-board investment allowance of 30 percent to encourage greater investment in equipment and machinery” 29. These measures were highly successful; costs dropped 30 percent and productivity climbed. By 1988 Singapore's economy had rebounded. In the 1990’s, Singapore ventured heavily into the high-tech industries, and with good benefit: its economy grew closely with export growth and expansion of the electronics industry in a global scale. Growth was 7 to 8 percent until the mid-1990s. However, Singapore was hit hard by the Asian Financial Crisis, but it strived to maintain a positive growth rate, which cannot be said for its other Asian neighbors. This was last economic crisis to hit Singapore. From then on, steady growth had been achieved mainly due to keeping up with the demands of technology and industry, while at the same time not neglecting the health and comfort of its people. Banking, business services, public education, info-communications services and entertainment services kept the Singapore economy afloat and untouched by financial crises throughout the world, and even changes in administration did very little to disrupt its success. While it had problems of shortages in the labor workforce, this was appeased by the inflow of foreign labor, which now makes up one-third of its labor force. Singapore is currently the 7th least corrupt country in the world, with the most open economy, most pro-business and third-highest per capita GDP in terms of purchasing power parity30. It has an unemployment rate of 1.9%, and a steadily-increasing economic growth to boot.

29 30

Supra at note 25. World Economic Forum. "Global Enabling Trade Report" (PDF). Archived from the original (PDF) on 29 July 2012.