Philippines And The Race To The Bottom

Philippines and the World Bank The race to the bottom

1968 ...... Marcos won his 2nd term in office but at the cost of the nation’s foreign exchange, the country is on the verge of economic collapse. Marcos approaches the World Bank for help.

World Bank demands 60 % Devaluation of the peso Liberalization of the Philippine Market Export Processing Zones (EPZ) Weaker Labor Laws (lower wages)

Devaluation of the Peso The prime motivation is to make Philippine Goods globally competitive. The actual result was hundreds of entrepreneurs who required importation of raw materials and equipment where thrown into bankruptcy overnight.

Liberalization Liberalization basically means free market, no protectionism , reducing the size of regulation bodies and elimination of any barriers. (laisse-fair economics) “Its highly unusual for a country to develop successfully without some degree of protectionism” The United States itself did not practice Liberalization when it was a small country

EPZs Just like the taiwan models Actual effect : the Bataan EPZ costed the Philippines $150M Due to special regulations the government lost more money as the EPZs operated Basically the Philippines was forced to build infrastructure to loan, but to build these infrastructure we had to loan first.

Weaker Wage Laws In order to make Philippine labor much more competitive In actuality, horrendous working conditions were given to workers, and businessmen taking advantage of this creatively made sure they paid the workers as low as possible. Real wages dropped by 25% despite an almost equal rise in inflation between 1972 to 1978

“It was a very nice arrangement for the richer countries, because they have all these poor countries desperately competing with each other to see who can produce goods most cheaply.”

Martial Law “ The American Chamber of Commerce wishes you every success in your endeavor to restore peace and order, business confidence and economic growth... We assure you of our confidence and cooperation ... We are communicating the feelings of our associates and affiliates in the United States” -Telegram

The World Bank funneled $2.6B to 61 Marcos Projects

10% GNP growth to the crash 1973, saw the Philippine’s hard work could have paid off froma $120M deficit in Agriculture to a $270M surplus. $55 Million in foreign investments 1980-1981 : Australia, Canada, Europe , Japan and the United States set-up trade barriers against the Philippines The World Bank just watched as the country fell into ruins.

1966- $1B |-| 1986 - $26 B

Rural Poverty Unrest Reduction The world bank forced farmers to adopt expensive mechanization. The ones who truly benefited are the large landlords and commercial farmers not the small farmers that make the bulk of the rural population

World Bank in the Cabinet 1981 : Martial Law lifted and the new cabinet dominated by Bank-sponsored technocrats. The World Bank then granted Marcos with more loans “The Bank was perfectly aware of the fact that ost loans were transferred into the bank accounts of Marcos and his generals, nevertheless, the Bank considered these as necessary bribes for paying the political staff in power. “

$11 B Heavy Industries “If the Philippines developed its own industrial base, the country would no longer be such a good customer for the multinationals. What finally brought the demise of the projects (heavy industries) was the “cold shoulder given by prospective financiers who had learned of the Bank’s veto”

Effects of the World Bank relationship OFW dependent economy Mini-Size Me 90% of budget goes to debt servicing Privatization (Meralco, Water Services, Philippine Airlines etc) Way behind compared to our counter-parts.