By Hilarion M. Henares Jr.
(written in September 1977 for the government’s Technology Resource Center)
A WHOLE generation of Filipino leaders and economic planners have pursued economic development plans and policies predicated on the assumption that foreign investments play a large and beneficial role in the development of nations.
A WHOLE generation of Filipino leaders and economic planners have pursued economic development plans and policies predicated on the assumption that foreign investments play a large and beneficial role in the development of nations.
One of the potent arguments in favor of encouraging foreign investment is that it results in an inflow of much needed capital.
The purpose of this study, originally undertaken in 1977 during Martial Law for the Technology Research Center and deliberately kept from being published, is to determine the extent to which foreign corporations bring in their capital requirements and to determine the effect of their operations on the balance-of-payments position of the Philippines.
The economic history of the Philippines in modern times may be roughly divided into six periods: 1) the era of free trade under the American colonial administration covering 1909 to 1941; 2) the Japanese Occupation, 1942-1944; 3) the postwar reconstruction 1945-1949 and the period of Import and Exchange Controls 1949-1961; 4) the Decontrol Period (1961-1972); 5) the period of Martial Law (1972-1986); 6) the post-EDSA period of 1986 to date.
1) The free trade era began with the conquest of the Philippines by the USA, and the passage of the Payne-Aldrich Act of 1909, which decreed Free Trade between the USA and its colony, and set up tariff barriers against all other countries.
This resulted in the entry of American investments in agriculture, extractive industries, and trading companies, catering to the needs of the US economy by exporting raw materials and importing finished products; the supremacy of US companies with respect to their technological equals and natural competitors from Europe and Japan; the rise of the indigenous landed aristocracy supplying sugar, copra, and minerals; a one-way Free Trade by which the USA exported any and all kinds of products in unlimited quantities to the Philippines, while imposing quotas and taxes on our major exports.
In short, this era was characterized by a colonial plantation-type import-export economy dominated by American interests.
2) The period of the Japanese Occupation saw the destruction and confiscation of most of our tangible assets, closing down of American companies, and the emergence of a small group of Filipino entrepreneurs engaged in small scale industries to provide substitutes for goods hitherto imported.
3) After a brief period of postwar reconstruction characterized by waste, corruption and depletion of foreign exchange reserves to satisfy the pent-up demand for consumer goods, the Philippine monetary authorities decided to impose Import and Exchange Controls on external trade and currency transactions.
The period of Controls, as it did in other countries, marked a turning point in the nation’s economic history, characterized by the growth of a dynamic manufacturing sector and the emergence of a new industrial middle class.
American trading firms were forced to initiate manufacturing operations and tighten their grip on the national economy through Parity Rights granted under the Bell Trade Agreement and the Laurel-Langley Agreement, plus such policy decisions of the Central Bank as “historical pattern” and “marketability” criteria in the allocation of foreign exchange.
During this period, 1949 to 1960, according to a Central Bank Study submitted to the National Economic Council, only $16.2 million new foreign investments entered the country while $223 million were sent out in profits and invisible payments, or $14 sent out for every dollar coming in.
4) The Decontrol era from 1961 to 1972 saw the release of the “blocked peso” funds of foreign corporations and a return to untrammeled free enterprise, with the government trying to save its industries by raising tariffs on imported goods.
Central Bank statistics on invisible payments and disbursements from the years 1964 to 1972 show that during this period, $580.97 million came in as direct investments and loans, while $3,290.25 million was sent out as profit remittances, withdrawal of investments, and amortization of loans, or $5.66 going out for every dollar coming in.
Foreign corporations, especially the Americans and the Japanese, came under increasing scrutiny because of the pending end of the Laurel Langley Agreement and the entry of Japanese investments under Decontrol conditions.
5) The first part of the Martial Law Period, from 1972 to 1976, is included in this study, and is characterized by the end of Parity Rights and the Laurel-Langley Agreement, diplomatic relations with Socialist countries, and reorientation to Southeast Asia and the Third World.
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