Professional Documents
Culture Documents
ECONOMIC
School PLANNING
of Graduate AND
Studies
POLICY IN THE PHILIPPINES
The Philippines has traditionally had a
private enterprise economy both in policy
and in practice. The government
intervened primarily through fiscal and
monetary policy and in the exercise of its
regulatory authority.
1989
The Aquino government formulated a tax
reform program in 1986 that contained some thirty
new measures. Most export taxes were eliminated;
income taxes were simplified and made more
progressive; the investment incentives system was
revised; luxury taxes were imposed.
June 1990
As a result of the 1990-91 Persian Gulf crisis, petroleum
prices increased and the Oil Price Stabilization Fund put an
additional
The strain on the proposed
government budget. The sudden cessation
a comprehensive newoftax
dollar
remittances from contract
reform package workers
in an attempt to in Kuwait
control theand Iraqsector
public and
increased
deficit. interest rates
About that on domestic
time, debt ofBank,
the IMF, World the government
and also
contributed
Japanese to the deficit.froze loan disbursements because the
government
Philippines was not complying with targets in the standby
agreement with the IMF.
Negotiations between the Aquino
administration and Congress on the
administration's tax proposals fell, with the two
t obe r sides agreeing to focus on improved tax
Oc
1990 collections, faster privatization of government-
owned and government-controlled corporations,
and the imposition of a temporary import levy.
TheThebanking
Centralsystem
Bank resorted,
intervenedwithextensively
the Centralin theBank's
assistance,
country's
to financial
foreign life.
creditIt set
on interest
terms that
rates generally
on both bank
ignored
foreign-exchange
deposits and loans,
risk. The
often
combination
at rates thatofwere,
thesewhen
factors
adjusted
mitigated
against
for inflation,
the development
negative. Central
of financial
Bank credit
intermediation
was extended in the
economy,
to commercial
particularlybanks
the through
growth an of extensive
long-termsystem
saving.of The
dependence
rediscounting.
of the banking system on funds from the Central Bank
at low interest rates, in conjunction with the discretionary authority
of the bank, has been cited as a contributing factor to the financial
chaos that occurred in the 1980s.
Example
The proportion of Central Bank loans and
advances to government-owned financial
institutions increased from about 25 percent of
the total in 1970 to 45 percent in 1981-82.
Borrowings of the government-owned
Development Bank of the Philippines from the
Central Bank increased almost 100-fold
during this period. Access to resources of this
sort, in conjunction with subsidized interest
rates, enabled Marcos cronies to obtain loans
and the later bailouts that contributed to the
financial chaos.
The government introduced a number of monetary measures
built on 1972 reforms to enhance the banking industry's ability to
provide adequate amounts of long-term finance. Efforts were
made to broaden the capital base of banks through encouraging
mergers and consolidations. A new class of banks, referred to as
"expanded commercial banks" or "unibanks," was created to
enhance competition and the efficiency of the banking industry
and to increase the flow of long-term saving. The functional
division among other categories of banks was reduced, and that
between rural banks and thrift banks eliminated.
1980s
Early 1980s Monetary and fiscal policies that were set
by thereserve
The government, contributed towas
requirement large
intermediation margins, the difference
revised upward twice, going from
between lending and borrowing rates.
21 percent to 25 percent. In
addition, the government levied
both a 5 percent gross tax on bank
Example, loan rates averaged
receipts16.8
andpercent,
a 20 whereas
percent tax on
rates on savings deposits
depositwere earnings,
only slightlyand
moreborrowed
In 1990
than 4 percent. The Central Bank traditionally
extensively to cover budget deficits
maintained relatively high reserve requirements (the
proportion of depositsand
thattomust
absorb excess
remain growth in the
in reserve),
money supply.
in excess of 20 percent. 1988
In addition to large intermediation margins, Philippine banks
offered significantly different rates for deposits of different
amounts.
For instance, in 1988 interest rates on six-month time
deposits of large depositors averaged almost 13 percent, whereas
small savers earned only 4 percent on their savings. Rates offered
on six-month and twelve-month time deposits differed by only 1
percentage point, and the rate differential for foreign currency
deposits of all available maturities was within a single percentage
point range..
Because savings deposits accounted for approximately 60
percent of total bank deposits and alternatives for small
savers were few, the probability of interest rate
discrimination by the commercial banking industry between
small, less-informed depositors and more affluent savers,
was quite high. Interest rates of time deposits also were bid
up to reduce capital flight. This discrimination coupled with
the large intermediation margins, gave rise to charges by
Philippine economists and the World Bank that the
Philippine commercial banking industry was highly
oligopolistic
Money supply growth has been highly variable,
expanding during economic and political turmoil and then
contracting when the Philippines tried to meet IMF
requirements. Before the 1969, 1984, and 1986 elections,
the money supply grew rapidly. The flooding of the
economy with money prior to the 1986 elections was one
reason why the newly installed Aquino administration
chose to scrap the existing standby arrangement with the
IMF in early 1986 and negotiate a new agreement. The
Central Bank released funds to stabilize the financial
situation following a financial scandal in early 1981, after
the onset of an economic crisis in late 1983, and after a
coup attempt in 1989.
The money was then repurchased by the Treasury and the
Central Bank--the so-called Jobo bills, named after then
Central Bank Governor Jose Fernandez--at high interest rates,
rates that peaked in October 1984 at 43 percent and were
approaching 35 percent in late 1990
IMF dictates were met, very high inflation abated, and the
current account was in surplus. Success, however, was
obtained at the expense of a steep fall in output and high
unemployment.
It is the process of transferring
ownership of a business, enterprise,
agency, public service or public
property from the public sector (a
government) to the private sector,
either to a business that operate for
a profit or to a non-profit
organization.
Privatization
When Aquino assumed the presidency in 1986, P31
billion, slightly more than 25 percent of the
government's budget, was allocated to public sector
enterprises--government-owned or government-
controlled corporations--in the form of equity
infusions, subsidies, and loans.
Aquino also found it necessary to write off P130
billion in bad loans granted by the government's two
major financial institutions, the Philippine National Bank
and the Development Bank of the Philippines, "to those
who held positions of power and conflicting interest under
Marcos." The proliferation of inefficient and unprofitable
public sector enterprises and bad loans held by the
Philippine National Bank, the Development Bank of the
Philippines, and other government entities, was a heavy
legacy of the Marcos years.
Early 1991
The Asset Privatization Trust had sold 230 assets with net
proceeds of P14.3 billion. Another seventy-four public sector
enterprises that were created with direct government
investment were put up for sale; fifty-seven enterprises were
sold wholly or in part for a total of about P6 billion.
http://countrystudies.us/philippines/59.htm
Jepnie Jan Gadong-
Barrido
Reporter
Dr. Rosario Clarabel C.
Contreras
Course Facilitator
Thank