The Difference Between Micro and

Macro Economics
What’s the difference between micro and macro economics? These two
economic disciplines can see confusing at first glance, but once you learn
their focus it’s easy to differentiate microeconomic issues and questions from
macroeconomic ones.

In this blog post, you’ll learn the difference between micro and macro
economics, as well as specific examples of micro and macro economic
problems. Read on to learn the basics of microeconomic and macroeconomic
thought, study and analysis.
Do you want to learn about micro and macro economics in greater detail?
Enroll in our Micro & Macro Economics course to learn the specifics of
economics, from basic principles of supply and demand the characteristics of
the business cycle.
Microeconomics vs. macroeconomics

The difference between micro and macro economics is simple.

Microeconomics is the study of economics at an individual, group or
company level. Macroeconomics, on the other hand, is the study of a national
economy as a whole.

Microeconomics focuses on issues that affect individuals and companies.

This could mean studying the supply and demand for a specific product, the
production that an individual or business is capable of, or the effects of
regulations on a business.

Macroeconomics focuses on issues that affect the economy as a whole. Some

of the most common focuses of macroeconomics include unemployment
rates, the gross domestic product of an economy, and the effects of exports
and imports.

Does this make sense? While both fields of economics often use the same
principles and formulas to solve problems, microeconomics is the study of
economics at a far smaller scale, while macroeconomics is the study of large-
scale economic issues.
Both fields of economics are interdependent

At first glance, micro and macro economics might seem completely different
from one another. In reality, these two economic fields are remarkably
similar, and the issues they study often overlap significantly.

For example, a common focus of macroeconomics is inflation and the cost of

living for a specific economy. Inflation is caused by a variety of factors,
ranging from low interest rates to expansion of the money supply.

While this might seem like a purely macroeconomic field of study, it’s
actually one that’s very important in microeconomics. Since inflation raises
the price of goods, services and commodities, it has serious effects for
individuals and businesses.

On a microeconomic level, this has several effects. Businesses are forced to

raise their prices in response to the increased cost of materials. They also
need to pay their employees more over the long term to account for the
higher cost of living.

This is just one example of a macroeconomic phenomenon – in this case,

inflation and a rising cost of living – affecting a microeconomic one. Other
macroeconomic decisions, such as the creation of a minimum wage or tariffs
for certain goods and materials, have significant microeconomic effects.

Do you want to gain a detailed understanding of macroeconomics? Enroll in

our Economics Without Borders course to learn how currencies, central
banks and a wide variety of other factors affect national and global
economies.
Examples of microeconomic issues

Microeconomics seeks to solve problems on a small level. Some economics

like to describe microeconomics as the study of economics and behavior from
the bottom up, since it’s focused on the effects of low-level decisions on the
economy.

An example of a microeconomic issue could be the effects of raising wages

within a business. If a large business raises its wages by 10 percent across the
board, what is the effect of this policy on the pricing of its products going to
be?
Since the cost of producing products has increased, the price of these
products for consumers is likely to follow suit. Likewise, what will happen if a
company raises wages for its most productive employees but fires its least
productive workers?

These are the type of questions microeconomics aims to solve.

Microeconomics is also useful for studying the effects of your own decisions.
One of the most common principles in microeconomics is opportunity
cost.

Opportunity cost is the value of making one decision over another. A decision
that involves economy cost is the choice of one meal instead of another: by
choosing a certain food, you miss out on the benefits offered by another.

Choices involving opportunity cost could relate to your career. By choosing

one job over another, you may gain opportunities but lose others. In addition
to factors like supply and demand, opportunity cost is one of the principles of
microeconomics.

Learn more about opportunity cost, including several examples of the

opportunity cost of career choices and buying decisions, in our blog post on
the opportunity cost formula .
Due to the narrow focus of macroeconomics, it’s an incredibly valuable
skillset for making decisions in your own life. Learn more about intelligent
decision making in our Cognitive Biases: Learn to Master Decision
Making course.
Examples of macroeconomic issues

While microeconomics focuses on the effects a certain decision has on

individuals and businesses, macroeconomics looks at the bigger picture. In
macroeconomics, a common issue is the effects of certain policies on the
national or regional economy.

For example, while a microeconomist might study the effects of low interest
rates on individual borrowers, a macroeconomist would observe the effects
that low interest rates have on the national housing market or the
unemployment rate.

Another common focus of macroeconomics is the way taxes affect the

economics of a nation. A macroeconomist would look at the effects of a
decrease in income taxes using measures like GDP and national income,
rather than individual factors.
Do you want to learn more about macroeconomics? Discover how interest
rates and trade policy affects the national economy by enrolling in our
21st century economics course, How The Economy Really Works .
The importance of a balanced economics education

Microeconomics and macroeconomics have a lot in common, and the skills

used to solve small-scale economic issues are often identical to those used to
find solutions to large-scale economic problems.

Learn the impact of economic variables on small firms, individuals,

households and the economy as a whole in our Micro & Macro
Economics course. Designed for new economics students, this in-depth
course is an excellent introduction to macro and micro economics.

What's the difference between

microeconomics and macroeconomics?
Macroeconomics and microeconomics, and their wide array of underlying
concepts, have been the subject of a great deal of writings. The field of study is
vast; so here is a brief summary of what each covers. Microeconomics is
generally the study of individuals and business decisions,
while macroeconomics looks at higher up country and government decisions.
Microeconomics

Microeconomics is the study of decisions that people and businesses make regarding the
allocation of resources and prices of goods and services. This means also taking into account
taxes and regulations created by governments. Microeconomics focuses on supply and
demand and other forces that determine the price levels seen in the economy. For example,
microeconomics would look at how a specific company could maximize its production and
capacity, so that it could lower prices and better compete in its industry. (Find out more about
microeconomics in How does government policy impact microeconomics?
Microeconomics' rules flow from a set of compatible laws and theorems, rather than beginning
with empirical study.
Macroeconomics

Macroeconomics, on the other hand, is the field of economics that studies the behavior of the
economy as a whole, not just of specific companies, but entire industries and economies. It looks
at economy-wide phenomena, such as Gross Domestic Product (GDP) and how it is affected by
changes in unemployment, national income, rate of growth, and price levels. For example,
macroeconomics would look at how an increase/decrease in net exports would affect a
nation's capital account or how GDP would be affected by the unemployment rate. (To keep
reading on this subject, see Macroeconomic Analysis.)
John Maynard Keynes is often credited with founding macroeconomics, when he initiated the
use of monetary aggregates to study broad phenomena. Some economists reject his theory and
many of those who use it disagree on how to interpret it.
Micro and Macro

While these two studies of economics appear to be different, they are actually
interdependent and complement one another since there are many overlapping
issues between the two fields. For example, increased inflation (macro effect)
would cause the price of raw materials to increase for companies and in turn
affect the end product's price charged to the public.
Microeconomics takes what is referred to as a bottoms-up approach to analyzing
the economy while macroeconomics takes a top-down approach. In other words,
microeconomics tries to understand human choices and resource allocation,
while macroeconomics tries to answer such questions as "What should the rate
of inflation be?" or "What stimulates economic growth?"
Regardless, both micro- and macroeconomics provide fundamental tools for any
finance professional and should be studied together in order to fully understand
how companies operate and earn revenues and thus, how an entire economy is
managed and sustained.
What Should Individual Investors Look At?

Individual investors are probably better off focusing on microeconomics than

macroeconomics. There may be some disagreement
between fundamental (particularly value) investors and technical investors about
the proper role of economic analysis, but it is more likely that microeconomics will
affect an individual investment proposal.
Warren Buffett has famously stated that macroeconomic forecasts don't influence
his investing decisions. When asked about how he and Charlie Munger, his
business partner, choose investments, Buffett responded, "Charlie and I don't
pay attention to macro forecasts. We've worked together for 50+ years, and I
can't think of a time when they influenced a decision about stock or a company."
Buffett has also referred to macroeconomic literature as "the funny papers."
John Templeton, another famously successful value investor, shared a similar
sentiment. "I never ask if the market is going to go up or down, because I don't
know. It doesn't matter. I search nation after nation for stocks, asking: 'where is
the one that is lowest priced in relation to what I believe it's worth?'" said
Templeton.
The Divide Between Microeconomics and Macroeconomics

Microeconomics concerns itself with the small details that make a difference
when evaluating individual companies. This includes production costs and
market prices for goods and services. A lot of microeconomic information can be
gleaned from the financial statements.
Macroeconomics focuses on aggregates and econometric correlations. Investors
of mutual funds or interest rate-sensitive securities should keep an eye toward
monetary and fiscal policy. Outside of a few meaningful and measurable impacts,
macroeconomics doesn't offer much for specific investments.
Moreover, economists generally agree on the principles of microeconomics. As
the International Monetary Fund (IMF) website states, "There are no competing
schools of thought in microeconomics." This is not true with macroeconomics.
Macroeconomic forecasting has a very poor track record, and the accepted
version of macroeconomics has changed several times since its inception.

ECONOMIC HISTORY OF THE PHILIPPINES

The Philippines was once a model of development and second only to Japan
among east Asian economies. In the 1960s, when South Korea was a land of
peasant, the Philippines was one of Asia's industrial powerhouses. It produced
consumer goods, processed raw materials and had assembly plants for
automobiles, televisions and home appliances. Chemical plants produced drugs.
Scrap metal was imported and made into steel for ships and factories produced
cement, textiles and fertilizer.

Prior to 1970, Philippine exports consisted mainly of agricultural or mineral

products in raw or minimally processed form. In the 1970s, the country began to
export manufactured commodities, especially garments and electronic
components, and the prices of some traditional exports declined. By 1988
nontraditional exports comprised 75 percent of the total value of goods shipped
abroad. *

In the 1970s and 80s, the Philippines declined while its neighbors grew and
became one of the poorest non-Communist governments in Southeast Asia. The
gains made in the 1950s and 60s were lost to corruption, cronyism, and
mismanagement during the Marcos years and ineptitude of the Aquino years Now
the Philippines is sometimes referred to as "sick man of Asia" and a "Latin-style
banana republic in the South China Sea." Its per capita income is about one
tenth of that of Taiwan. Many of its most talented people work overseas.

According to The Economist: “What distinguishes Manila from other South-East

Asian capitals is the ubiquitous Jeepney, the loud rickety bus used by the city's
poorer inhabitants. Once modified American Jeeps, nowadays most Jeepneys are
cobbled together from second-hand Japanese lorries. They have become a
metaphor for the Philippine economy: inefficient and easily overtaken. In the
1970s the Philippines was richer than its neighbours. Yet while it chugged along
at growth rates of around 2 percent, other countries stepped on the gas: it was
passed by Singapore, Malaysia, Thailand and, more recently, by China. A former
American colony, it could have made more of its cultural affinities with the
United States, including the widespread use of English. The incompetent and
crooked rule of Ferdinand Marcos from 1965 to 1986 bears some of the blame for
its failure to do so. A sluggish economy combined with a fast-growing population
has forced some 8m Filipinos—equivalent to almost a tenth of the resident
population—to seek jobs abroad.[Source: The Economist, August 16, 2007]

See Agriculture, See History, The Philippines under Spain and the United States.

Economic Development in the Philippines in the Early

20th Century
In the mid-nineteenth century, a Filipino landowning elite developed on the basis
of the export of abaca (Manila hemp), sugar, and other agricultural products. At
the onset of the United States power in the Philippines in 1898-99, this planter
group was cultivated as part of the United States military and political
pacification program. The democratic process imposed on the Philippines during
the American colonial period remained under the control of this elite. [Source:
Library of Congress *]

Access to political power required an economic basis, and in turn provided the
means for enhancing economic power. The landowning class was able to use its
privileged position directly to further its economic interests as well as to secure
a flow of resources to garner political support and ensure its position as the
political elite. Otherwise, the state played a minimal role in the economy, so that
no powerful bureaucratic group arose that could pursue a development program
independent of the wishes of the landowning class. This situation remained
basically unchanged in the early 1990s. *
 At the time of independence in 1946, and in the aftermath of a destructive
wartime occupation by Japan, Philippine reliance on the United States was even
more apparent. To gain access to reconstruction assistance from the United
States, the Philippines agreed to maintain its prewar exchange rate with the
United States dollar and not to restrict imports from the United States. For a
while the aid inflow from the United States offset the negative balance of trade,
but by 1949, the economy had entered a crisis. The Philippine government
responded by instituting import and foreign-exchange controls that lasted until
the early 1960s. *

Economic Development in the Philippines in the 1950s

and 60s
Import restrictions stimulated the manufacturing sector. Manufacturing net
domestic product (NDP) at first grew rapidly, averaging 12 percent growth per
annum in real terms during the first half of the 1950s, contributing to an average
7.7 percent growth in the GNP, a higher rate than in any subsequent five-year
period. The Philippines had entered an import-substitution stage of
industrialization, largely as the unintended consequence of a policy response to
balance-of-payments pressures. In the second half of the 1950s, the growth rate
of manufacturing fell by about a third to an average of 7.7 percent, and real GNP
growth was down to 4.9 percent. Import demand outpaced exports, and the
allocation of foreign exchange was subject to corruption. Pressure mounted for a
change of policy. *

In 1962 the government devalued the peso and abolished import controls and
exchange licensing. The peso fell by half to P3.90 to the dollar. Traditional
exports of agricultural and mineral products increased; however, the growth rate
of manufacturing declined even further. Substantial tariffs had been put in place
in the late 1950s, but they apparently provided insufficient protection. Pressure
from industrialists, combined with renewed balance of payments problems,
resulted in the reimposition of exchange controls in 1968. Manufacturing
recovered slightly, growing an average of 6.1 percent per year in the second half
of the decade. However, the sector was no longer the engine of development that
it had been in the early 1950s. Overall real GNP growth was mediocre, averaging
somewhat under 5 percent in the second half of decade; growth of agriculture
was more than a percentage point lower. The limited impact of manufacturing
also affected employment. The sector's share of the employed labor force, which
had risen rapidly during the 1950s to over 12 percent, plateaued. Import
substitution had run its course. *

To stimulate industrialization, technocrats within the government worked to

rationalize and improve incentive structures, to move the country away from
import substitution, and to reduce tariffs. Movements to reduce tariffs, however,
met stiff resistance from industrialists, and government efforts to liberalize the
economy and emphasize export-led industrialization were largely unsuccessful. *
Philippines Economy Under Marcos
The Philippines economy grew at a relatively high average annual rate of 6.4
percent during the 1970s, financed in large part by foreign-currency borrowing.
External indebtedness grew from $2.3 billion in 1970 to $24.4 billion in 1983,
much of which was owed to transnational commercial banks. In the 1980s the
Philippine economy was hurt by political instability, authoritarianism, increasing
foreign debt, falling commodity prices, corporate mismanagement and vast
unemployment.

The Philippines found itself in an economic crisis in early 1970, in large part the
consequence of the profligate spending of government funds by President
Marcos in his reelection bid. The government, unable to meet payments on its
US$2.3 billion international debt, worked out a US$27.5 million standby credit
arrangement with the International Monetary Fund (IMF) that involved
renegotiating the country's external debt and devaluing the Philippine currency
to P6.40 to the United States dollar. The government, unwilling and unable to
take the necessary steps to deal with economic difficulties on its own,
submitted to the external dictates of the IMF. It was a pattern that would be
repeated with increasing frequency in the next twenty years. *

In the early 1980s, the economy began to run into difficulty because of the
declining world market for Philippine exports, trouble in borrowing on the
international capital market, and a domestic financial scandal. The problem was
compounded by the excesses of President Ferdinand E. Marcos's regime and the
bailing out by government-owned financial institutions of firms owned by those
close to the president that encountered financial difficulties. In 1983 the country
descended into a political and economic crisis in the aftermath of the
assassination of Marcos's chief rival, former Senator Benigno Aquino, and
circumstances had not improved when Marcos fled the country in February 1986.
*

Impact of Martial Law on the Philippine Economy in the

1970s and 80s
In September 1972, Marcos declared martial law, claiming that the country was
faced with revolutions from both the left and the right. He gathered around him a
group of businessmen, used presidential decrees and letters of instruction to
provide them with monopoly positions within the economy, and began channeling
resources to himself and his associates, instituting what came to be called
"crony capitalism." By the time Marcos fled the Philippines in February 1986,
monopolization and corruption had severely crippled the economy. *

In the beginning, this tendency was not so obvious. Marcos's efforts to create a
"New Society" were supported widely by the business community, both Filipino
and foreign, by Washington, and, de facto, by the multilateral institutions. Foreign
investment was encouraged: an export-processing zone was opened; a range of
additional investment incentives was created, and the Philippines projected
itself onto the world economy as a country of low wages and industrial peace.
The inflow of international capital increased dramatically. *

A general rise in world raw material prices in the early 1970s helped boost the
performance of the economy; real GNP grew at an average of almost 7 percent
per year in the five years after the declaration of martial law, as compared with
approximately 5 percent annually in the five preceding years. Agriculture
performed better that it did in the 1960s. New rice technologies introduced in the
late 1960s were widely adopted. Manufacturing was able to maintain the 6
percent growth rate it achieved in the late 1960s, a rate, however, that was below
that of the economy as a whole. Manufactured exports, on the other hand, did
quite well, growing at a rate twice that of the country's traditional agricultural
exports. The public sector played a much larger role in the 1970s, with the extent
of government expenditures in GNP rising by 40 percent in the decade after
1972. To finance the boom, the government extensively resorted to international
debt, hence the characterization of the economy of the Marcos era as "debt
driven."

After martial law was declared Marcos's cronies amassed huge fortunes while
the Philippines ran up a huge national that brought the economy to edge of
collapse. Real incomes declined by half between 1956 and 1985 as the wealth of
richest 10 percent rose from 27 percent to 37 percent. In the latter half of the
1970s, heavy borrowing from transnational commercial banks, multilateral
organizations, and the United States and other countries masked problems that
had begun to appear on the economic horizon with the slowdown of the world
economy. By 1976 the Philippines was among the top 100 recipients of loans
from the World Bank and was considered a "country of concentration." Its
balance of payments problem was solved and growth facilitated, at least
temporarily, but at the cost of having to service an external debt that rose from
US$2.3 billion in 1970 to more than US$17.2 billion in 1980. *

There were internal problems as well, particularly in respect of the increasingly

visible mismanagement of crony enterprises. A financial scandal in January 1981
in which a businessman fled the country with debts of an estimated P700 million
required massive amounts of emergency loans from the Central Bank of the
Philippines and other government-owned financial institutions to some eighty
firms. The growth rate of GNP fell dramatically, and from then the economic ills
of the Philippines proliferated. In 1980 there was an abrupt change in economic
policy, related to the changing world economy and deteriorating internal
conditions, with the Philippine government agreeing to reduce the average level
and dispersion of tariff rates and to eliminate most quantitative restrictions on
trade, in exchange for a US$200 million structural adjustment loan from the
World Bank. Whatever the merits of the policy shift, the timing was miserable.
Exports did not increase substantially, while imports increased dramatically. The
result was growing debt-service payments; emergency loans were forthcoming,
but the hemorrhaging did not cease. *
 It was in this environment in August 1983 that President Marcos's foremost
critic, former Senator Benigno Aquino, returned from exile and was assassinated.
The country was thrown into an economic and political crisis that resulted
eventually, in February 1986, in the ending of Marcos's twenty-one-year rule and
his flight from the Philippines. In the meantime, debt repayment had ceased. Real
GNP fell more than 11 percent before turning back up in 1986, and real GNP per
capita fell 17 percent from its high point in 1981. In 1990 per capita real GNP was
still 7 percent below the 1981 level. *

Impact of U.S. Military Bases on the Philippines

Economy
The economy of the Philippines in the Marcos years in many ways was propped
by the Subik and Clark American military bases, trade with the United States and
income from overseas workers. The World Bank played a major role in planning
and running the Filipino economy under martial law.

In early 1991, the Philippine government was in ongoing negotiations with the
United States on the future status of United States naval and air facilities at
Subic Bay and Clark Air Base. What would normally be an issue of foreign policy
and national security became a major domestic political issue and took on an
economic dimension of considerable importance. At the domestic level, the
conflict was between those who argued that the continuing presence of the
United States bases was an infringement on Philippine sovereignty and a
continuation of a neocolonial relationship and those who, for a combination of
internal security, foreign relations, and economic reasons, saw the need for
maintaining the presence of the bases. President Aquino, through 1990, refused
to publicly commit herself to a position; however, it was clear that her
government was working to reach accommodation with the United States. As
negotiations progressed, the economic issue became prominent. [Source: Library
of Congress *]

There were three economic considerations from the point of view of the
Philippine government. First, the proportion of the Philippine budget allocated for
its armed forces was the smallest in the region, a fact linked to the presence of
United States air and naval forces in the Philippines, as well as direct military
assistance. Second, in the latter half of the 1980s, the bases directly employed
between 42,000 and 68,000 Filipinos and contracted for goods and services from
Filipino businesses. During this period, yearly base purchases of goods and
services in the Philippine economy (when corrected for the estimated import
content of the goods purchased) was in the range of P6.0 billion to P8.3 billion. *

A third and politically very important consideration, was the sum given to the
Philippines by the United States in connection with the presence of the bases,
referred to as aid by United States officials and as rent by the Filipinos. Base-
related payments were first agreed to in 1979 when United States president
Jimmy Carter made a "best effort" pledge to secure US$500 million for the
Philippines from the United States Congress over a five-year period. In 1983
another five-year commitment was made, this time for US$900 million. In
October 1988, the Philippines' Secretary of Foreign Affairs Raul Manglapus and
United States' Secretary of State George Schultz signed a two-year agreement
for US$962 million, an amount double the previous compensation but
substantially less than the US$2.4 billion that the Philippines initially demanded.
In 1991 talks over the future of the bases and the size and terms of the aid or
rent that would be given in consideration for continued United States access to
military facilities in the Philippines was the most important unresolved issue.
The decision of the Philippine administration to bring Secretary of Finance Jesus
Estanislao into the negotiations in March 1991 was a further indication of the
economic importance of the bases to the Philippine government. *

Philippines Economy Under Cory Aquino

The Philippines economy floundered under Corazon Aquino. Power shortages and
brownouts were common. The American military bases were closed down.
Economic growth revived in 1986 under Aquino, reaching 6.7 percent in 1988. But
in 1988 the economy once again began to encounter difficulties. The trade deficit
and the government budget deficit were of particular concern. In 1990 the
economy continued to experience difficulties, a situation exacerbated by several
natural disasters, and growth declined to 3 percent. [Source: Library of Congress
*]

The Philippine economy experienced considerable difficulty in the 1980s. Real

gross national product (GNP) grew at an annual average of only 1.8 percent, less
than the 2.5 percent rate of population increase. The US$668 GNP per capita
income in 1990 was below the 1978 level, and approximately 50 percent of the
population lived below the poverty line. The 1988 unemployment rate of 8.3
percent (12.3 percent in urban areas) peaked at 11.4 percent in early 1989, and
the underemployment rate, particularly acute for poor, less-educated, and elderly
people, was approximately twice that of unemployment. In 1988, about 470,000
Filipinos left the country to work abroad in contract jobs or as merchant seamen.
*

In 1990 the Philippines had not yet recovered from the economic and political
crisis of the first half of the 1980s. At P18,419, or US$668, per capita GNP in 1990
remained, in real terms, below the level of 1978. A major thrust of Aquino's 1986
People Power Revolution was to address the needs of impoverished Filipinos. One
of the four principles of her "Policy Agenda for People-Powered Development,"
was promotion of social justice and poverty alleviation. Government programs
launched in 1986 and 1987 to generate employment met with some success,
reversing the decline of the first half of the decade, but these efforts did little to
alleviate the more chronic aspects of Philippine poverty.

After Aquino took office the most immediate task for here economic advisers
was to get the economy moving, and a turn around was achieved in 1986.
Economic growth was low (1.9 percent), but it was positive. For the next two
years, growth was more respectable--5.9 and 6.7 percent, respectively. In 1986
and 1987, consumption led the growth process, but then investment began to
increase. In 1985 industrial capacity utilization had been as low as 40 percent,
but by mid-1988 industries were working at near full capacity. Investment in
durable goods grew almost 30 percent in both 1988 and 1989, reflecting the
buoyant atmosphere. The international community was supportive. Like domestic
investment, foreign investment did not respond immediately after Aquino took
office, but in 1987 it began to pick up. The economy also was helped by foreign
aid. The 1989 and 1991 meetings of the aid plan called the Multilateral Aid
Initiative, also known as the Philippine Assistance Plan, a multinational initiative
to provide assistance to the Philippines, pledged a total of US$6.7 billion. *

Economic successes, however, generated their own problems. The trade deficit
rose rapidly, as both consumers and investors attempted to regain what had
been lost in the depressed atmosphere of the 1983-85 period. Although debt-
service payments on external debt were declining as a proportion of the
country's exports, they remained above 25 percent. And the government budget
deficit ballooned, hitting 5.2 percent of GNP in 1990. *

The 1988 GNP grew 6.7 percent, slightly more than the government plan target.
Growth fell off to 5.7 percent in 1989, then plummeted in 1990 to just over 3
percent. Many factors contributed to the 1990 decline. The country was
subjected to a prolonged drought, which resulted in the increased need to import
rice. In July a major earthquake hit Northern Luzon, causing extensive
destruction, and in November a typhoon did considerable damage in the Visayas.
There were other, more human, troubles also. The country was attempting to
regain a semblance of order in the aftermath of the December 1989 coup
attempt. Brownouts became a daily occurrence, as the government struggled to
overcome the deficient power-generating capacity in the Luzon grid, a deficiency
that in the worst period was below peak demand by more than 300 megawatts
and resulted in outages of four hours and more. Residents of Manila suffered
both from a lack of public transportation and clogged and overcrowded
roadways; garbage removal was woefully inadequate; and, in general, the city's
infrastructure was in decline. Industrial growth fell from 6.9 percent in 1989 to
1.9 percent in 1990; growth investment in 1990 in both fixed capital and durable
equipment declined by half when compared with the previous year. Government
construction, which grew at 10 percent in 1989, declined by 1 percent in 1990. *

Economic Policy Under Cory Aquino

In 1986 Corazon Aquino focused her presidential campaign on the misdeeds of
Marcos and his cronies. The economic correctives that she proposed emphasized
a central role for private enterprise and the moral imperative of reaching out to
the poor and meeting their needs. Reducing unemployment, encouraging small-
scale enterprise, and developing the neglected rural areas were the themes.
[Source: Library of Congress *]
 Aquino entered the presidency with a mandate to undertake a new direction in
economic policy. Her initial cabinet contained individuals from across the
political spectrum. Over time, however, the cabinet became increasingly
homogeneous, particularly with respect to economic perspective, reflecting the
strong influence of the powerful business community and international creditors.
The businesspeople and technocrats who directed the Central Bank and headed
the departments of finance and trade and industry became the decisive voices in
economic decision making. Foreign policy also reflected this power relationship,
focusing on attracting more foreign loans, aid, trade, investment, and tourists. *

It soon became clear that the plight of the people had been subordinated largely
to the requirements of private enterprise and the world economy. As the
president noted in her state-of- the-nation address in June 1989, the poor had not
benefited from the economic recovery that had taken place since 1986. The gap
between the rich and poor had widened, and the proportion of malnourished
preschool children had grown. *

The most pressing problem in the Philippine international political economy at

the time Aquino took office was the country's US$28 billion external debt. It was
also one of the most vexatious issues in her administration. Economists within
the economic planning agency, the National Economic and Development
Authority (NEDA), argued that economic recovery would be difficult, if not
impossible, to achieve in a relatively short period if the country did not reduce
the size of the resource outflows associated with its external debt. Large debt-
service payments and moderate growth (on the order of 6.5 percent per year)
were thought to be incompatible. A two-year moratorium on debt servicing and
selective repudiation of loans where fraud or corruption could be shown were
recommended. Business-oriented groups and their representatives in the
president's cabinet vehemently objected to taking unilateral action on the debt,
arguing that it was essential that the Philippines not break with its major
creditors in the international community. Ultimately, the president rejected
repudiation; the Philippines would honor all its debts. *

Domestically, land reform was a highly contentious issue, involving economics

as well as equity. NEDA economists argued that broad-based spending increases
were necessary to get the economy going again; more purchasing power had to
be put in the hands of the masses. Achieving this objective required a
redistribution of wealth downward, primarily through land reform. Given Aquino's
campaign promises, there were high expectations that a meaningful program
would be implemented. Prior to the opening session of the first Congress under
the country's 1987 constitution, the president had the power and the opportunity
to proclaim a substantive land reform program. Waiting until the last moment
before making an announcement, she chose to provide only a broad framework.
Specifics were left to the new Congress, which she knew was heavily
represented by landowning interests. The result--a foregone conclusion--was the
enactment of a weak, loophole-ridden piece of legislation. *
 The Aquino administration appeared to be unable to work with the Congress to
enact an economic package to overcome the country's economic difficulties. In
July, as the government deficit soared Secretary of Finance Jesus Estanislao
introduced a package of new tax measures. Then in October, stalemated with
Congress, Aquino agreed to seek a reduction in the budget gap without new
taxes. The agreement met with resistance from the Congress for being an
onorous imposition on an economy in crisis, growth would be stifled and the poor
would be impacted negatively. The willingness of the Congress to pass the tax
package called for in the IMF agreement was in doubt. In 1990 Congress placed a
9 percent levy on all imports to provide revenues until an agreement could be
reached with the administration on a tax package. In February 1991, however, it
was learned that in its agreement with the IMF for new standby credits, the
government had promised that it would indeed implement new taxes. *

Accusations were widespread in Manila's press about the 1990-91 impasse. On

the one hand, it was claimed that Aquino and her advisers had no economic plan;
on the other hand, the Congress was said to be unwilling to work with the
president. Traditional political patterns appeared to be reasserting themselves,
and the technocrats had little ultimate influence. One study of the first Congress
elected under the 1987 constitution showed that only 31 out of 200 members of
the House of Representatives, were not previously elected officials or directly
related to the leader of a traditional political clan. Business interests directly
influenced the president to overrule already established policies, as in the 1990
program to simplify the tariff structure. Business and politics have always been
deeply interwoven in the Philippines; crony capitalism was not a deviant model,
but rather the logical extreme of a traditional pattern. As the Philippines entered
the 1990s, the crucial question for the economy was whether the elite would
limit its political activities to jockeying for economic advantage or would forge
its economic and political interests in a fashion that would create a dynamic
economy. *

Economy Under Ramos

President Fidel Ramos (1992-1998) was given high marks for handling the
economy. By breaking apart monopolies, liberalizing foreign investment laws and
privatizing business and industries by controlled powerful families, Ramos was
crediting with transforming the Philippines from a country with a history of
poverty, corruption, rebellion, foreign ineptness and tax evasion into an
economic powerhouse that was not yet an Asian tiger but was sometimes
referred to as Asian tiger cub.

Oliver Teves of Associated Press wrote: “For a brief period of the 1990s, the
Philippines under the presidency of Fidel Ramos registered high growth rates and
was touted as the next Asian "tiger" economy. But the ingrained poverty,
corruption and crime rate, and the abiding threat of another popular uprising
conspire to scare away investors and drain the country of its best brains and
hardest workers. [Source: Jim Gomez and Oliver Teves Associated Press,
February 25, 2006 +^+]

The Philippine economy showed some improvement in early 1992, spurred by

increases in agricultural production and in consumer and government spending.
Budget deficits were well within IMF guidelines--P3.2 billion in the first two
months. At the end of April, the treasury posted a P5.5 billion surplus as a result
of higher than programmed revenue receipts, mainly from the sale of Philippine
Airlines. The increased revenue permitted the early repeal of the 5 percent
import surcharge, stimulating both import spending and export growth. The
money supply grew more rapidly than desired, but was kept under control.
Treasury bill rates fell to 17.3 percent in March 1992 from 23 percent in
November 1991, and inflation was down to 9.4 percent for the first quarter of
1992, from 18.7 percent in 1991. *

One of the greatest threats to the Philippine economy in 1992 was the power
shortage. The fall in the water level in Lake Lanao caused a 50 percent reduction
in the power supply to Mindanao in December 1991, and the resumption of full
power was not expected until almost the end of 1992. The power shortage in
Luzon continued to be chronic. Power cuts of four to five hours per day have been
common; in May they reached six hours on some days in Manila, the country's
industrial hub. To help to meet this chronic shortage, the government reactivated
the contract with Westinghouse Corporation to restart construction on a 620
megawatt nuclear power plant on the Bataan Peninsula that had been abandoned
in 1986. This plant however was not scheduled to go on line until 1995. *

To get the Philippines economy going, Ramos and the Philippine Congress
abolished tariffs and preferential terms that enriched the rich families. He
reformed the banking system and drove down interest rates. He overhauled the
electricity infrastructure so that energy shortages and brown outs became a
thing of the past.

The growth rate during the Ramos years was a robust 5 percent a year and
inflation was in the single digits, down from 25 percent in 1990. Under his
leadership, fiber optic lines were installed, property values soared, five star
hotels and condominiums were built, the stock market showed big gains,
overseas workers began returning home and the former American military bases
at Subic and Clark became thriving trade and industrial centers.

Foreign investment increased. Companies like Acer (a Taiwanese company) and

Intel moved into the Philippines Much of the prosperity was linked to investments
from Hong Kong by tycoons like Gordon Wu, who shipped their money to Manila
before the reunification with China. In the early 1990s, the Philippines was
regarded as an economic rival of Thailand and Malaysia now it lags far behind
them.
Asian Economic Crisis in the Philippines in 1997-98
During the Asian Economic Crisis in 1997-98, the Philippines the stock market
declined by 32 percent and the currency against the dollar had depreciated by as
much as 48 percent and later level off at 30 percent at end of December 1997.
Because many of its exports went to Europe it was not hurt that badly by a lack
of demand from crisis-hit Asia. The level of bad loans never got that high. Money
sent home by Filipino workers abroad helped stabilize the currency. Most
currency speculators were Filipinos.

The IMF offered some help. Foreigners were not allowed to sell pesos.
Businesses responded to the crisis in a favorable way. They reduced debt, closed
money-losing factories, and agreed to mergers and joint ventures with foreigners.
Even so the Philippines recovered more slowly after the cris than some other
Asian countries that were much harder hit.

Economy Under Estrada

There was a sense of optimism when Joseph Estrada was elected. Investors
shared this sense of hope and initially poured money into the Philippines but it
didn’t take long for this optimism to evaporate. Foreign investors were turned off
by cronyism, scandals and favoritism towards Philippines companies.

Estrada moved to tighten securities regulations, liberalize the trade of grains

and privatize the electricity industry. His effort to change laws limiting foreign
ownership of businesses to 40 percent was halted by his impeachment trial.

In the end Estrada proved to be a friend of big business. He revived the culture
of corruption and was plagued by charges of cronyism. This was on top of
inconsistent monetary policy, slow economic growth, and uncertainty brought
about by terrorists and insurgencies. He said he was a friend of the poor yet he
failed to launch one meaningful anti-poverty program. Most of his efforts
consisted of parading around with movie stars that were reminiscent of what
Imelda Marcos did. There also wasn’t much of an effort to pave roads, set up
irrigations projects or build school or collect taxes to pay for them.

As Estrada became embroiled in scandal, the peso, the stock markets and
confidence in the Philippines as a place to invest dropped as did his approval
ratings dropped. Foreign companies like Philips Electronics and Johnson &
Johnson pulled out of the Philippines. After his ouster in 2001 he left behind a
huge budget deficit and debt payments that were double what the country sent
on health, education and agriculture combined. The sick man of Asia was sicker
than ever.

See Corruption
Economy Under Arroyo
Gloria Macapagal-Arroyo was welcomed with great fanfare when she became
president in 2001. The day she was sworn in, the stock market surged 30 percent
and businessmen praised her skills and abilities, Arroyo launched free market
and anti-corruption policies that were welcomed by both the local and
international business communities. Again there was a sense of hope.

But again the sense optimism didn’t last long. Investment dried up as a result of
global slowdowns and security concerns. Direct foreign investment was only
$319 million in 2001 compared to $1.8 billion in 1992.

Growth was 3.4 percent in 2001, 4.3 percent in 2002 and 4.5 percent in 2003. In
2004 the economy was hurt by high oil prices. Still more growth was needed just
to keep pace with 2.36 percent population growth rate. Inflation was less than 6
percent but the deficit grew at an alarming rate as the government spending
increased and tax revenues fell. Raising revenues became one of the main
problems. In 2003, the deficit reached $3.6 billion and debt was estimated to be
over $100 billion. The government’s debt burden reached its peak in 2004 when it
settled at 74 percent of GDP.

Arroyo began her second term in 2004 with promises of “austerity and
simplicity” and the announcement of a reform package to fight corruption,
attract foreign investment, and make the Philippines less dependent on foreign
energy. She promised to create 10 million jobs by 2010 and announced that
power rates would be doubled to avert an energy crisis, She also promised to
provide clean water and electricity to every village in the Philippines and build
3,000 schools. The plan called for the seemingly impossible combination of
increased spending, higher taxes and a balanced budget in five years.

Arroyo’s economic drive quickly lost momentum. She was unable to over come
political opposition to privatizing companies like the National Power Corporation,
which lost $1.8 billion in 2003. Instead an effort was made to make them
efficient. By the end of her term much of her time was spent responding to
charges that she rigged the 2004 elections and he was husband was involved in
kickback scheme with a Chinese company involving millions of dollars.

Growth in 2003 and 2004 was around 5 percent due in art to rising demand for
Philippines electronic exports. Growth occurred despite continued hikes in oil
and consumer prices on top of typhoons and floods. Growth was 4.7 percent in
2005. That year exports amounted to 40 percent of GDP. Many of the export items
were electronics. Two-thirds of Philippine imports are used to build exported
computer parts, disks and other electronic products made by local units of
companies such as Texas Instruments Inc. and Toshiba Corp.

See Debt and Deficit, Taxes, Tax Evasion

Philippines Economy Picks Up in the Mid-2000s
Arroyo was an economics professor after all and not everything that happened
under her watch was a failure. In fact she had many good ideas and policy
schemes but they were overshadowed by her political troubles and bogged down
in Congress. In 2007, before the global economic crisis took hold, The Economist
reported: Things are looking up. The economy has grown by at least 5 percent in
each of the past three years, for the first time since the 1970s. In the first
quarter of this year, growth was 6.9 percent, year-on-year. Soaring remittances
from Filipinos overseas help. Last year they added up to $12.8 billion, equivalent
to 11 percent of GDP. Exports—especially to China and most particularly of
microchips—are also booming. [Source: The Economist, August 16, 2007 *-*]

“Better economic management also helps. Inflation is now 2.6 percent, down
from 8.6 percent in 2004. Changes made in 2005 have increased tax revenues
without hurting growth. Despite recent wobbles, the government should still
come close to balancing the budget next year, compared with a deficit of over 5
percent of GDP in 2002. The country's banks, hurt badly in the 1997 Asian
financial crisis, have been slow to recover, but now they are starting to lend
again. Foreign direct investment is picking up from a low base. Texas
Instruments recently chose the Philippines over China for a $1 billion electronics
factory, while Hanjin, a South Korean shipbuilder, will spend $1.7 billion on its
Philippines yard. Foreign mining firms have started to develop huge untapped
mineral reserves. *-*

“The Philippines has rapidly emerged as India's main rival in business-process

outsourcing (BPO) and now hosts the call-centres of many American firms. A
recent study by the Asian Development Bank reckoned that BPO could provide
jobs for up to 11 percent of those joining the Philippines' labour force between
now and 2010. *-*

All good news, but worries remain. However welcome the growth in call-centre
jobs, it is engineering and business graduates who are queueing to take them. A
recent International Labour Organisation study noted that the country's average
annual productivity growth between 2000 and 2005 was just 0.9 percent,
compared with 10.3 percent in China and 4.9 percent in India, suggesting that
“many new job entrants are underemployed”. *-*

“A chief problem, despite foreign interest, is a rate of investment that is at 20-

year lows as a share of GDP. Poor infrastructure, especially roads, hampers
businesses of all sorts. Gil Beltran, a senior finance-ministry official, says the
government intends to increase annual infrastructure spending from 2.8 percent
of GDP to 5 percent. Successive administrations have had a poor record of
keeping such promises. The public finances still need a lot of fixing. Tax
revenues as a share of GDP are still below pre-1997 levels, while public debt is
high, at around 75 percent of GDP. The next big job, says Mr Beltran, is to simplify
the mess of illogical tax breaks that cost a fortune in lost revenues. Efforts to
drag big-business tax-dodgers to court have so far got nowhere. A swingeing tax
rise on Jeepney owners looks like squeezing the poor to spare the rich.

Perhaps a virtuous cycle will develop. The government might boost revenues
and spend them on sensible works, so encouraging business, which would boost
tax revenues further. It is easier to imagine the Philippines slipping back into
complacency, relaxing its efforts and letting this golden opportunity pass by. *-*

Philippines and the Global Economic Crisis in 2008 and

2009
The Philippines was affected by global economic crisis in 2008 and 2009 as was
nearly everywhere. Clarissa Batino of Bloomberg wrote in December 2008: “The
Philippine peso headed for its worst year since 2000 and stocks had their biggest
annual loss in at least two decades on signs the global slowdown is hurting sales
of the nation’s exports”. A “drop in trade flows is a bad sign that the economy
will be slowing pretty rapidly,” said Simon Wong, an economist at Standard
Chartered Plc in Hong Kong. “The global downturn puts pressure on Asian
economies and currencies, including the peso.” [Source: Clarissa Batino,
Bloomberg, December 24, 2008 |::|]

“The currency is poised for a 13.4 percent loss this year, the most since shortly
before former President Joseph Estrada was ousted in a revolt. The Philippine
Stock Exchange Index slumped 48 percent this year to 1,872.85, the biggest
annual drop since Bloomberg started tracking the data in 1988.Overseas sales
account for a third of the $144 billion economy. The Philippines imports
electronics components and exports mobile-phone chips and computer parts.
Gross domestic product may expand 0.7 percent next year, compared with an
estimated 3.8 percent this year, Wong said, citing contractions in exports and
remittances in 2009. The government expects growth of as little as 4.1 percent
this year and 3.7 percent in 2009, versus last year’s three-decade high of 7.2
percent. |::|

“The World Bank expects global trade to shrink in 2009 for the first time in more
than 25 years, threatening export-reliant economies in Asia. The Philippines last
week cut interest rates to support growth as the global slump weakened demand
for Intel Corp.’s computer chips and other electronics goods, which account for
two-thirds of the nation’s overseas sales. |::|

Philippine Economy Picks Up in the 2010s Under Benigno

Acquino III
The Philippines economy picks up in the 2000s under Benigno Acquino III. The
Philippine economy expanded by 7.2 percent in 2013, 6.8 percent in 2012, 3.7
percent in 2011 and 7.6 percent in 2010. In 2012, gross domestic product
surpassed the government’s forecast for growth of 5 percent to 6 percent. The
Philippines had the second-highest growth rate in the world 2012, after China,
according to Reuters. Government expenditure in the Philippines jumped nearly
12 percent in 2012, while private spending, which was bolstered by remittances
from abroad, was up 6.1 percent, Reuters reported.

In 2012, Floyd Whaley wrote in the New York Times, “With $70 billion in reserves
and lower interest payments on its debt after recent credit rating upgrades, the
Philippines pledged $1 billion to the International Monetary Fund to help shore up
the struggling economies of Europe. “This is the same rescue fund that saved the
Philippines when our country was in deep financial trouble in the early ’80s,” said
Representative Mel Senen Sarmiento, a congressman from Western Samar.
[Source: Floyd Whaley, New York Times, August 27, 2012 /^\]

“The Philippines has certainly had a steady flow of positive economic news
recently. On July 4, 2012, Standard & Poor’s raised the country’s debt rating to
just below investment grade, the highest rating for the country since 2003 and
equivalent to that of Indonesia. The Philippines is the 44th-largest economy in
the world today, according to HSBC estimates. But if current trends hold, it can
leap to the No. 16 spot by 2050. The Philippine stock market, one of the best
performers in the region, closed at a record high after the recent S.& P. rating
upgrade, and the country’s currency, the peso, reached a four-year high against
the dollar at about the same time. /^\

“The gross domestic product of the Philippines grew 6.4 percent in the first
quarter, according to the country’s central bank, outperforming all other growth
rates in the region except China’s. Economists expect similarly strong growth in
the second quarter. “We have made a very bold forecast for the Philippines, but I
think justifiably so,” said Frederic Neumann, a senior economist at HSBC in Hong
Kong. /^\

“ Trinh D. Nguyen, an economist with HSBC in Hong Kong, said the Philippines
had benefited from an increase in government efficiency and revenue collection,
as well as aggressive actions to address corruption, like the impeachment of the
chief justice of the Supreme Court and the arrest of former President Gloria
Macapagal Arroyo on suspicion of accepting kickbacks and of misusing
government lottery money. “It is not only short-term growth that draws investors
to the Philippines,” Ms. Nguyen said. “The fundamentals are there.”/^\

“But there are also real weaknesses in the country. Recent flooding, which by
some estimates submerged 50 percent of Manila, illustrates a shortage of
modern infrastructure that makes the Philippines highly vulnerable to disasters.
“The Philippines is hit with several deadly and devastating natural disasters
every year,” Ms. Nguyen said. But government officials have said that the recent
flooding might actually help economic growth, because reconstruction will
require an increase in public spending and the country will have to put into place
programs to make it more resistant to the effects of natural disasters. /^\

“Another hurdle is the fact that the Philippines has traditionally underexploited
its natural resources. The government estimates that there are 21.5 billion tons
of metal deposits in the country, including large deposits of nickel, iron, copper
and gold. But they have never been a significant driver of economic growth
because extraction has been mismanaged, Mr. Neumann said. In the shorter
term, there are concerns that the country’s newfound prosperity has not
sufficiently eradicated poverty. /^\

Philippines Economy Improves But Doesn’t Create So

Many Jobs
Floyd Whaley wrote in the New York Times, “At his vegetable stand on a busy
street in the Philippine capital, Lamberto Tagarro is surrounded by gleaming,
modern skyscrapers, between which a river of luxury vehicles flows. “The
Philippines is the rising tiger economy of Asia,” Mr. Tagarro said. “But only the
rich people are going up and up. I’m not feeling it.” Mr. Tagarro earns the
equivalent of about $5 a day working before dawn and after dark, battling petty
corruption to maintain his improvised sidewalk stand and dealing with rising
wholesale prices for the onions and tomatoes he sells. [Source: Floyd Whaley,
New York Times, June 19, 2013 ==]

“The Philippines, with a 7.8 percent expansion of gross domestic product in the
first quarter of 2013, has the fastest-growing economy in East Asia, surpassing
even China’s. The country has a red-hot stock market, a strong currency and a
steady stream of accolades and upgrades from international ratings agencies.
But Mr. Tagarro’s experience — of being left behind by the country’s newfound
prosperity — mirrors that of many Filipinos, according to the latest government
poverty and employment data. ==

“An estimated seven million Filipinos, about 17 percent of the work force, have
gone overseas in search of jobs, according to the Asian Development Bank. For
those who stay home, options are few. Despite the rapidly expanding economy,
the country’s unemployment rate increased to 7.5 percent in April, from 6.9
percent at the same time a year earlier. About three million Filipinos who want to
work are unemployed. “Higher rates of economic growth over recent years have
not made a serious dent in the employment problem in the Philippines,” the Asian
Development Bank reported in its recent Asian Development Outlook report.” ==

In some cases the number of unemployed has risen as the economy has grown.
Earlier Whaley wrote in New York Times, “The robust growth in the Philippines in
2012 has not translated into significant job growth, according to government
figures. Unemployment was at 6.8 percent in October, up from 6.4 percent a year
earlier, and the number of unemployed in the country rose to 2.76 million from
2.64 million.” [Source: Floyd Whaley, New York Times, January 31, 2013]
President Benigno Acquino III and the Failure to Create
Jobs
Floyd Whaley wrote in the New York Times, “President Benigno S. Aquino III ran
on a platform of clamping down on corruption, improving the business
environment in the country and addressing widespread poverty. In his first three
years in office, Mr. Aquino removed high-level government officials accused of
corruption, cracked down on tax evaders and aggressively courted foreign
investment. Though his efforts to improve the economy have received accolades,
he has had less success in addressing the country’s persistent, widespread
poverty. [Source: Floyd Whaley, New York Times, June 19, 2013 ==]

“Mr. Aquino’s political opponents argued before recent legislative elections that
his actions had further enriched the wealthy and left the poor behind. The
Philippines still has a strong service sector. In 2011, it overtook India as a top
provider of offshore call centers. But the country lacks the manufacturing base
that has lifted millions of people out of poverty in other Asian countries. In
countries like China, the rural poor increased their income by finding jobs in
factories. That is rarely an option in the Philippines, and few poor people from
the countryside are qualified to work in a call center.” ==

In early 2013, Amando Doronila wrote in the Philippine Daily Inquirer, “The
Aquino administration flooded the media with the report that the economy
expanded 6.6 percent in 2012. The result however was not good enough to have
any significant social impact on alleviating poverty and reducing the wide wealth
chasm between the rich and the poor. Growth in the past two years of the Aquino
administration has not translated into creating enough jobs for the poor that will
allow them to break out of the poverty trap.[Source: Amando Doronila, Philippine
Daily Inquirer, February 4, 2013 /*/]

“The President, however, acknowledged that “the gap between the powerful and
the powerless” has become too huge. Too many people are being left behind and
it has also become clear that inequity is borne of corruption. “The few at the top
have been allowed to run roughshod over the many and have [manipulated] the
system to benefit themselves, while the rest wallow in poverty,” the President
said. “The greatest challenge for any modern society, then, is how to stem the
corruption that has feasted on the very moral fabric of our society,” he added. /*/

“Socioeconomic Planning Secretary Arsenio Balisacan said the “impressive” 6.5-

percent growth for 2012 should be sustained for several years to allow its effects
to filter down to the grassroots and benefit ordinary Filipinos. Asked about how
long would it take for the broad section of the population to benefit from the
growth, Balisacan was evasive. “It should be happening, but don’t expect a
miracle [where poverty would be] wiped out or substantially reduced,” he
said.The 6.5-percent growth figure reflected “only one year” performance of the
economy. “If you note experiences of countries around us, it takes several years
of sustained … or rapid growth before you can reduce poverty, say by one-half for
the population,” Balisacan said. /*/

“Benjamin Diokno, a professor at the University of the Philippines’ School of

Economics, agreed that 6.6 percent for 2012 was “a strong growth,” he expressed
doubt that the growth rate would be sustainable. Diokno pointed out that based
on the October labor statistics, the recent growth may be characterized as
“labor-shedding growth. Close to 1 million jobs were lost.” Most Filipinos still
depend on agriculture and related sectors for a living, he said.” /*/

Philippine Economy Grows 7.2 Percent in 2013

Beating government expectations, the Philippine economy expanded by 7.2
percent in 2013. Combined with 2012 Philippines experiences its strongest two
years of growth since the 1950s. Karl Lester M. Yap and Cecilia Yap of Bloomberg
wrote: “Gross domestic product rose 7.2 percent in 2013, the Philippine Statistics
Authority said, after gaining 6.8 percent in the previous year. That was the
fastest two-year pace since 1954-1955, data compiled by Bloomberg show. A
recovery in advanced economies may help President Benigno Aquino achieve his
goal of bolstering growth to as much as 8.5 percent by 2016 as he transforms the
country into a manufacturing hub. Rising exports have helped counter the impact
of Super Typhoon Haiyan, and the central bank said today it will act if needed to
contain inflation expectations. “The Philippine economy clearly still has strong
momentum despite the typhoon,” said Edward Teather, an economist at UBS AG
who covers Southeast Asian markets from Singapore. “That sort of strength in
the context of an acceleration in developed nations increases the risk of
overheating, something policy makers should keep an eye on.” [Source: Karl
Lester M. Yap and Cecilia Yap, Bloomberg, January 29, 2014]

“The Philippines won its first investment-grade scores from Moody’s Investors
Service, Fitch Ratings and Standard and Poor’s last year. Aquino’s pledge to curb
corruption and spur faster growth has seen foreign direct investment almost
double to $2.8 billion in 2012 from 2008, World Bank data show. Consumer
spending rose 5.6 percent last quarter from a year earlier, according to today’s
report. Investment gained 5.7 percent, while manufacturing increased 12.3
percent. [Ibid]

Jovan Cerda wrote in philstar.com: “Socioeconomic Planning Secretary Arsenio

Balisacan said the economy grew better than the government's official target of
6 to 7 percent for 2013, but added that it could have been higher had the country
not been affected by various disasters. "Indeed, growth could have been better,
had we not been perturbed by various disasters that hit the country such as the
Bohol earthquake, the Zamboanga siege and typhoon Yolanda," he said. [Source:
Jovan Cerda, philstar.com, January 30, 2014 ||||]

“The Philippines remains as one of the best performing economies in the Asian
region in the fourth quarter of 2013, second only to China, which grew by 7.7
percent, Balisacan said. On the supply side, the services and industry sectors
continued to be the drivers of economic growth, expanding by 7.1 percent and 9.5
percent in 2013, respectively. "The services sector contributed 3.6 percentage
points of the real GDP growth in the fourth quarter of 2013. This was followed by
the industry sector with 2.8 percentage points and agriculture with 0.1
percentage point. Fourth-quarter growth on the supply side was mainly propelled
by manufacturing, trade, finance and real estate," Balisacan said. ||||

“Meanwhile, on the demand side, growth was boosted by household

consumption, which contributed 4.2 percentage points, and net exports, which
contributed 1.6 percentage points. Despite the better-than-expected growth,
however, some sectors tamed overall growth for 2013, Balisacan said.
"Construction had the biggest setback in the fourth quarter. The subsector
contracted by 0.8 percent due to stricter rules imposed on real estate lending in
compliance with prudential regulations. The Board of Investments has also
tightened mass housing incentives. The rule requiring developers to allot 20
percent of their total housing investment for low-cost mass housing units is now
being closely monitored and enforced." ||||

“Government spending also slowed down by 5.2 percent, dipping from the 9.5
percent growth posted in the fourth quarter of 2012. The deceleration was due to
lower disbursements in personnel services and maintenance and other operating
expenditures. For the full year, however, government spending jumped by 8.6
percent. Imports also slowed down by 1.9 percent during the last quarter of 2013
from the 8 percent posted in the same period in 2012. ||||

“Aside from slowdowns in certain sectors, the combined impact of typhoons and
other disasters may have also reduced the full year real GDP growth by at least
0.1 percentage point, Balisacan said. Looking forward, Balisacan said the
agriculture and industry sectors are expected to be vibrant this year, as the
government promotes linkages between the two sectors to increase value added
as a key strategy identified in the Philippine Development Plan midterm update.
Major infrastructure projects, especially in the transport sector are also
expected to boost growth this year and beyond....[W]e are optimistic that the
Philippine economy will remain strong in 2014, especially that the outlook on the
global economy is becoming more favorable and as the domestic economy
remains robust," he said. ||||

Philippines Gets First-Ever Investment Grade Rating

In March 2013, the Philippines achieved its first-ever investment grade rating
after international debt watcher Fitch raised the country’s rating to BBB- from
BB+. Daxim L. Lucas wrote in the Philippine Daily Inquirer, “Fitch Ratings — the
first of the three major international debt watchers to upgrade the Philippines —
also assigned a stable outlook for the country’s credit rating. Fitch cited the
country’s sovereign balance sheet as being comparable to those of ‘A’-rated
nations, while a “persistent current account surplus, underpinned by remittance
inflows” has made the country a “net creditor” from its previous deficit position.
Fitch also noted the economy’s 6.6-percent economic growth for 2012 and the
expected strong growth for 2013, both of which are “stronger and less volatile”
that BBB-rated peers over the last five years. “Improvements in fiscal
management begun under President Arroyo have made general government debt
dynamics more resilient to shocks,” Fitch said. [Source: Daxim L. Lucas,
Philippine Daily Inquirer, March 27, 2013]

In May 2013, Standard & Poor' increased the Philippines a long-term sovereign
credit rating of "BBB" from "BBB-", and upgraded its short-term rating to "A-2"
from "A-3". “The outlook is stable. "We raised the ratings because we now
believe the ongoing reforms to address shortcomings in structural,
administrative, institutional, and governance areas will endure beyond the
current administration," Standard & Poor's credit analyst Agost Benard noted in
an e-mailed statement to reporters. [Source: Danessa O. Rivera, GMA News, May
8, 2014 <=>]

GMA News reported: “The debt watcher also noted the upgrade "reflects the
country's strong external liquidity and international investment position,
combined with an effective monetary policy framework relative to the country's
income level," while maintaining low inflation and interest rates. Malacañang
said it was "gratified" by the latest credit rating upgrade from S&P. "And we are
hopeful that this will eventually translate into increased investments, and
accelerated jobs generation," Presidential Communications Operations Office
head Herminio Coloma Jr. said. The Aquino administration is "committed to
strengthen public institutions, and build increased capacity among citizens and
communities, and thereby promote the attainment of inclusive growth. This is the
path that leads to sustained economic development and the raising of the
Filipino people’s quality of life," Coloma added. <=>

“S&P gave the Philippines an investment grade rating on May 2, 2013. It was the
second upgrade from practically junk status since Fitch Ratings gave the
Southeast Asian country its first ever investment grade status in March 2013. In
a statement Friday, Budget Secretary Florencio Abad said S&P basically
validated the progress in good governance reforms under the the Aquino
administration. “For one, this credit upgrade recognizes the gains brought about
by the public financial management reforms we have instituted," Abad noted "We
are on the right track in terms of continuously improving our public spending
efficiency, primarily in ramping up investments for infrastructure projects, among
other key priority and substantial programs and projects," he added. <=>

Philippine Economy in 2014

Karl Lester M. Yap and Cecilia Yap of Bloomberg wrote: “Aquino plans to
increase spending to a record this year while seeking more than $8 billion of
investments in highways and airports to improve infrastructure and create jobs.
San Miguel Corp., Ayala Corp. (AC) and Megawide Construction Corp. are among
companies building schools, power plants and roads. The government estimates
reconstruction of the typhoon-affected areas will cost 361 billion pesos ($8
billion). [Source: Karl Lester M. Yap and Cecilia Yap, Bloomberg, January 29,
2014]

Disasters slowed the Philippine economic growth down to 5.7 percent in 1st
quarter of 2014. Cliff Venzon of Nikkei wrote: “Philippine economic growth slowed
a year-on-year to 5.7 percent in the first quarter of 2014, as natural disasters
weighed on production, the government reported. This makes the Philippines the
third-fastest growing economy in Asia after China (7.4 percent) and Malaysia (6.2
percent), National Economic and Development Authority Secretary Arsenio
Balisacan said in a briefing. The growth, the slowest since the fourth quarter of
2011, was also below market and government expectations. Meanwhile, the
January-March expansion was driven by the services and industry sectors, which
climbed 6.8 percent and 5.5 percent, respectively, the Philippine Statistics
Authority said. Balisacan said natural disasters that hit the country late last year
-- particularly typhoon Haiyan -- pulled economic growth down. "The effects of
the typhoon went beyond the Yolanda-affected areas through the supply chain,"
Balisacan said, using the local name for Haiyan. "That affected investment plans
of companies and individuals...so private construction suffered in the first
quarter," he added. [Source: Cliff Venzon, Nikkei, May 29, 2014]

In November 2013, Haiyan killed around 6,300 people in the Philippines and
destroyed $2 billion worth of crops and infrastructure. In October, a 7.2-
magnitude earthquake struck the province of Bohol, also in central Philippines,
causing widespread devastation. Balisacan said the effects of Haiyan are
"expected to diminish" while reconstruction efforts in typhoon affected areas
should also prop up the economy in the coming quarters. "We remain confident
that we will meet the growth target of 6.5-7.5 percent for 2014," he said, pointing
out that the Philippines is still poised to become Southeast Asia's fastest
growing economy -- a position it held last year.

The Philippines’ economic freedom score is 65.0, making its

economy the 61st freest in the 2018 Index. Its overall score has
decreased by 0.6 point, with lower scores for the government
integrity, monetary freedom, and property rights indicators
outpacing improvements in trade freedom and judicial
effectiveness. The Philippines is ranked 13th among 43 countries
in the Asia–Pacific region, and its overall score is above the
regional and world averages.

The strong growth of the Philippines’ economy has allowed the

government to prioritize domestic law-and-order issues over
economic policy concerns. A rapid decline in the president’s
popularity caused investor confidence to wane by the end of
 2017. An absence of entrepreneurial dynamism thwarts
development. Some fiscal reforms have been adopted, but
deeper institutional reforms are required in interrelated areas:
business freedom, investment freedom, and the rule of law. The
judicial system remains weak and vulnerable to political influence.

BACKGROUND

A former colony of Spain and then of the United States, the

Philippines became a self-governing commonwealth in 1935. Its
diverse population speaks more than 80 languages and dialects
and is spread over 7,000 islands in the Western Pacific. During
President Benigno Aquino III’s single six-year term, the
Philippines became one of the region’s best-performing
economies. Longtime Davao City Mayor Rodrigo Duterte
succeeded Aquino in 2016. Duterte has consolidated power by
marginalizing his opponents, and his brutal crackdown on illegal
drugs reflects authoritarian tendencies. Agriculture is still a
significant part of the economy, but industrial production in such
areas as electronics, apparel, and shipbuilding has been growing
rapidly. Remittances from overseas workers are equivalent to
nearly 10 percent of GDP.

The Philippines recognizes and protects property rights, but enforcement is weak.
Property registration is tedious and costly, and records management is poor. Judicial
independence is strong, but the courts are plagued by inefficiency, low pay, intimidation,
delays, and long case backlogs. Corruption and cronyism are pervasive, and the
country is a regional money-laundering hub. The President’s strong-arm tactics
reinforce a culture of impunity.
The top individual income tax rate is 32 percent, and the top corporate tax rate is 30
percent. Other taxes include value-added and environmental taxes. The overall tax
burden equals 13.7 percent of total domestic income. Over the past three years,
government spending has amounted to 18.9 percent of total output (GDP), and budget
surpluses have averaged 0.4 percent of GDP. Public debt is equivalent to 33.7 percent
of GDP.
In 2016, the Philippines increased the transparency of its building regulations, making it
easier to deal with construction permits. Local labor costs are relatively low, and
workers are highly motivated. Reports of forced labor in the Philippines continue. The
government has increased subsidies under President Duterte and maintains price
controls on pharmaceuticals and some food and household fuel items.
Trade is significant for the Philippines’s economy; the combined value of exports and
imports equals 65 percent of GDP. The average applied tariff rate is 2.1 percent.
Nontariff barriers impede trade. Government openness to foreign investment is above
average. The gradually modernizing financial sector remains relatively stable and
sound. Since 2014, overseas banks have been allowed to acquire 100 percent equity in
existing banks.