Crossroads (Toward Philippine economic and social progress)
Philippine Star, 13 November 2019


When Ramon Magsaysay was elected president in 1954, the country was already in the midst of import and exchange controls.

Temporary measures become entrenched policies. The emergency measures were adopted by his immediate predecessor, former president Elpidio Quirino, initially to hold off further deterioration of the country’s external position.

The policies proved successful in protecting the growth of young industries, providing them initial success and inducing those that benefited from such protection to prolong their hold to sustain the direction of the growth of import substituting industries.

A rush of new manufacturing enterprises rapidly replaced formerly imported goods. Supplemented by industrial promotion incentives, including support from government financing of such ventures, the new industries received favored foreign exchange allocations to sustain their continued expansion.

The policy called for the rationing of scarce dollars to industrial users and favored importers of goods. Export earners were required to surrender their earnings at the official rate of exchange which was controlled.

In effect, too, the costs to importers (and consumers) were rising, hence penalizing not only export earners, but also the consumers of import substituting industries at home. Industrial protection provided by such controls, however, produced high profits for industries that benefited from such policies.

At that stage of the country’s history, the country’s traditional export industries had recovered. A rapid postwar rehabilitation program and the resumption of the preferential trade agreement with the United States helped sustain traditional exports.

Sugar centrals, coconut products, including coconut oil mills, and mining firms in their export markets had recovered. With the help of the policy of controls, exports were providing support for the growth of the new domestic industries. They continued to support the economy’s growing needs.

The prevailing wind of policy favored the development of new industries. Exports from agricultural and natural resources industries would provide support for the continued growth of new manufacturing industries.

The question, however, was whether export industries could continue to sustain such pattern of growth over time.

Exchange rate pricing and allocation. How long would the policy of controls last? Former President Magsaysay was passive in articulating the economic issues. He had a limited background on those issues and was inclined to follow the economic priorities that expanded to support the country’s poor.

For this reason, he had wanted to raise public spending for development. Thus, he laid support for the preparation of a program that was geared toward rural development.

He was less dominated by the details of the economic policies and plans. For this, he relied more on the recommendations of his officials.

Miguel Cuaderno, the first central bank governor, was to represent the source of steady support for policies that incorporated exchange controls, supplemented by import controls. The government’s financial institutions supported the drift of the central bank’s policies.

At the beginning, the new central bank was influential in guiding the policies which were characteristically based on the maintenance of exchange controls. Government policies followed the decision to sustain the promotion of new and necessary industries. Import and exchange controls were the primary weapons to promote the new industries.

But right from the start of Magsaysay’s term, there was an uneasy coexistence of interests from traditional exporters and the new industries.

Magsaysay’s Cabinet was filled with representatives controlled by sugar and exporter interests. At the start of his tenure, the Cabinet portfolios in agriculture and natural resources (Salvador Araneta) and in industry and commerce (Oscar Ledesma) were headed by sugar interests. So was the National Economic Council (Alfredo Montelibano).

With a strong representation, the export sectors had a strong voice in the government. Their main nemesis was the policy handle held at the Central Bank, which had a strong support in the national government and also powerful economic interests among the new industries.

The debate simmered openly, in the Cabinet, and in Congress. The export interests emphasized the penalties imposed on the country’s export earners. They proposed measures that would give a better return to exporters, through market-based measures, short of devaluation.

The trade agreement with the US prohibited peso devaluation. (Though the Laurel-Langley Agreement of 1955 allowed the exchange rate determination by Philippine authorities, such was not in consideration directly.)

Alfredo Montelibano, one of the articulate leaders of the sugar bloc, from his perch in the Cabinet, criticized government policies most openly, claiming that the central bank had squandered the hard-earned earnings of exporters. Relief through decontrol of the exchange rate was sought to provide incentives for exporters to improve their earnings.

Yet, during the presidency of Magsaysay, the exporters were also disposed to seek half-way measures to improve their income position. They were wary of the strong predilection of the government to continue exchange and import controls to promote industrialization.

Also in part, many of the exporters were finding new economic opportunities in the diversifying economy. They were moving into commerce, banking, and of course industry. The opportunities were varied and open to them. Therefore, they were partly muted by conflicting interests on their part.

Thus, for a while their assault on economic policy was mollified by their changing interests.

Ramon Magsaysay’s life was cut short in 1957, when his plane crashed. He was just eight months short of the next election to a new term that he was certain to win.

We would never know how such an unfortunate event might have changed the course of Philippine economic history. What we know is that, the next few years under his successor Carlos P. Garcia, would further intensify foreign exchange controls and import controls as an important element of the country’s economic policy framework.

The next years would bring about more severe economic measures in the guise of the Filipino First policy.