Philippines trade liberalization

In 1992, Fidel Ramos was elected President. He began his term amid an energy crisis, which plunged the country literally into darkness. This he was able to resolve by inviting foreign investors to take part in the so-called build-operate-transfer (BOT) scheme, where they would serve as independent power producers (IPPs) enjoying a lot of incentives and guaranteed market. While it brought light to Filipino households, the scheme would later translate to high electricity rates.

In 1995, the Ramos administration also had to contend with a rice shortage, as a result of low agricultural production and poorly managed importation program. Since then, the government has authorised the National Food Authority (NFA) to import rice at will in order to prepare for any shortage in domestic stock.

The Ramos presidency was also responsible for economic reforms such as privatisation of government assets, trade and banking liberalisation and deregulation, which would push annual trade growth at double-digit levels and draw in large-ticket foreign investments. By 1996, the Philippines was described as a newly industrialising economy along with the likes of Thailand and Malaysia.

It was also under the Ramos presidency that communism was legalised, and some leftist organisations would later join Congress as partylist groups. The government and the Moro National Liberation Front (MNLF) headed by Nur Misuari would sign a peace agreement that would establish a peace zone in southern Philippines. However, other militant rebel groups such as the Moro Islamic Liberation Front (MILF) and Abu Sayyaf would continue waging a war against the government for a Islamic state in the south.

What Ramos failed to accomplish is the amendment to the 1987 Constitution to remove the restriction on foreign ownership of land and public utilities, which limits maximum ownership to 40 percent. The opposition party accused him of trying to tinker with the charter to remove the six-year term limit of the president and in the process perpetuate his stay in power. In the end, he had to give up such attempt under the weight of public opinion.

Financial Crisis

With the outbreak of the Asian financial crisis, the Philippine economy contracted by 0.6 percent in 1998, the same year Joseph Estrada, a popular politician with links to the movie industry, became president. The economy actually grew although at a slower pace at 3.4 percent in 1999 and at 4 percent in 2000 even as the inflation and interest rates began to decline. In comparison, growth reached 5.2 percent under the Ramos presidency in 1997.

While Estrada got the backing of Filipino-Chinese businessmen by reducing the problem of kidnapping, he did not get the same support from other “elite” businessmen. Despite appointing top economists, Estrada, a former college dropout, could not convince the “high society” that he could resolve the country’s economic woes.

Ironically, what brought down the Estrada administration was not his economic policies, seen by many as not substantially different from those of Ramos, but the perception of wide corruption in his administration. In October 2000, a former ally implicated Estrada in illegal gambling payoffs and kickbacks. Reports that he has many wives housed in different mansions also got Estrada indifferent treatment from the Church, which was a force behind the 1986 People’s Power Revolution.

EDSA 2

In December 2000, the House of Representatives impeached Estrada. The subsequent impeachment trial at the Senate was aborted when senators from the opposition party walked out of the courtroom, triggering street demonstrations reminiscent of the 1986 revolt. Within hours after the walkout, the crowd at EDSA grew into millions of anti-Estrada protesters. When political and military leaders withdrew their support from Estrada, Supreme Court Chief Justice Hilario Davide swore Vice President Gloria Mapacagal Arroyo as the next president on January 20, 2001.

Arroyo, a daughter of former President Diosdado Macapagal, came to Malacanang with a promise to clean the government of corrupt officials and bring down the number of poor Filipinos, which represents a third of the total population. In her first year in office, she faced numerous challenges starting with the May 1 rebellion, instigated by the Estrada camp to regain the presidency. The rebellion proved futile, as the highly politicised military and the police remained loyal to Arroyo.

She also had to contend with Muslim extremists, who began to target cities in their attacks. Following the terrorist attacks in the US on September 11, 2001, the Philippines was one of the first countries to express support for a US-led international campaign against terrorism.

On the economic front, Congress passed the liberalisation of the retail trade sector and the Electric Power Industry Reform Act of 2001, which aims to privatise the state-owned National Power Corporation. The Arroyo administration also promoted business process outsourcing (BPO), information technology, tourism, and mining as key investment areas for foreign companies. Trade with other Asian countries was also given importance in view of the declining trade volume with the United States.

Telecommunications

One particular industry, which has led economic growth since 2000 is telecommunications, although this proved to be a bane for other industries as Filipinos cut their expenditures on other items to buy mobile phones and pay for monthly network services. By 2005, it is estimated that half of the 85 million Filipinos would have mobile phones, a high penetration rate for a developing market.

Because of the global economic slump following the September 11 attacks, the GDP grew by merely 1.8 percent in 2001. Growth reached 4.3 percent in 2002 and 4.7 percent in 2003 even as the Arroyo administration confronted communist and Islamic insurgency problems and a shocking military coup in July 2003.

After surviving the coup, Arroyo won the May 2004 presidential election over Estrada’s close friend and popular actor Fernando Poe Jr. Economic growth reached 6.1 percent in 2004, the highest in 15 years, although this was negated by high inflation and uncontrolled unemployment rates which were more felt by the poor.

Fiscal Deficit

Pressed by economists to narrow the burgeoning fiscal deficit, President Arroyo urged Congress to pass a package of tax reform measures aimed at achieving a balanced budget by the end of her term in 2010. Because of a long history of budget deficits, the public debt hit more than 130 percent of the GDP in 2003 and has been rising since then. Different sectors, however, criticised the administration for passing a heavier burden of taxation on the people at a time crude oil prices were hovering at historic high levels and pushing prices of goods and services beyond the capacity of ordinary consumers.

By the second half of 2005, there were signs that the fiscal deficit was narrowing, even with the delay in the implementation of the Expanded Value Added Tax (EVAT) law, which raised by 2 percentage points the tax rate on consumer products and services to 12 percent and by 3 percentage points the corporate income tax to 35 percent. The new EVAT law, which was expanded to cover fuel and electricity, took effect on November 1, 2005.

New Constitution

As the popularity of President Arroyo dipped to the lowest level amid allegations that she bought her way to the presidency in the 2004 presidential elections, she was given an option to correct the loopholes in the political system by amending the 1987 Constitution. She formed a Consultative Commission to recommend charter amendments focusing on lifting all restrictions to foreign investments and paving the way for a shift in the form of government from a presidential, central system into a parliamentary, federal system.