.' S71~ ..$r..s~.s- , ~3-:? -50 No. E 80 RESTRICTED 66987 This report is restricted to use within the Bank INTERNA TIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT THE ECONOMIC AND FINANCIAL SITUATION IN THE PHILIPPINES February 16~ 1950 Economic Department • THE ECONOUIC b.ND F~lJANCIA1 SITUATION IN THE PHILIPPINES Sill'JIvIARY The lack of internal and external financial balanc ',3 which has persisted in the Philippines since the end of the war was even more pronounced in 191~9 and reached critical proportions by the end of the year. "educed export in- come and a sustained import demand carried the trade deficit to an all-time high. ·Tb5 s, together possibly vfith some flig;ht of capital, accelerated the drain on foreign exchange reserves in spite of continuinp: abnormal dollar re- ceipts fro~ the U. S. Import controls imposed at the beginning of the ;ffiar wero L'lodest and ineffectual and internal financial meaEures to curb imDort denand vvere lackinr. .F-ather, the scale of deficit financinr was extended, partly unc1 .;r the influence of ~olitical considerations in an election year. Y!hile stability was maintained in the Boney suY)"oly ane: the price level, this may be attributed largl';ly to the effects of the large i.mport surplus in counteractin~~ the inflationary tendencies of the Government deficit. There were some favorable aspects in the field of dor:1estic procl.uctiol1 in 1949 although it is doubtful if the gain in output '~as sufficient to re- store over-all production to pre~war levels. The sugar and Imnber industries shovred large increases over 1948 and the rice crop was slifhtly greater than rre-war. Various other food crops were also at or above the pre-vrar a.".rerage, mineral output increased al though it remained well belm-'! the level of the - 2 - Thirties, and there \iv-ere some accomplishments in the rehabilitation ,and extension of small industries and public works. H01lJever, production in two 0f the major export industries, CODra and abaca, 1.ll!as down and development progress in the sense of a coordinated over-all investment pro~~r8Jn v,ras lack- inc;. Available saving~ for investl~lent financinr. remained far short 01.' re- quirements and there w-as no noticeable im~Jrovement in the means for rn6biliz- in£: and controllinr: the flow of savin[:s into investment. Government officials see little JJros"gect for public borr01·:inr. in the market in sirnificant amounts in the near future. The seriousness of the Philipr)ine finan8ial situation "?I'ormted action by the Government toward the end of' the year and in IJovember and Decer'loer a series of measares Tv-ere taken to chec~': the drain on e~,:change reserves. Import cOGtrols were extended ane:. tightened, irl1:0ort crec~i"\. v:as restricted, and a cONprehensive exchange control 1.as introd1.1Ce(:. The announced objective of' t!lese steps -:;:-25 a cut in imports in 1950 by about 35~-; and a check on any further flight of capital. 1 'bile these objectives, even if achieved, YJOuld still be inadequate to brinr; external trade into balance at 19L~9 export levels, they 7J')uld nrobably nerr:li t an a'l)'Jroxicate balance in total pxternal receiuts ;:.nd na;;l- ments in VieYi of the continuation of abnormal U. S. pa;.mr::nts to the Philt~)­ pines throurh 1950. Such an achiever.~ent of be:.lanCb in Phil:LDlJine external ace )unts r.1a;'T, hO":ever, ap;rravate tho lac~c of internal ~~inanc:Lu.l balance un- • less l:1eaSUrcs are taken to reduce disposable 1:10noy i.n~or.le in correor:oncience - 3 - 'V'rith the decline in inports. In the past and current fiscal years budf.;etary deficits in the General Fund have amounted to about 25% of total e)~enditures. The difficulty of reaching internal financial balance will be increased b~r the expected reduction in Government revenues due to curtailed cnstoP1S duties and other receipts arisinp: from imports.. PhililJuine officials believe that this reduction can be offset in fiscal 1950~5l by increased taxes and im- proved tax collections. A cut in Government expenditures will, however, also be necessary if the budgetary cleftci t is to be reduced. After 1950 thl=> lJroblem of reacr.d.ng an internal and external f~.nancial balance vv-ill be even nore serio1).s if U. S. payments drop off sharply in 1951 as nO\'iJ scheduled. Adjustment to this situation will require still further cuts in imports and, consequently, in disposable money incor:les if strong in- flationary pressures are to be avoided. The natural resources of the Pl1ili~Dines are Buch that tha achievc'TI'lent of a self -suPT)ortin~J: econolllY wi thin a r~asonable ueriod of time should be feasible. ACLv:mplish.l11ent of this presa'OI.oses, hm'rever, a real dr-tex'nination to pursue measures vrhich v!ill reduce the level of non-essential activity and consunption associated vrith the artificial nostY':-ar prosnerity at the same time that energies and resources are directed into realistic dE'velopnent. Sl:ch a prpscription for the rE-storation of economic and financial ba::ance 1i:ill not 'be easy, anci. nay require foreicn assistance r.ot only in solving the i;:rrilediate economic difficulties of the PhilipDines uut in planninr and ruidinr the • future r~rowth of the Phili';}pine econo!':y • THE ECONOMIC AND t FINANCIAL SITUATIOi'I Il,j TIi"E PHILI::?INES The economic and financial developments in 19LI.9 followed the pattern whi.ch has persisted for the last three years. The balance of trade showed 211 even greater deficit than in 1948. E:lonetary reserves declined in s;Jite of heavy payments coming from the Unit.ed states; savingp Vfere insv.ff'icielit to finance the Govermnent's expenditure on various development and rehabili- tation projects. The cI.emand for consumer goods continued unabated. No integrated development proeram has yet been ma ")ped out. 1 The Governnent still has a long list of projects without establishinr a proper order of priorities fot' them. No improvement has been reached in the production of abaC'a and varic:),la l~ining production. Increased production has been recorded in the sugaz- industry, in lumber, and in rice production, but E:ore than half of the who1e investment of the country is still p:oing into construction and public works, residential buildings accounting for a large share. Foreir,n Trade The trade deficit durine 1949 reached an all time hi~h as shov!l1 belo'.'r: Philippine Trade - Post ~'~ar (in·' l:1illions oi:- pesos) .~/ 1946 1947 !91.~8 - ' 019 :L:~ Ir:lports (f,o"b. ) 592 1,023 1,171 1,122 Exports (f,\I).b.) 128 531 638 513 Deficit 4bIi 492 ---m b59 Source: Bureau of Gensus and Statisti.c s, COI!1l:1is si.oner of Customs. • !/ Figures for July-December 1949 are preliminary and are probably su~je8t to substantial revis:Lon. - 2 - The increased annual rate of the deficit in 1949 over 1948 resulted from a marked drop in exports, while imports remained only slightly below the 1948 level. The decline in exports lNas almost entirely the result of re- I/ duced proceeds from copra.- The decline jn the value of copra and coconut products exports 'was more than enough to outweigh a large increase in suraI' exports which amounted to ~75 million in the first half of 1949 as compared 'wi th P42 m.i..llion for the whole year 19h8. The effect of price reductions (primarily in copra) on Philippine export income in spite of e:reater total export volume is shoVJ'n in the table below': Quantum, Price and Value Indexes of Phili:J~)ine Bxports, 1948, Ja11uary-June 191+9. _____~II- - --- (mont~~y average, 1937': 100) Quantum Index ) Price Index Value Index 1948 67.90 291.61 198.00 1949 (Jan-June) 89.60 197.39 178.35 Source: Central Bank of the PhiliP"0ines Imports continued to be heavily weighted on the side of consumer goods. The Philippines was unable to achieve either a significant reduction in total The volume of copra and coconut products e.xports fell by about S% c~uring - 1/ January-november 1949 as compared vrith January-lJoverabe~ 1948, bu.t the copra price dropped from a 19L~8 averar;e of ~'~260 per metric ton to about 11'130 in mid-1949. By early December prices were about d~·16.5 to ~i170 per metric ton. - 3 - imports or a shift in its composition in favor of durable capital goods. In .. &yite of the introduction of import controls on certain luxuries and non- essentials beginning on January 1, 1949, the import level during the first ten months was only about 1% below that in the same period in 19~8. Accord- ing to the preliminary ca,lculations by the Central Ba!1l{, imports -v"lere divided in roughly th8 same proportions amonr, consumer goods, raw mater:tals and capital goods in 1949 that they were in 1948 when the percentages were 64%, 14.5% and 21.5% respectively. U. S. statistics of exports to the Philil)'t):i.nes show the percentages of durable capital goods to total exports at t"he sane level in the first 9 months of 1949 as in the same period of 1948, na1Tlel~r about 20%. The decline i!1 Philippine imports as a vrhole was :3maj ler than the price decline which occurred in ".'wrlc1. trade in 1949. The continuation of irnp\irts in 19L~9 at levels only slie;htly beloy! those in 1948 occurred in spite of the im-posi tion of i~ilport controls or~ January 1, 1949. The fact that controls were not of signiiiC"nt effect in reducine total imports fiB-y be attributed to: (a) substantial imports of controlled ~oods which were 2.lready on order prior to the effActive date of controls; (b) laxity in control enforcement and leniency in permittine importers to exceed current quotas '"Ii th the understanding that the excess v{ould be de- c'J.cted from future quotas; and (c) an increase in the CB.mount of im~)orts of uncontrolled items. lIoneta.ry Reserve! The international reserves Ol the Central Bank declined froI!l ~000 million as of December 31, 1948 to p461 million on December 31, 19L~9, or by P339 million ($169.5 million). Foreign assets of other banks increased during 1949 by P26 million U~13 million). The net decline in reserves of the Central and other banks in 1949 was therefore P313 million (~~156.5 million). During the first days of December, before the exchange control 'was introduced, the Central Bank was losing about ::~\2 million in foreign exchange per day ~ ~:his very substantial decline in monetary reserves occurred in spite of the fact that the country in 1949 received various payments from the U. S. of' about :'t.310 million. 'I be sum of U. s. payments plus the dec:D..ine in reserves, Cl.r.:ount- ing to ($466~5 million, may be compared VJi th the trade d: "'ici t of 2.bout ::~305 A • million. The difference of about ~~162 million can be partly accounted for by remittances of dividends and :orofi ts and other net current invis~_ble pay- ments for which no estimate is available. The figures f:1entioned fOl~ profits and dividends alone vary from ~li50 to ~~lOO million. It is doubtful, hmvever, if net. current. invisible payments alone can explain the entire difference and the rest may represent an undervaluation of imports and, possibly, some flir.ht of capital eS!Jecially in the la.tter months of the year. Publi..: ,. Finance During fiscal 1948-h? the budp:et deficit of the Government (General Fu.nd) amounted to P93 million or about ~40 millior.. more than the General fund defici t of the previous fiscal year,. This deficit v-ras :partly offset by a net surplus in the Government's S!?8cial Funds of about ~24 million, leaving the - .5 - !-..! cash deficit -position for 1948-4~ at anproximately ~69 I!lilJ..ion. AccordinG to Government officials, the General Fund deficit in the first half of fiscal 1949-50 was runninr, vrell above that in fiscal 1948-L.19_ For the remainder of the current fiscal year they eA'}Ject the recent extension of import controls to reduce income from customs and other taxes on inported articles by more than can be offset through increases in other taxes and im- proved tax collections. Import restrictions are likely, therefore, to have a two-fold il1~lationary influence, in the short run at least, both in reducing the volume of goods available for consumption and in contributinG to budgetary imbalance. The probable level of the 1949-.50 cash deficit is not clear from available information. In a recent budget statement to the Philippine Congress President quirino forecast the deficit for the year ending on June 30, 1950 at F63 million, which would be less than the 1948-49 General Fund dei':Lcit in spite of an estimated sharp reduction in ordinary' revenues. The Presidentte fi~ures, hOli{eVer, included ~lO.5 million of "extraorc~inary revenues" the nature of 17hich is not explained. If, as seens probable, a lar;:e nart of t~J.ese e.x:traordinary revenues does not represent current cash inCOI!'le, tbe deficit for the current fiscal year would probably be well above that in fiscD.l 19~+S-h9. Disbursements of the U. s. ::rar Damage COY:ID1ission and other D. S. arer:cies for public projects in the Philippines are not inc2.uded in. the hudret accounts of the Philipnine 30vernment. - 6 - Available I}eneral Fund budget figures for 1948-49 and 1949-50 are summarized below: Government Budget (General Fund) (millions of pesos) 1948-49 Revenue: Ordinary 305.9 219.5 Extraordinary 3.0 10h.8 Total Revenue 308.9 324.3 Expenditures: Ordinary 322.9 306.9 Extraordinary 78.6 80.5 - Total Expendi- L~Ol.S tures Deficit 92:b - 63.1 The General Fund deficits are being met through the use of deposits in the various special Treasury funds (mostly held in the Philippine National Bank) and by advances from the Central Bank. Loans by the Centra1 Dank to the Treasury between January 1 and December 22, 191+9 amounted to ~34 million. l.{oney Sunply As a result of the large reduotion in foreign exchange reserves, the money supply (currency in circulation outside the banks plus demand deposits) - 7- declined from Pl,194 million at the end of 19h8 to ~1,099 million on October 1/ 30, 1949, or a total decline by almost ~lOO million.- It is probable that there has been further decline in the money supply since the end of October because of the heavy reduction in foreign exchange reserves in November and the early part of December. The magnitude of internal financing, which tended to cou.nteract a large part of the influence for monetary contractions arisinf{ from the fall in reserves by ~313 million, is reflected in the ris~ in the fip:ures of loa.ns and advances by the Central Bank from the beginning of the year to December 22, 191+9. The increases Vlere as follows: Holdings of domestic securities P92 .2 miJJ.ion Loans P36. m:i...llion Advances to the Treasury 1233.8 million ~162 .0 1t1lD.illion The loans of l:'36 million were all to the Philippine National Ba.nk and of the increase in the Central Bankts domestic security holdings, ~4h million were also purchased from the portfolio of the PND. The remaininr. securities purchased were issues of the Rehabilitation Finance Corporation. This lend- inr, agency of the Government made total loans during 1949, through (}ctober, of ~91.4 million. Currency in circulation bet1tYeen the end of 1948 and October 3D, 19h9 remained almost constant (~576 million and ~.568 million on the respective dates) but demancl deposits fell by ~87 million (from 12618 million to P531 million). - 8- Savings The figures on savings in the Philip~ines are only fragmentary. Based on the experience of 1948 and 1949 the rate of annual savings in Government and private financial institutions may be estimated as follows: Baru{ savings and time deposits P40 million Net premiums of domestic insurance cos. P14 million Government Service Insurance Premiums ~ 9 million Postal Savings Deposits ~ 7 million Net profit of Government Corporations P 8 million Total P78 million Information on annual savings available for private investment outside of financial institutions is limited to statistics of newly paid u'9 capital in Philippine corporations, partnerships and cooperat.ives which amounted to P58 million in 1948 and during January-Iday 19L~9 was at an annual rate of about P75 million. AllowinG for the fact that only part of the newly paid up capital in Philippine enterprises represents investment of savings from current income, the above figures indicate an annual amount of savings readily available for investment at something between PIOO and P150 million. This amount is, of course, below the rate of total Philippine investment in recent years. The Rehabilitation Finance Corporation alone has granted loans at an annual rate of almost ~100 million since the beginning of 1947 and Government expenditures on public works and various rehabilitation and development projects in 1948-49 1/ amounted to F-79 million. - Hov-rever, about half of BFC financing has gone into !I r.xclusive of U. S. aid. - 9 -. real estate (~135.h million out of total loans of ~272.7 million up to November 30, 1949), of which residential building accounted by far for the greate st share.· Sources of savings, other than those mentioned, which might be channelled into investment in the development program are negligible. To date borrowing b¥ the Government and Government agencies has been entirely from the Banking System and the various trust and special funds of the Government. Central Bank and Finance Department officials see little prospects of public borrovdng in the market in significant amounts in the near future. Prices The wholesale price index of major export products of the PhilipDines, which was 319.3 in January 1949 (1937 =100), declined to 236 in September. The cost-of ....li ving and food index in Manila declined from 407.8 in tJanuary (1937 =100) to 374 in September. The price decline in spite of credit ex- pansion was due to the large import surplus -with imports c01:rposed for the most part of imported cons-Qrner goods. - 10 - II. Recent Developments The steadily deteriorating financial and economic situation has reached a critical point during the last months, marked by ra~idly declining foreign exchane:e reserves due to continuously laree importation and possibly more recently also to some flight of capital. This development has brought home to the Government the fact that the country has enjoyed a false prosperity over the past two years, nourished by payments from the United states whiCh by now have reached a total of around .~l, 500 million since the end of the vrar. While a large part of these payments were made to cover specific ex- penditures in pesos, the counterpart in dollars simply accrued to the Philip- pines as freely disposable exchange. In the absence of an apnropriate fiscal policy, capital market, and savinss organizations, much of the income r.enerated by United states expenditures has gone into various imported consumer goods which have been financed in dollars through drafts upon the exchange assets of the Central and private banks. U. S. payments for war damage went to thousands of people in the Philippines in amounts of ~50o and ~l,OOO and were used to a large extent for consumption. An artificial pros1}erity has been built around the import trade at the same time that ;~anila and some other ci ties have enjoyed a big boom in construction. The whole economy has been distorted, is out of gear, and the need for a restoration of economic balance is obvious and ur~ent. The task, hovlGver, of achievinc such a balance is not an easy one. It presupposes measures to reduce the ir:'lport surplus and a corresponding ?olicy - 11 - of disinflation to adjust disposable money incomes to a lower import level. Accolnplishment of such an adjustment ydthin a short period of time ~~ll be difficult for the Philippines after t.he recent years of false prosperity and the real income and employment which have been associated with it. To minimize the economic and Dolitical strains inherent in a strict disinflationar~ program it may be necessary to provide alternative employment in productive projects for those now engaged in sectors of the economy vrhich lI'!Ould be most affected (import business, luxury and non-essential COmr1erce, amusements, etc. ). Additional Centrols As a first step to check a further deterioration of the over-all situa- tion, the Government has adopted three measures to conserve foreign exchange reserves and reduce non-essential ir.morts: (a) Me!'T ir.1:!)ort controls YJ'8re im- posed to take effect on November 29. They include r:lost of the i!.1ported con- surner goods. The established quotas are to reduce im,orts of various COill- modi ties by about 90% of the 1948 base period in many cases e, (b) Prior to this measure selective credit control was introduced on November 17, accord- in?, to which a cash deposit of 80% is required for all letters of credit or authorizations to purchase imported Goods included in the list which contains y practically all commodities on the neVi im~ort control list. (c) Finally on Y The Government has also inposed restrictions on thE' al110unt of banlc credit available for financine inports of essential items 'which are not included in the list of controlled imports. - 12 - December 9 Cin over-all exchange control was established in order to close the gap in the selective credit control arising from goods sent on consigrn1lf.?nt and to check any flight of capital. The Secreta~J of Finance stated publicly that these three lueasures aim at a reduction of non-essential imports by ~4oo million or by more than one third of total imports. These measures to reduce i~ports and thus to check the decline of foreign exchange reserves and to restore external financial balance may well destr0y the internal financial balance, however, unless ap~ropriate fiscal and credit policies are promptly and resolutely pursued. Financial Situation in 1950 The present financial picture is as follows: The expected budget deficit in the calendar year 1950, plus additional funds for development progrill~s, vrill be financed mostly by the Central Bank from funds earmarked for develop- ment purposes, of which P147 oillion was not yet disbursed at the end of December. Payments from the U•. S. in 1950 are estimated at ~450 to p500 million. These items together' could provide al~ound p600 to p650 million of additional income not generated by production in the Philippines, vfl1ich would compete for a smaller amount of goods if the import control measures are carried out.. Therefore, measures to syphon off and counteract this new pur- chasing power through increased taxation, improved tax collections, and re- duced Government expenditure will be necessary to prevent the accll.."1l.ulation of inflationary pressures in the current year., Quoting Governor Cuaderno of the - 13 - Central Bank, u19S0 will be a critical year for the Philippine economy." ?iscal measures, tentatively drafted in December by Government officials to meet the threat of inflation placeJ their principal reliance for the first half of 1950 on reduced Government expenditures; chiefly cuts in nublic YJ'orks outlays and elimination of "pork barrel" appropriationq. For the last half of the yp,ar (the first half of fiscal 1950-51 ) it vras anticipated that in- creased taxes and improved tax collections would offset the loss in revenues due to import controls and that for fiscal 1950-51 as a 'whole the deficit ::[Quld be substantially reduced or eliminated. According to the budget message submitted by President Quirino on February 7, the estinated deficit for fiscal 1950-51 (excluding 8Jdraordinary revenue) would be reduced to ~22 r.Ullion. This assumes, h01;[eVer, that incor.le from neVl taxes vvill amount to almost PIOO million and that total Governrnent exnendi tures will be reduced beloy'!' the 1949- SO level by ~47 million. It would appear from tne President's statement that further deficits can be expected during the period January-June 1950 though possibly at a lov'ler rate than during the first half of the current year. The budgetary situation in the second half of 1950 l"J'ill depend on the extent to 'which his forecasts for fiscal 1950-51 are realized. It is imn...ossib1e at this staee to assess (a) the effects of proposed nevI taxes and the efforts at ir:lproved tax collections, and (t) the extent to which a reduction in Govermnent ex- penditures vIill be realized, An increase in tax revenue at an annual rate of ~lCO ~.illion 1~ri thin a period of one year is an ambitious tarr.et, and resistance - 14 - can be expected to sharp slashes in Government spending. It is equally im- possible to predict the amounts which "."rill be spent by the RFC and financed by the Central Bank on various development expenditures during 1950. It might be ~SO million and it might be ~lOO million. 111 any case it seems probable that deficit financing will continue durin~ the current year and that further use will be made of special funds deposits and Central Bank credit to meet the Governmentts deficits and to finance development projects. FUrther U. S. Payments YIhile United state/~ payments, as nresently scheduled, are likely to be the greatest source of ;>urchasing power.' t1enerated outside of domestic pro- duction in :],,950, these pa:yments do brin!? with then a dollar income ,nth which a correspondinG volunle of inports can be procured. Furthermo!'e, one helpful • factor is that the war damage payments to be made durinr the present year will be concentrated on compensation to the larger claimants, who will be more likely to save some portion of the receipts or use part of theE in re- payment of outstanding obligations rather than to sDend them ir;;.'71ediately on consumption or new investment. However, United states payments are scheduled for an abrupt reduction in 1951, which will confront the Phili~pines with a fevere and sudden cut in real income. Furthermore, although the reduction in U. S. payments will lead in the first instance to a corresponding reduction in money incomes , it vrill also lead to the disappearance of one possible source of inte !'nal savin[s and perhaps to some dis saving by those who have - 15 - developed consumption standards based upon income derived from the U. S. payments. Altogether, and especially l:'Tr:en account is taken of the prospect for continued credit expansion, it would appear that drastic measures to deflate the level of money incomes or to recapture a rreater part of such incomes throue;:h taxation would be necessary if serious inflationary pressures were to be avoided • • - 16 - III. Long Range Prospects Present Production Levels Destruction and loss to the Philippine economy caused by the war was greater than was assumed inunediately after the war. In the last ;rears sub- stantial profress has been achieved in various fields of production but the combined production index in 1948 reached only 85.6% of the 1937 level - agricultural production was 83.1~, manufacturing, 91.2% and ~ining, 37.3%. Althoue;h a furtht:r improvement was reached in 1949, it is very doubtful whether even in 1949 .-i)e 1937 level was reached. The nopulation increase durinG the period amounted to about 3 million (from 16 to 19 million) II There- fore much remains to be done to restore the equilibrium of the Philippine economy, to provic~e for a steadily increasing population and to consider some increase of national income per capita, althoueh tIns 'Nill probabJ_y be 1/ . beloy{ the level of the last years. - Per capita income in 1948 at current prices was ~219.29 con~ared to ~65.45 in 1938. 13.7% of the total national income was provided by various payments from the U. S. amountinr, to ~5S6 million. This sum is much higher than total GoverTh~ent expenditure and very likely is substantially higher than the net investment in 1948. The future pattern of the Philippine economy is not likely to differ substantially fro:n its pre-'war pattern. The country has (a) to rehabilitate -y The 1948 national income is estimated at ~4,218 million compared to PI,O)S million in 1938. '~lhile there is no adequate nrice index by 'which the 1948 firure could be adjusted for price increases since 1938, it is ~robable that the 1948 national income in real terms was at apTJroximately the 1938 level. - 17 - its major export industries, (b) to in~rease ?roduction of basic food, thus reducing food imports, and (c) to develop some industries, especially light industries, to provide employment and also to reduce im~orts of consumer eoads • The develo1)ment of actual agricultural production since the end of the vrar is shown in the following table: - 18 - 1/ ~9TUAL PRODUCTION OF PRINCTPAL CROPS, 1940 and 1946 to,1~49- (In l'lietric Tons) Crops 1940 1946 1947 1948 1949 (?st) --~-.---- Food Crops: Rice (rough) 2,362,746 1,62),330 2,088,240 2,240s850 2,1+91,.300 Corn 572,185 331,260 1+72,190 ~19,O10 53!h 0 70 Fruits and Nuts 256,.340a/ 261,430 369,450 229,080 269,750 Root Orops 9J 615,026a/ 434,100 460,220 524,340 528,230 Beans and Vegetables 42, 430a/ 32,240 41,.300 h4,270 59,680 Coffee and Cacao 2,520a/ 3,700 5,170 4,560 4,1../.60 Peanut 6, 530a/ 3,040 5,080 7,400 ftWOU 9,570 Sub-Total 3,857,777 2,.689,100 3,441,650 3,569,510 3,897,·060 Technical (1roup: Copra 738,474 203,810 998,140 882,780 698,120 Coconut nil (homemade) 3,00 0 3,330 3,390 2,980 Desiccated Coconut 40,518c/ 9,170 115,240 58,760 SUGar 997,06id/ 62,.640 119,670 395,740 692,910 Abaca 172,3h3e/ 30,420 82,000 99,h60 7).t,510 Tobacco 32,115i/ 14,330 17,660 17,290 21,920 Ramie 849c/ 140 70 50 Sub-Total 1,984,366 311,200 1,230,110 1,1.1.43,970 1,51+9,250 TOTAL 5,84 2 ,143 3,000,300 4,671,760 5,013,480 5,446,310 t-,~' .. Y Prepared by the Technical Staff of the National Economic Council. ~ 1939 Census. ~ Fxcludes ver.etablee from tree crops, vine crops and other ereen vegetables.- £I 1940 export. sI~ Includes muscovada, sugar and panocha. ~ 1940 balin~ reports of the Fiber Inspection Service •. - 19 - The fol1ovnng table gives indexes of production shmvn in previous table. PRODUCTIon IND~X OF PRINCIPAL CROPS 1946 to 1949 (1940 = 100) Crops 1946 1947 1948 1949 Food Crops: 69.7 oa; 89.2 92.5 101.0 Rice (rough) 68.7 88.4 9L.8 105.4 Corn 57.9 82.5 90.7 93.3 Fruits and Nuts 102.0 144.1 89.4 105.2 Root Crops 70.6 74.8 85.3 85.9 Beans and Vegetables 76.0 97.3 104.) 11+0.7 Coffee and Cacao 146.8 205.2 181.Q 177.0 Peanut h6.6 77.8 113.3 146.6 Technical Group: 15.7 62.0 72.8 79.0 r.opra 27.6 135.2 119.5 91+.5 Co~onut Oil (homemade) 111.0 113.0 99.3 Desiccated Coconut 22.6 111.7 IhS.o SU~:D.r 6.3 12.9 39f,7 69.5 Abaca 17.7 47.6 57.7 43.2 ~obacco 44.6 55.0 53.8 68·3 Harnie 16~5 8.2 5.9 All Crops 51.h 80.0 85.8 93.2 --------------------.--------------- ,- 20. - As these fi~ures show, among aericultural export industries only copra and coconut producljs reached the pre-'Vvar volume. The production and export of some of these co!mnodities depends at present on their price but'in a different manner from that existing before the war. For example, before the war lower prices resulted in greater collection of coconuts. Now if'the 'copra price falls the peasants reduce collections, waiting'for higher prices beca11se often they have cash reserves to fall back'on. Production'of sugar'is steadily increasing. Domestic c'onsumption has increased however ,by one third and it is not expected that the Philippines will be able to export·to,the lIe s. the full quota allotted to them before "1952. The production of abaca is estimated to be less than 50% ofnre-war in 1949 and ways and means are under discussion to increase it to t.he nre-war output. Timber production is around 25~ over 1937 but most of it is going ·to the construction industry in the Philippines so that e}..-po:r.ts ~remain below pre-war:,. Only recently more energetic attempts have been made to recapture the U.• S. market for Philippine mahogany.. The production of the two main food crops - rice and corn - together reached the pre-war level in 19L,9 but because of increased population rice production met only 867; of 'the totat requirements and corn production 80.4%. Rice imports in 191.j.9 were erpected to reach ~~27 million., or about 145,000 tons. Fisheries are operating above the pre-war level, the present index being 133. Some progress was also achieved in rehabilitatine; various industries anrl establishing new industries. No complete data are available and there'- fore only the follo~dng items are mentioned. - 21 - The textile plant in Manila, the coal mines in Mindanao and the cement plant in Cebu have been completely rehabilitated. A neW" lumber finishing plant was established. A nail plant had been installed by the National Development Company and sold to a private Philipnine concern. Recently plants for the manufacture of bottles, pl:>TVlTood, fishing net and. some other manufactured Goods were established by private concerns. A Ilmuber of cold storage installations and ice plants were built. Production of soft drinks of all kinds has been substantially increased. In the mining production the most important pre-war item - eold - shows some increase in 19L~9 but it is still only between 35-L~0;; of 1937 because of 1/ high cost of production.- Compared to pre-war sirnificant increases of production have been reached in chromite (more than 300% of the pre-wa.r) but iron ore production is still substantially below· pre-V"rar. Recently the rate of production of copper has fallen to only about half of pre-war because of falling prices. Development Planning I I From 1946 to May 1949 the Government snent around ~175 million on public buildings and public works in addition to ~94 million spent on public works 11 Gold producers see little prospect for further substantial increases in production so long as the official price of ~35 per oz. is enforced. In view of this the Government has recently authorized producers to sell 75% of their output clomestica1lywithout license from the Central Bank. This in effect a1,lthorizes a free market within the Philipnines for gold trans- actions at premium prices. - 22 - from War Damaf e Commission and other U. S. agency funds. Al though the Government has prepared a number of rehabilitation and development prograJns since 1947, the most extensive being the one presented to the Bank by Governor Cuaderno in 1948, no real integrated over~all economic and develo~J­ ment program has been worked out and the activity of various agencies has not been coordinated, not guided by an over-all principle. Only now is the Goverrunent working on a comprehensive and cl)ordinated economic and develop ... ment proeram which it is attempting to base on the principle of "first things first'1. At this moment it is extremely difficult to form an opinion as to whether and to what extent and within what period the proposed development plan - only the broad objectives of which are known to us - ·will succeed. It will depend (a) on the measures which the Government may tqke, and their success, in dealing with the present emergency; (b) on whether additional foreign financial aid will be available to the Philippines and the extent, nature and condi tions of such assistance; (c) OIl. the nature of the development program and the measures adopted for its execution, and (d) on the extent of foreign technical assistance which the Philippines may receive under Point t~ or a similar aid program in formulating and administerinc development plans and related economic and financial policies. Under the present circumstances the country needs not only foreign financial assistance but technical help and guidance as well, The Central Bank needs assistance in a.dministerinr. exchange control and c~edit policy and in organizing a capital market. Fxperts on - 23 - taxation and internal revenue collections are required by the Department of Finance. In many fields of production foreign managerial and technical advice would be helpful. An improvement and modernization in various lines of agriculture will require some expert assistance from abroad. It must be kept in mind that more efficient and cost saving techniques will be required at the same time that production facilities are rehabilitated and expanded. The need for foreign technical assistance is recognized by the Philippine administration and discussions of the problem have recently been held 1'..1.th U. S. Government officials in Washington. The U. S. has announced that it is considering the creation of a mission to study the economic problems of the Philippines and measures necessary to achieve a balanced and self-sustaining economy. At the present time pre-war production has already been restored in several important lines 1n the Philippines and has been exceeded in some. The goal of self-sufficiency in staple foodstuffs is not unreasonable. Of lnajor export products, the Philippines has a near mono~oly in abaca and prospects for Philipnine sUGar, copra, and coconut products in the U. S. market are good because of their favored position which will continue for a number of years. The PhilipDines is atten~ting to arrange trade relations and trade agreements with other countries to which products could be shipped without rE;!ducing the eA--.?ort volume to the United States. The natural resources of the Philippines are such that the possibility of developing a self-suPlJortinrr economy within a reasonable period of time seems feasible. Accomplishment of this presu9poses, hoYvever, a real de- termination to pursue measures which will reduce the level of non-e6sential activity and consumption associated with artificial postwar prosperity, at the same time that energies and resources are directed into realistic development.