RETURN TO I2 ToI R FSTR IC TED REPORTS DESK vv i lI n -" e p o r t N o. r -E- 14 O"NE IEEIPK ITO BE RFTIIRNE Tn DEODTC nE TE~ i. -- -- v* KI åkl j~ U L, 31 This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the rriiryrv nr rnmnifone nf fhe infnrmatiin co^nfainned herein T WT.TT ýV1' n'T A r-%X A T T A «LTY yr ?_ý in ~ ~ INTERNT i O%10NAL BADttNK FOirki RECONSTRUCTION AN D DEVELOPMENT ECONOMIC POSITION AND PROSPECTS OF THE PHILIPPINES Department of Operations - Far East Prepared by: John A. Edelman CURRENCY EQUIVALENTS Unit: - Peso U.S. $1.00 - Pesos 2 Pesos 1 - U.S. $0.50 PeAQ 100 - TT $ 50.0 TABLE OF CONTENTS Chapter Page No. Basic Data..........,......................... i Summary and Conclusions...... ...................... iii 1. Main Characteristics of the Philippines Economy... 1 The Natural Resource Base.................... 1 Human Resources...... ............ 2 The Political Background...................... 2 The Influence of Foreign Investment........... 2 U.S. - Philippine Trade Relations............. 3 The Role of Government in the Economy..c.... 3 Foreign Exchange Controlso.................... II. The Financial Situation........................ 5 Introduction................a*...........*. . 5 The Balance of Payments.................. 6 Public Finance..........................*.. o 8 Credit to the Private Sector....*.............. 9 Over-all Monetary Picture... .......,........ 10 The Short-Term Outlook..........,...,......... 11 III. Production: Recent Developments and Prospects.... 12 The Export Sectors......... .. ............... 12 The Domestic Sectors - Agriculture............ 15 Manufacturing................................, 16 Over-all GrowthProspects.................... 16 IV. The Use of Resources................... .......... 17 The Past Pattern............................., 17 The Public Sector Program .................... 18 Policies Affecting the Private Sector......... 20 Financial Policy.... ............. 20 V. Creditworthiness..... .... ------ 22 STATISTICAL APPENDIX (for List of Tables see next page) qTATTTOTAT A1D'PW,TTY Table No. I. Summary of External Debt Outstanding December 31, 1959 _"4e .Lue U V dlu. Z%IIWVL V_CU_dUULV k L tU±IY _ JL' u III. Net National Product at Constant Prices .LV oc a.§ILLUUIU± L ±Ujd i~XU±LULi UU. U V. Production of Minerals TTT SK ..O 9 1 - . TY 1 ' fl...L .J VJ. 1auL u aLUELg; UoUd vau 1U u0uupu VII. Direction of Trade VIII. * uantum, rice and Terms of Trade Indices IX. Value of Exports A. Volume ana unit v'alue of Exports XI. Composition of Imports Al!. uurrent Balance oP Payments XIII. Foreign Exchange Reserves xiv.A iational Government Revenues XIV.B Government Expenditures and Financing Xly.U Holdings of Government Securities XV.A Private Sector Investments of Selected Financial Institutions XV.B Required, Excess and Potential Reserves of Banking System XVI. Analysis of Factors Affecting the Money Supply XVii. Price Indices BASIC STATISTICS 1 Ar Q - 11,000 uarnnr miles Arable land 46,000 square miles FoeP 4,50 suanre Tnilac Other 25,500 square miles 2. Population - 1948 (census) 1960 (estimate) 19.2 million 26.0 million 3, Net National Product (1955 prices) 1952 1959 (estimate) P 6.3 billion P 9.5 billion 4. Trade Statistics (million $) 1950-2Av. 1957 1959 Imports 446 571 500 Exports 36- 4-f'9? Trade balance -78 142 5 5. U.S. Expenditures exodcling aid, (million $) 1954 Av,. 1957 1959 117 110 90 6. Net International Reserves (million ) End period 195 1957 1959 272 85 164 7. External Public Debt (million $) End period 1911 1956 1959 100 120 300 8. Government Finance (millions of pesos) Fiscal Year 1954 1958 1960 Expenditures 787 1280 1216 Revenues 675 431 1221 Deficit 92 339 -5 (ii) Basic Statistics (cont'd) 9. Money Supply (billion of pesos) End period 1954 1957 1959 1.22 1.60 1.84 10. Prices (1955 = 100) 1949 1957 129 Wholesale prices 109.8 107.6 112.7 Cost of living 101.6 104.5 107.0 (iii) Sumary and Conclusions 1. The growth of real output in the Philippines slowed down to around 3% in 1957 and 1958 mainly because of adverse weather for the rnort crnpq hut. appaently increased again in 1959 to nearly the 6-7% rate achieved in the period 1949-56. Thi.s rpflpcets P con tiuation)nf o kf, h strong epa ns o)z n e n ma-iinfactu irin an mr_- i ning11 C and the steady rise of agricultural output for the domestic market which have been ep-rinnrl qucnr ,rn ICVQ TI_ -vrntnn- n-P en-rts- reached ne,r peaks n 1958 -A 1959. Moreover, the terms of trade improved significantly after declining in the nperiodn 93-i * '2- '-Y -MJ[ -- UC-4- *LA "Ale Govenmen L Li. -iII-an haU bee the successI OU r_ tt fiac 4aX-I l '4 since the foreign exchange crisis of 1957. Imports have been cut significantly ~~~~~~ VflCLL. L7 uuum1 U~ Uwa w.au W.pU w bULettLA1I J Net exchange reserves have doubled from the critically low level to which they fell In 1957, UnU are now $L6 miliIon or nearly four months' Imports. DeUpLe Wte growth of reserves and a 25% exchange fee imposed in mid-1959, the domestic price level has remained quite stablue. inis is attributable to the achievement of a budget surplus which has offset the high rate of private credit expansion. 3. Notwithstanding a population growth rate estimated at nearly 3%, the prospects are good that increases in real per capita incomes can be sustained over the next five to ten years, The production potential and the market outlook are generally favorable; and the possibilities for taking advantage of this potential will be enhanced by the expected expansion of public development outlays within the context of a balanced budget, and the probable continuation of the rise in private savings and investment. 4. Full realization of the potential may depend to a significant degree on appropriate action to decontrol imports and ensure adequate incentives for exports. Latent imr,ort demand is still high despite the exchange fee, and heavy pressures on the control system continue. Moreover, the need for more adequate export in- centives may become serious if price declines occur, as expected, in some of the major export commodities. However, a start is expected soon on implementation of the Government's recently announced plan to liberalize imports, and this will involve measures which should also increase exiort incentives. 5. During the past two years, the Government has permitted a substantial increase in external debt, and by the end of 1959 total debt (including some amounts still undisbursed) had reached $300 million. The major part of this increase consisted of medium-term loans to the private sector, covered by transfer guarantees from the Government. Debt service on the '300 million outstanding at the end of 1959 will average $I45 million or 6io of 1959 foreign exchange earnings during the next few years. 6. Nevertheless, given satisfactory economic policies, there remains considerable scope for further external borrowing. But better governmental planning and control over borrowing policies, particularly as regards the average maturities of the debt incurred will be necessary if the country's debt servicing capacity is to be uti- lized to best advantage. Chper I Main Characteristics of the Philippine Economy 1. Over the past decade, the Philippine economy has exhibited dynamic qualities which corrpsnond well with the dqcvri tiAn mn n the Atan- offn stae3 of development. The economy is still predominantly agricultural and still under- deve1nnt-A lyw~1 1vr 4In, 4ao+ ^-P q 1,-Inj~ +,,o , -4 ~ ll~w~rr,c V culture (60%) relative to the national income from that sector (38%). About four- fi fthq nf t.+.._n ar-Vn+C anricl-ura products which have undergon relatively little processing, Real income per capita is higher than in most other Asian the population has been increasing and is now about 3% annually. But during the pas tenJU years, rEal outputbUY aboJCUt OU0 - ori-d aUOU1tP,_Ui basis. Even since the 1952-53 period when per capita output regained prewar levels, the growth rate has average u% a year, and per capital income is now more then 2U0 above the prewar level. Employment has grown significantly faster than the labor foe, ad unemployment and underemployment, though still fairly high, have been reduced substantially during the decade. Investment outlays now probably account fo about 14P o1 the national product and the rate or gross domestic savings is nearly that high. 2. These increases in the overall level of activity have been accompanied by important changes in the structure of the economy. Although agricultural output has risen some 5% annually in the past six or seven years, its relative contri- uuIon to the national income has fallen from about 43% to 38% today. During the same period, manufacturing has grown in importance from 9% to over 16%, correspond- ing to an increase in real output of two and a half times. Employment in non- agricultural pursuits has apparently grown considerably more than in agriculture. There has also been a rapid growth of financial institutions in recent years, and a genuine capital market is now developing. 3. Without attempting to analyze in detail the factors responsible for these developments, one can readily indentify in broad terms the main elements in the Philippine situation which have been favorable to economic growth. Among the more basic factors have been good natural resources, a relatively high level of education, and political stability. More directly stimulating influences have been exerted by foreign investment (and investors), and by government economic policies. External market forces, and special trade arrangements with the United States have also been generally favorable to the Philippine economic situation since World War II. The Natural Resource Base 4. A major asset of the Philippines is its large area of fertile land relative to the size of the population. Of the total land area. about one-third. or L6.000 square miles, is arable, giving an average density of 560 people per square mile of arable land, as compared to 900 in Thailand and 5.000 in Japan. ThR country is now self-sufficient in most food crops, and has been for years one of the world's major exporters of coconut products. sugar and manila hemn (han) * However, ne of the cultivated land is less intensive than in most Asian countries and over 30% of the arable land still remains uncultivqta.A ForPct. oe over mon_+rd of- the area and a large portion of these grow valuable hard-woods. - 2 - 5. There are extensive reserves of oresin the Philippines. Copper, chromite and'1 -- -, n-1_1 4~~+- + I ac ('nl1, ?ni n! Ycy 'h c r1pe'1 I i rM in importance since a gold boom in the 1930's but is still significant. It has commercial quantity, prospecting is under way on a large scale. The country also education ever since 1900, first by the American Administration and later by the £I±±J 1i1~ L1V._LJ_1J.,LLi:1O 1JUO f~± A r Ut,1U _L V U r, UL L LA uL.iy 6-A~iJ iWLJ4 . professional leaders both in government and the private sector, and secondly in a comparatively high level of literacy and schooling among the mass of the popuaUtun. The knowledge of English which extends to over 30% of the population, has had im- portant advantages in facilitating basic education in a country using nall a dozen different languages, and has greatly widened the opportunities for contact with the west. 7. These factors, together with the influence of foreign investors (see below), have contributed to the emergence of an important nucleus of skilled technicians, managers and entrepreneurs in the Filipino business community. While still small compared to the more developed countries, this group is larger than in many of the countries in South-East Asia and is growing rapidly. The Political Background 8. The Philippines gained full independence on July 4, 1946 after having been a possession of the United States for 48 years and of Spain for the preceding 330 years. The constitution and governmental institutions are modeled to a consider- able degree on those of the United States. During World War II, the country was occupied by the Japanese, and suffered great physical destruction and loss of 'Life during the invasion in 1942 and in the course of the liberation in 1945. 9. Almost immediately after independence, the new Republic was subjected to a severe test by the open rebellion of the Hukbalahap movement. Under Communist leadership, this movement successfully exploited the unrest resulting from the land tenure system and the rural poverty prevailing after the war, and it constituted a major security problem from 1947 to 1952. But, military action and social reforms undertaken in the period 1951 to 1954 under Ramon Magsaysay first as Defense MPlinister, then as President, effectively eliminated this movement as a disruptive force by 1954. Since then, the Philippines has developed into one of the more politically stable of the underdeveloped countries, and it has had considerable success in im- proving the functioning of key democratic institutions, both at the national and local levels of Government. The Influence -)f Fnrion Tnv.stmPnt 10- Bnfln hAfrnvA nna n*'+.Pr +ho wa-r, Ame-rican buinessmenn T)nvp. brought. incail on a significant scale. The current book value of their investments in the Piilinninnos is -timated at about 4'350r mi 11 n T-+-n-+ -P--Vm ot- fn sources has also been of considerable importance.I While profits for the investors 1/ The most important of other national sources is Chinese. However, a great part u1 ulse %uni.nese owners 01 Pni'Lippinle inv-estmeUL, arte 1-t:b.ut:u _Ln Ulne, evaury,l whereas the great majority of American and other foreign investors are non- residents. - 3 - have generally been very good, particularly since the war, the Philippine economy has also gained substantially, particularly from the long contact with entre- preneurial and managerial skills which foreign business activity there has afforded. In this respect, the Philippine experience provides a good example of the "cataly- sing" function which foreign investors can perform in making private domestic sources of capital aware of the opportunities for profitable investment outside of such traditional areas as real estate. The Government is committed to a policy of encouraging increased participation and control by Filipino nationals in business (the so-called "Filipino-First" policy). New enterprises established in recent years have included a large number of joint ventures,. but Filipino capital has provided around 70%0 of total new financial resources. U.S. - Philipine Trade Relations 11. The United States - Philippine Trade Agreement of 1946, which was renewed with some modifications in 19 rm provides imnortant reprneal trde pn ferenc through 1974. The most important of these for the Philippines are a quota for 980.000 tons of' suanr on t.he. U.Sq manrket (wheiare proices na gera"llyK abutt ac the free world level), and gradually declining tariff preferences. The U.S. tariff Dreferenne in thp Philinnine r4iminishes much fac+r +hnn +he Philippine preference in the U.S. Trade with the U.S. has fallen as a percentage of total Philippine trn6p from about in,1' for bothj -1prt and export?s in thel earl r90' to in the past three years. Under the Trade Agreement, U.S. citizens are given equal - - - - - "~* - _t,. I.4I- il V_L. ULAL--L C ±_ LU.LIt D U_L.LCLL1_;D d1 PU.LII U wil.LllIILd5 given cause for some disputes in recent years. 12. Apart from the Trade Agreement, the Philippines receives continuing benefits froM, U.S foreign exchange disbursements to0 ill.1-Lppn veterans whil-ielf amount to over $60 million a year, and from local purchases for the U.S. military instal- latios in the Philippines At the political level, nowever, jurisdictonal questions about U.S. bases have created occasional frictions. The Philippines has a lso received U.. grants and soft loans under the regular U.S. postwar foreign aid programs, but since the reconstruction years of 1946 to 1949, these have been on a relatively moderate scale, i.e. around J0 million annually. The-Role-of Government in the Economy p. mpareu to mst otler countries in tne area, tne snare or resources devoted to government expenditures in the Philippines is still relatively small, reaching some 14o of the national product in 1958. One reason for this is the comparative- ly low burden of defense outlays, which amount to less than 2%0 of GNP. Expendi- tures for social and economic development purposes have, however, roughly tripled since the 1951 to 1953 period, and now account for the bulk of government outlays. .Uirect government development outlays have been supplemented to an important degree by the expanding activities of government or government-sponsored institutions, in the fields of credit, marketing and manufacturing. The extent of misdirection of' resources and inefficient administration by the Government is probably no greatez than in many other underdeveloped countries, and on balance, most of the govern- ment's development programs have made a significant contribution to economic growth. Besides its direct fiscal activities and the operations of government corporations, the Government also exerts considerable influence through the controls it adminis- ters over various aspects of private economic activity. By far the most important of these are the controls over foreign exchange transactions. -4- Foreign Exchange Controls 14. Comprehensive foreign exchange controls were introduced in the Philippines atthe end of 19.49 as aqn emnergeoncyI mere,r andl are st.ill in fufll fno todayv_ The controls are essentially a consequence of the decision to preserve the prewar exchange rate despite the infrlation whk 1 -lIichr ccurred Vir onr a-r+ar thep wacr. Ru mid-1959, most imports still commanded substantial premiums on the domestic market, prices was probably not much less than it had been in 1949. 15. In addition to periodic balance of payments difficulties resulting from this U L LL.LL)U _UUI, Ui 11I-U9 1 ' pr lu.L.lu 01 111+.J UL ILj 1 US 11CLS 11MU 36V61 .I.EL j.J 11,11pu UEL1 "01i1'_,SUIC' consequences. Firstly, with import licensing policies relatively liberal for imports of capital goods and raw materials and incrasiglytigter1 onUupuluo of competitive finished products, it has greatly stimulated the growth of manufacturing fUr the uomestic marKet. While the great part of this expansion appears t0 us sound, some has apparently taken place in relatively uneconomic lines, and excess capacity currently appears to be developing in some areas. Secondly, au nas con- tributed to a growing pressure from the "out" groups to get in on the profit bonanza offered by import licenses. Thus, one of the chief aims of the "Filipino- first" movement is to get a larger share of licenses for Filipino-nationals, and in 1958 reallocations were made which resulted in a 50 cut in the quotas of all foreigners other than aimericans. Most existing manufacturers have a strong vested interest in the maintenance of controls which give them a high degree of protectior from competitive imports. On the other hand, there is growing pressure from ex- porters for an abolition of controls (and a freeing of the exchange rate), or at least for a greater share in the exchange profits now being gained by the importers. Some concessions have been made in the form of export retention (barter) privileges, but these effect no more than 5 to 10% of exports. There is reportedly widespread evasion of controls, both by importers and exporters. 16. In June 1959, legislation was passed authorizing the imposition of a margin payment (tax) on imports between 25% to 40%. The preamble to this Act calls for a gradual decontrol of imports over the next four years. The margin was fixed in- itially at 25% although exemptions were allowed on about 20% of imports. The margin has contributed to some easing of the pressures on controls, but this ha not teet in itself sufficient to permit an extensive decontrol. However, on April 20, 1960, the Government announced a plan for further action. In broad outline, the plan calls for the creation of a free market for foreign exchange, to be limited at first to 25. of export earnings and all tourist earnings, but to be gradually expanded to 100% by 1964. The percentage of imports and invisible payments eligible for financing at the official rate would be reduced correspondingly. Legislation will be requested to eliminate all exemptions under the present margin fee, and to authorize the President to impose taxes of up to 40% on exports. Since such action would make it possible not only to decontrol imports, but also to increase export incentives, it should contribute very materially to the improvement of the Philippines' economic prospects. Chapter II The Financial Situation Introduction 17. By 1949, prewar production levels had been regained but money incomes and pIces were aminous our imes prewar. Zy contrast, the price rise in the United States and in Western Europe had been less than twofold. Imports were thus rela- tiveLy cheap and in substantial demand; by 1949 their value was rour times that or 1939, whereas exports had only doubled. Consequent trade deficits were sustained by extraordinary receipts from the U.S. of $400 million a year during 1946-48. When these began to fall off in 1949, the Philippines imposed comprehensive exchange restrictions and a 17% exchange tax, undertook fiscal reforms, and by these measures cut 1950 imports to just over half their 1949 levels. 18. During the next five years, there was a substantial expansion of real output and exports. This, with a $150 million drawdown of reserves made it possible to maintain imports at relatively ample levels, despite a further reduction in U.S. disbursements. Prices declined by about 6% between 1949 and 1955, a time when prices in other countries were gradually rising. This trend gave some basis for believing that external equilibrium might be achieved without further action on thc exchange rate. 19. But this hope did not materialize. The conservative financial policies of the 1951-53 period were reversed under the pressure of mounting unemployment and social unrest, and by mid-1955 prices started to rise again. The persistence of strong latent import demand was reflected in mounting pressure on the foreigr. ex- change control system. In 1957 - a presidential election year - import licensing was greatly relaxed, permitting much of the latent import demand to become effective Imports rose by more than 20% to a record high - exceeding for the first time the level of 1949. Exchange reserves dropped by 60% or $125 million, with the hEaviest loss .ccurrin. in the period iust before the November eleition- By December 1957, net reserves reached their lowest point in the postwar period - about $85 million Pr less from two months imnorts-V 20. Emergency restrictions halted the drain of reserve by earli 19A- Tri the two years since, substantial progress has been made toward stability in both the internal and externAl finanninl sitiintion. B smt. some aknese reman, partInar , in the persistence of excessive import demand which was permitted to express itself in a raid PYnaninn of medium-T+.m aternal deb dring loa -A 1oo The Balane of ?nyents 21. During 195_ t.he Philinpine achi dirn s fito+ tO+wa +tr e p-lIUs. To- gether with the usual invisible surplus and continued net capital inflow, this led to P Hnifhlinc ofr net. foeig e-ng reserves. v the end of iarc Y196,r- serves were about :170 million. short-term liabilities to the IMF of $15 million and of $40 million to U.S. - 6 - 22, The trade surplus was the result of record export earnings, and the con- full impact only in 1959. Export volume in 1959 remained at the record 1958 level 01om 1% iger ha 195'Z7-4 --InN and more thnnwcedex ~~" rose by 8%, continuing the upward trend begun in 1956. The most striking increases in x1 zlavt;ii Uz%:;1L~t1 .L 101-t-'O PfJULtL.U \ILUt U4U jJLYWVUUUj W11-LULI 1LLVU 111VI-t- U11CL11 doubled since the 1956-57 period, and have increased from 11% to 20% of total ex- pots U In tue Case Of copra \4u/o o. total exporsu anu avaca koloj huere were huarp increases in price during 1959 which more than offset the reductions in volume caused uy uMugf,u, ougar expors know 4-I o1 tne totail were nil Irom their recoru 175o level, but earnings from copper, chrome and iron ore exports rose in total by over one-fourth to new peaks. 23. "mong Phi.ippine imports over the past decade, machinery and raw materials have increased relative to finished consumer goods. Until 1959, food imports were an exception to this partly because of the fairly regular need for marginal grain imports and partly because some food imports like canned milk and sardines were freely permitted, However, in 1959 with good crops and high food inventories, imports of foodstuffs were cut to their lowest postwar level - $65 million (or 14% of the total), compared with an average of $95 million in the four preceding years. Additional cuts were made in other consumer goods, chiefly textiles, so that total imports in 1959 were about $100 million (or 15%) lower than the record 1957 level. 24. If the ratio of imports to GNP is computed on the basis of c.i.f. import values it shows a drop from 20% in 1949 (and prewar) to between 12% and 14% in recent years. Between 1949 and mid-1959, however, the domestic retail prices of imported goods went up by about 50%, as compared with a rise in the import price index (measured at customs) of only about 9%. Of this total differential erhaps 10 to 15 percentage points can be accounted for by increased import taxes . The renander is presumably a reflection of high profits based on import scarcity. Since the 25% import margin went into effect in mid-1959, the imported elements of the domestic price i dex have risen by less than 10%, indicating a narrowing in these profit margins.' However. premiums up to 6080% were still reported on unofficial Dffers to buy import licenses at the end of 1959. This suggests that the indexes understate the differential between imported goods c.i.f. (after tax) and their retail price level. Including an allowance for this differential, the proportion of income spent on imports may well be as high today as in 1949. ±/ Exemptions under the foreign exchange tax (now called the special import tax) were progressively extended. so that by 1958 when the rate was 15%. receipts amounted to only 7% of imports. f Indeed, the prices of some goods affected by the margin fee have actually declined since June, while some of the price increases since June have occurred in goods not affected by the marginD - 7 - 25. U.S. Government pensions to veterans and military purchases are the country s principal invisIl"e receipts. These declined to q u UJL-LIILurl 11 ~' Iroill auallu $120 million in the mid-1950's. On the disbursement side, investment remittances rose Ln U y0e/ arly 0U million reflecting tne reiease ol funds temporarily blocked in 1958.: However, disbursements for freight dropped substantially with Lower freight rates and the cut in import volume. 4o Net recorded capital iniow in 95) of about $62 millon was about tne same as in the two previous years and nearly 50% higher than in 1952-56. The beginning of Japanese reparations payments is a principal reason for the increase since 1956. In 1959, a $24 million payment by the U.S. on a gold devaluation claim helped offset declines in other categories or capital inflow, principally private long-term capital and net loan capital. 27. During the past three years, the Government has permitted large increases in external debt. The total amount contracted rose from $120 million at the end of 1956 to about $300 million at the end of 1959. Aost of this has been medium-term credit to the private sector covered by transfer guarantees, and to government corporations. In both 1958 and 1959, use of medium-term credit was about $20 million, compared to $8 million during 1956 and 1957. Partly as a result, total debt service rose in 1959 to $29 million, or an amount just equal to the total of fresh loan capital received. On the basis of commitments made, use of medium--term credits will rise substantially in the next year or two, and debt service will mount to about $45 million annually during 1961-64. Table 1 Summa Balance of Payments (millions of dollars) 1949 1955 1956 1957 1958 1959P' 1. Current Account Imports f.o.b. 587 551 509 617 571 520 Exports f.o.b. 261 390 438 9 _1525 Trade balance -326 -161 - 71 -187 - 88 5 U.S. Government disbursements 163 128 115 110 94 90 Other invisibles (net) -109 - 68 - 53 - 83 - 43 - 54 Current balance -272 -102 - 9 -160 - 37 41 2. Capital items Private long-term (excludes reinvested earnings) 6 9 4 3 - 7 - 4 Grants, soft loans and reparations 203 24 33 65 47 66 Other loans, less repayments - 5 - 1 1 18 - Other, incl. errors and omissions .4 - _ - 18 =_24 - 22 - 17 Sub-total: Net capital inflow 110 28 20 45 36 45 3. Change in net reserves (1+2) -162 - 74 11 -115 - 1 86 p. Preliminary. 1/ Under present policy, allowable remittances range from 107 to 507 or net profit depending on the companies' "social productivity" rating. This reflects a 50% reduction from previous levels, and is regarded as temporary, pending the development of new criteria. - 8 - 28. In addition to the capital which escapes abroad through improper custo.s declrations (and is thp.rpforp not, in thp balanr! of navments at all). there has apparently also been significant capital flight through other means in recents vars. Thi is!Qeflected in +.hp npersis+n+.1 le "erron and omis-inns" item in the international accounts, averaging some $20 million in the past four years. Public Finance 29. In fiscal 1954, the first year of President Magsaysay's administration, the Gov 4 -,, n ~A ! 4 'k+,, - ab u o - tird4 .' TP^I czaw further increases until expenditures reached a peak in 1958 of -l.2 billion. How- -e'verJ., reene _Lag,gedu~ beI.Ln±u expeni-tues anuU Cl..IU~y 1)"M' UIACI W- U-11-16 financing by means of bank credit. This continued on almost the same scale in 1957, an wxas further alggravalted in 19 50 by _Llg rt k advances to ver mn m -..111i larketin organizations for the import of rice and corn. This boosted the fiscal 1958 defi- cL to aUout P34 millon, corresponding to U30 of tobal expenditures anu to -U/ o the money supply. But in fiscal 1959 expenditures were cut by P110 million, and with a rise in revenues and sales from grain inventories, the dicit was practi- cally eliminated. 30. Administration attempts to obtain legislation for higher taxes finally met with success in 1959. The most important measure was the 257 margin fee which is expected to yield P180 million in fiscal 1960. In addition, P90 million is ex- pected from action taken to increase income taxes and to remove various tax ex- emptions granted earlier for "new and necessary" industries. Thus, 1960 plans are for a return to about the 1958 expenditure level without the prospect of inflation- ary consequences. Indeed, with the planned sterilization of most of the import margin proceeds, public transactions in fiscal 1960 are likely to have a substantia deflationary influence, especially if the planned sales of P45 million in govern- ment securities to the non-banking sector materialize. Table 2 Summary of Government Financial Transactions - National Government and Government Corporations: 1956-60 (millions of pesos) Year ending June 30 1956 1957 1958 1959 1960 jEst.) Expenditures National Govt. (cash basis) 915 1002 1128 1017 1132 Advances to govt. corporations 80 105 157 11 84 Total 995 1107 1285 1028 1216 Revenue-Total 807 927 941 985 129542/ Overall deficit 188 180 344 42 - 28 Financing: Non-inflationary sources: 21 _36 -- 25 67 Borrowin,s from abroad - 10 8 17 22 Domestic bond sales ( 42 - 18 8 45 Other (incl. errors and omissions) (21 - 16 10 - - Inflationary sources: 167 _144 _244 1795 Borrowings from banks 261 84 353 92 ( Use of treasury cash balances - 94 60 - 9 - 75 /Inc1udes P180 million from margin fee and P23 million reparations counterpart. For further d1etails, seeo 'pndrlx Tabhle XTII- -9- 31. Government financia institutions have so far constituted the only important million as of June 1959. (This, however, represented a reduction from their mid- ~~~~~~ W.L.... ~4J J UL.L .DCUI I , k IU_LU_LL1,S0 UL jJ.L .LVC. UV UU1ijJCU.Lt±,0 dUIU. LIIJ. ± L" were only P24 million, while the banking system held Pl.24 billion, as well as P196 U. U . LLV%,U _L'JWi . LJ 4_t1U U0U V 1 e it... JlUIA-0 .5uppju.ut jJ_L_Lu±Lt, V _L. (L J. J-y all bond sales to the commercial banks have, in practice, been as inflationary as pucae L)-Y thxe l.uena'l Bank.u r,e 1 .-.1- 7,nrr c. ce muu-.'; , ne Increase in credit to the private sector by CoMmWefQ.LdA banks and other domestic financial institutions has, in the aggregate, been about twice that to the public sector. The peak rate was reached in fiscal l7 wnen total credits outstanding rose by 20% from about P1.98 billion to P2.38 billion (see Appendix Tables XVA and XVI). About 60% of the four-year increase was com- mercial credit, the remainder being long-term credit from government and private financial institutions, 33. Two main groups of government financial institutions may be distinguished. The fastest growing is the government insurance and social security systems whose private sector investments rose from P140 million in 1955 to P345 million in mid- 1959 mainly in mortgages and high grade corporate securities. The other group pro- vides subsidized credit to industry and agriculture, principally the Development Bank of the Philippines (DBP) and the A.gricultural Credit Cooperative and Financing dministration (,CCF,-). Their investments outstanding in June J959 amounted to about P600 million as against P500 million four years earlier.l/ Such funds come mainly from budget sources and have been severely limited in the past two years. 34. Among private financial institutions, the investible funds of insurance companies have registered an annual growth of Z30 million, or 15%, in the past few years. In addition, several mutual funds have been started since 1957 and now have resources of about 225 million. This growth has been accompanied by increased activity on the Manila Stock Exchange, with turnover rising from P110 million in 1957 to P250 million last year. 35. In the commercial banks, there has been an average annual rise of about P80 million in private non-money deposits during the past few years. By the end of 1959, these totaled P860 million, of which about P760 million represented private savings and time deposits, the remainder consisting of blocked deposits of non- residents and the residual of the import margin deposits. Over the past four cr five years, however, the absolute amount of credit expansion by the commercial banks to the Drivate sector has been more than twice the rise in their savings deposits and other non-money accounts - an average of about P170 million or 14%, a year. In fiscal 1957. the net impact on the money supply was over P130 million, and follow- ing a contraction in 1958 as the result of the emergency restrictions in that year, it. rose to ;110 million in fisal 1959- a rate which annarently continued into the last half of calendar 1959.- 1/ However, the P600 million includes some uncollectible loans which in the case o%Pfthe ArCVA May be as r uch a Dq0 Million. This does not. includer, thep tobacco price support program administered by the ACCFA, on which losses of as much as P70 million are reporteh out of the P1 0 mllon soent on tobcco byurcases 2/ The actual picture for the past 18 months is somewhat obscured by relatively 'I AUJU±I4 Ll2 ±..~) - 10 - 36. Central Bank policies have been progressively tightened in the past three ye r n --- -- - -_ 4. __ -I - - - - 4 - A -+ -f* .. IA 1Qr,7 t*' , Iiipurav~y _LiIUU.1, I1aulLg_u pyut-,IUD W _I _Lu u u IJ 4V the en __ -/,"~ %- - were mainly responsible for the private credit contraction of fiscal 1958), the rediscount rate w--s ra"e instge frc-% in 15to6%iealy 99 reserve requirements were increased from 18% to 21%, and special reserve require- ments of over 7570 were imposed on blocked peso accounts.- 1uere uS as, ben control of credit through portfolio ceilings and selective rediscounting policies. However, up to the end of 1959, these measures nad proved only moderately ef1ctive because, firstly, liquidity was very high at the beginning of the period and second- ly, the inflow of foreign exchange coupled with the still relatively low reserve ratios has tended to offset the restrictive measures. Nevertheless, complaints of tight money were on the increase by early 1960. Overall Monetary Picture 37. The combined rate of public and private net domestic credit expansion was over P230 million in each of the three fiscal years 1956-58. In these years there was a mounting impact on foreign exchange reserves, and the loss reached its peak in calendar 1957. With the public sector exerting a moderate negative effect in fiscal 1959 and a stronger one in the first half of fiscal 1960, total domestic monetary expansion was reduced by half in the former period and was actually negativ in the latter, in spite of high rates of private credit expansion. Reserves started to increase again during fiscal 1959 and then jumped sharply in the last half of the calendar year - by some P60 million ($30 million) even excluding the $24 million gold devaluation claim payment. On balance, the growth in the money supply has de- clined from 161. in 1956 to an annual rate of 6% to date in the first half of fiscal 1960. Table 3 Summary of Factors Affecting Money Supply (millions of pesos) Year endin- June 30 1956 1957 1958 1959 July-Nov.195% Government and wov't norn. 168 UAL 3L 17 - 6 Other public sectora - 7 -45 -12 -44 -39 Private sectorh7 78 136 -100 155 42 Total domestic factors 239 235 232 128 - 3 International reserves (net) -32 -87 -199 2L 60 Increase in money supply 207 148 73 152 57 In-ree ns q nr-n-.nt nf money supply 16% 10% 5% 9% 3% a/ Count 'part. ala..ces, capital accounts of' the Central Bank, an savings deposit, of5o-rn-ne-1t c o., -2,-atio0n s b/ Includes recording lags (amounting to plus P26 million in 1959 and minus P26 million in July-Nov.1959). For further detail ca Annend4v Table YVT i/ The establishment of separate accounts for the deposits of non-resident investors was required at the end of 1958 for all funds for which the investors wished to retain the possibility of eventual transfer. As of October 30, 1959, deposits in these accounts amounted to about P70 million. These funds may be used for certain specified purposes, upon appro,ral of the Monetary Board. - 11 - 38. The impact of the growth in the money supply on the price level was miti- gated b-'y- the continued. rise of real output, particularly in 19756 and _L15t Nevrtheless, prices did begin to rise significantly by mid-1955 after having declined sueaduly since 1951. The overall cost of living index rose by abUut 6o in the period June 1955 to June 1957, and then, as output levelled off in l9.0, rose another 5% by the middle of that year. However, in fiscal 1959 prices roughly stabilized, and even since the introduction of the 25% margin lee on imports in mid-1959, there has been no significant increase at the retai level, as declines in domestically produced commodities offset the 10% rise in prices of imported goods. The Short-Term Gutlook 39. During the calendar year 1960, a significant rise in debt service is scheduled and there may be a temporary reduction in U.S. assistance becausel7f a dispute over the peso deposit rate to be used on surplus commodities sales.- On the other hand, there is no reason to believe that export earnings will fall much, if at all, below their 1959 levels. In addition, a payment of J50 million or more is expected a-ainst old war damage claims from the U.S. Thus, the availability of foreign exchange for financing imports may well be as high as in 1959. If the public sector surplus is maintained (as called for in the budget submission for fiscal 1961), domestic monetary pressures should be no greater than in the last half of 1959, and might even be less. 40. These circumstances provide an auspicious background for the introductior of the decontrol plan described in para 16. There is, of course, some risk that the beginning of decontrol along these lines may be complicated by speculative tendencies and administrative difficulties. But, such problems should be amenda ble to solution without risk to the economy. providina the underlying external and internal financial situation remains favorable. 41. It is, therefore, important that there be no substantial relaxation of present financial policies. Pressures for such relaxation may be expected to increase. However, judging from the Government's success in obtaining the adoption of stnbili7ation masure during the nast year, the prosperts are good that these pressures can be successfully resisted during the coming year or two. 1/ The issue is whether to deposit at the official rate of 2:1 or the u L. V~ 4fL.J.U UD, _LL1%-LLtU_L1C WI W1 J.11 V_L 4., _L This dispute has also led the Government to decide to start repaying that this issue will be resolved before long, and that the Philippines at aroun tLhe UIU±V 30mi l raraiing in the past three yeaure at around the '00 million -rate prevailing in the past three years. - 12 - Chapter III Production: Recent Developments and Prospects 42. In 1959, the growth of real output again reached a rate of around 6% - or roughly the average achieved in the 1949-56 periodi/. During 1957 and 1958, ex- pansion had slowed down to about 3%, mainly because of poor growing weather for the main export crops, and to a lesser extent, because of the restrictions imposed after the foreign exchange crisis of 1957. The world recession of 1958 had only a minor impact on the Philippines. Indeed, there was an increase in export prices of about 15% between 1956 and 1q59 which brouht total real income growth up to around 5% on the average. In this three year period, agricultural output for the domestic market rose at nearlv 4;% annualIv while manufacturing and mining both exnanded by more than 10%. Activity levelled off markedly in the construction and, to a lesse'r extpnt, in the se-rur- Table. Nat -'O . l IJa& r d j.Lu . t V j - tJan+ 4.V (billion of 1955 pesos) 1949 1953 1956 125 198 195 Export sector 0.59 0.75 0.97 1.00 0.96 0.98 Mining 0.06 0.12 0.13 0.15 0.15 0.17 Construction 0.25 0.22 0.29 0.31 0.25 0.27 Uther Sectors Li 2.71 L5 35.64 3.6 3.37 National product at factor cost 5.16 6.72 8.46 8.80 9.00 9.51 / artly estimated by Mission;see Appendix Table H!1 for further detail 43. Since 1948 the labor force increased at an average rate of about 27, wtile employment appears to have risen by nearly 3%, thereby reducing the large amount of unemployment in 1948 to an estimated level of around 600,000, or about 7o of the labor force, at present. Underemployment has apparently also been reduced, although it still remains substantial. The achievement of further reductions in unemployment and underemployment may be more difficult in the next decade because the growth rate in the labor force has risen to about 2-70 and may well reach 3% in the next ten years, 44. Judging from the achievements of the past decade, however, it should be possi- ble for the Philippines to increase real output at a rate that will absorb the rise in the labor force and permit a further cxpansion in per capita real incomes. But much depends on future world market "Ievelopments for Philippine exports and on government policies. The Export Sectors 45. The production and market potential of the export sectors is probably sufficient to permit a growth rate in earnings of around 3% annually or even more over the next decade, even in the face of declines in world prices expected for some of the main 1/ The published national accounts estimates show an average growth rate of 7% for the 19l- pn-ri epo but it i of asnl pe terr. odti uiwr Ia ailn part ofat resulting from under-reporting of akricultural production in the earl-~r part of the - 13 - commodities. However, the achievement of such an expansion is probably dependent toin-considrale dere oopa n then nAdoptionn ofr polie whc wilnns4 adequII .!II n 1 01M1mAeJ I- centives for exports - particularly in new export lines. While the traditional e-orts*'. 5'4'±~.4.. have been geerll prfiabl Jn re-tl ye J-ial w4thX4 0-rt retention privileges - there is little doubt that price and cost considerations have the probable reduction in world prices for the traditional exports, the incentive will regain its 1956-57 level (40% higher than 1959), and that it can continue to e xp ad t, '~I eea-LO11-e atL -11 )4p rate achie~vedin±1 te pas decadeU. The~ niumber o± tree;s has probably increased by more than 50% since prewar, and new plantings are con- tinuing, particularly in recently Uevelopeu areas 01 Minuaiao wneru variations I weather conditions are much less severe than in the present main growing areas of southern Luzon. It is expected that this trend will continue more than to offset the effect of the "kadang-kadang" disease (whose spread has reportedly slowed down in the past year). Export availabilities may grow at a slightly slower rate because of rising per capita domestic consumption. However, in view of the Philippines' importance in the world coconut trade (55-60% of the total), the expected early recovery to 1956-57 volumes, together with continued expansion in Ceylon's exp:rts, will probably bring prices down to nearly the 1956-57 average of §140 a ton kzrar copra) as contrasted to recent prices of $220-240. It seems probable that prices will be maintained around that level thereafter, given an average growth rate of 2 or 3% in Philippine exports. Substitution from lower priced oil seeds (e.g. soybeans) in the European margarine market could force the price even lower, but the preference for coconut oil still appears to be sufficiently strong to prevent this from happening on a large scale. On this basis, a rise in export earnings of around 25% above 1959 might plausibly be projected over the next decade. 47. Earnings from sugar exports are not likely to increase by much, if at all, over the next decade. Despite a 4.5% growth in output over the past decade, 1958 was the first year in which the Philippines managed to fill both its U.S. quota (980,000 tons) and its International Sugar Agreement quota of 45,000 tons because domestic demand has been growing rapidly. Partly because of this, no early in- crease is foreseen in either quota, but within several years, the secular groith in world demand may provide the basis for some upward adjustments. However, to take advantage of a significant increase in the ISA quota would probably require improving the competitiveness of Philippine sugar. The U.S. quota arrangements expire in 1974, but it seems reasonable to suppose they will be extended in some form, unless U.S. price support policies for sugar are substantially modified by then. 48. The Philippines has a virtual world monopoly on Manila hemp, but recent out- put has averaged only 80o of prewar because of the poor cultivation practices of the small holders who have taken over the prewar plantations. Moreover, uncertainty regarding future profitability has limited expansion on a plantation basis which seems the only practicable way to ensure efficient production. Although hemp con- tinues to enjoy an area of oreference over substitute rope products. the latter have been encroaching on the hemp market, particularly in periods of shortage and hiqh nrins. However, if manrne could he takFn tn Pn.ure adenate Pnrnfit in- centives at lower world prices, it should be possible to increase the volume of outniit.n and thn to maintain earnings at recent levels or even to ineae tha somewhat. J C. T_ 4-"- ___4- I ---- ---- - "T. o" V"M yac 'U6 "an Wuln U"U" rising to a peak of 2.3 million board feet in 1959. In addition, there has beenl niques of clearing, and serious erosion has manifested itself in many areas. In an effort to deal. with this problem the Government has ordered a reduction in cuttings to 2.0 million board feet effective in 1960, pending the development and implementation of a balanced long term forestry program. In this connection, the most urgent needs are to complete the survey of forest resources now underway and to improve the policing of forests to reduce illegal cutting. Once this is done it may be possible to increase output on a sound basis, but even with no increase in production over recent levels, a substantial increase in earnings from forest products can probably be achieved through a continued expansion of the plywood. industry at the expense of log exports. Plywood exports mainly to the U.S., have risen from less than $2 million in 1956-57 to $18 million in 1959, and a further tripling over the next decade would not seem at all unlikely. 50. Philippine mining output has tripled since the 1949-50 period. The most spectacular rise has been in copper which has jumped from 6,000 to 50,000 tons. Chrome and iron ore have both more than doubled. Moreover, in recent years, the expansion of proven reserves has more than kept pace with production, and new deposits continue to be located. Given the good market outlook for all these metals and the Philippine freight advantage on exports to Japan, a doubling of present export levels in the next ten years would seem quite feasible. But prices will probably fall somewhat below present levels for copper and chrome, and production costs may well be higher for some of the newer deposits. Thus, again the problem of adequate profitability may arise - as it already has in respect of some existing mines in past periods of depressed prices. This consideration also applies to the prospect of developing a very large nickel - iron ore deposit in Surigao, at the north-east corner of Mindanao. Recent large scale tests give good grounds for believing that this deposit could be developed on a commercially successful basis at current prices for nickel and iron ore. However, a major investment would be required to achieve even the minimum scale of operations required for profitability. The Government is currently being urged to reduce its royalty conditions in o:der to encourage investors to undertake this project which could eventually Drovide exports of between $30 million and 190 million a year - depending on the scale of operations. 51. One small petroleum denosit and several as fields have been discovered recently. To judge from the substantial outlays - some $10 to $15 million a year - now being incurred for prospecting by both domestic and foreign firms, there is a real possibility that important oil deposits will be eventually located. 52. Minor exports, such as pineapples and tobacco can probably be further ex- panded, and there may be real possibilities for the development of new exports such as corn (for the Japanese market), furniture, and handicrafts. Small exports of some manufactured products (beer and cigwl now take place and these and ather exports of light industrial products might well be eventually expanded considerably2 especl~ ly with moreI f1 ,avo,Trable exponrt incentives. - 15 - 53. Among invisible earnings a moderate decline may be expected over the neKt (J nr fA~ A nI I -n rr n+c+ %+nct-1o n ^r i-,-n I ono_nAl +nv- iF--. --;I r~r - the other hand, this reduction could well be offset by increased earnings from otl;er m~,cb1ssuch astran-rt a+nA eseil t-ris T-~ -A - -- -, - - ceipts from Japan will continue at $25 million a year for six more years and at ,~~~J'_S -l -LU2 a.Li -.~ JAP_ - Ii * L,- - ,4 4d I_ 1.CU111 ~J ~L._LJ 1LklU. LU 1V& K1 in the export sector because the underlying problems have been more difficult than in t, of Wte man export crops. Luch o1 Uls progres mut bue attribute tC Ute efforts of the Government to improve the lot of the farmer through agricultural ex- tension, crop research, rural credit and marketing programs, and community uevelop- ment. Although the programs have by no means been uniformly successful, suffering. both from deficient administration and overly-optimistic investments in the rual credit field, nevertheless significant improvements have been made. The moderate progress made in land reform, improved land tenure laws, and various resettlement programs have also helped in some degree to increase incentives and the scope for expanded output. 55. The two main food crops in the Philippines are rice and corn, and the achievement of self-sufficiency in these crops in 1959 represents substantial pro- gress. Since 1953, both crops have expanded at between 3/5 to 4% on the average, and this rate will probably be realized again for the 1959/60 crops. Prospects for maintaining this growth rate over the longer run have been improved by the in- itiation of a major research operation by the Rockefeller and Ford foundations in 1959 whose main object is to help raise the low average yields prevailing in the Philippines and other tropic countries in the Far East. Intensified agricultural extension work, and better utilization of irrigation projects may be of even greater importance. 56. The increased demand for livestock products has resulted in generally successful efforts to improve production methods. Output of eggs and poultry meat has tripled since 19/_9, and is still growing at a rapid rate while beef and pork output has increased by over 5% annually. Continued increases in these products of at least 5/; to 6%; seem quite feasible. Fish production has increased sub- stantially since 1949, but canned fish is still an important item in imports. An expensive cannery fleet was recently delivered by Japan under reparations. Eowever, no preparations were made to use it, so it is uncertain whether this investment will make any sianificant contribution to domestic production in the foreseeable future. 57. Cotton imports totalled about $15 million in 1959, and are likely to in- crease to over S20 million this year or next. Local uroduction is being encouraged but there are several problems yet to be overcome and only 1,800 metric tons were harvested in 1959. More ontimiRtic Pre thp nrosneets for rubher Pnd while nutout is still small, plantings of high yielding varieties have been underway for the nnqt qeve vrrnl mninly hv lan-P l hr tirp m rnuf.-4rina firmq wihn are unitr an obligation eventually to grow all their local requirements. Coffee, cocoa, continue to expand rapidly. - lc, - Lnufacturing 53, As might be expected, by far the most important part of the recent growtn In mwacturing hias beenIL diretedt at sJuJPly_Ing, ute loca_Llimtrketu.Th aorij:i have come in textile spinning and weaving, pharmaceuticals, rubber products, petrole- ,u e .. -. UU E1U-ULU Lr _ e a r a C s 'n exanp -ualex;, cement, structural metal products, and electric power. As ULready noted, the profitability of these industries has been greatly enhanced by 1oueununior frumi competiIve imports. Other contributing factors nave been the con- prehensive exemption from taxation for all "new and necessary" industries; and relatively cheap credit from the DBP and the ICA-supported industrial Development Center. The lattSr has also provided valuable technical assistance. Foreign private capital has played an important role in this development, partly through reinvested earnings but also through fresh loan and equity funds. 59, On the basis of investment comm.tments already made, a further substantial expansion in output during the coming few years may be expected. The most important sectors are: oil refining, where three new refineries (each of between 18,000 and ,uuu b.p.d.) are scheduled by Stanvac, Shell and Filoil, the latter being a Philippine company with minority participation from Gulf; textile spinning and weaving plants, where capacity is expected to grow by another 50% within three years; pulp and paper, where the first three plants in the country are now going up; ceLent - two additional cement plants are scheduled - and flour milling, where four new mills have been approved. 60. Some sectors of manufacturing are no- competitive with foreign output - the outstanding example being the plywood industry. But a significant part of present and planned output would probably not be competitive under free trade conditions at the current exchange rate and tariff levels. This is not surprising in view of the disparity between domestic and external prices which has exi-ted ever since the war. However, the absence of exte -nal competitive forces in determining the pattern of industrial development has undcubtedly led to some growth which will prove un- economic after the underlying price disparity has been eliminated. Pressures wiill be strong in these cases for permanent protection. To avoid further developrments of this kind and to ensure an optimum pattern of resource use in the economy genei-al- ly. it would be desirable to p rmit external comnetitive forces to have a createrc (though not necessarily unrestrained) influence on the domestic market. This vcivd be one of the principal benefits of implementing the announced decontrol Dolicv of the Government. Gradual, rather than abrupt, removal of quantitative restrictions would probably be desirable. narticularly since flexibilitr in tariff nolio-v w-ill be rather limited until the tariff preference on imports from the United States is lowered from its nresent 50o rate to 2fA on Jannarv 1 19(9? Overall Growth Prosnents 61. Given nolicies along the lines d3isussed hove, the nronpnts. are good tha a growth rate in real output of around 5'% can be sustained for the foreseeable future - The rise in real inomen ay be slichtIy slower, if the expected price declines in exports develop. However, the achievement of such a growth rate wiLll _ rn 3penndo nth level and effPniioncyo inre+ment in +he public -a -nll as the private sector, and on the maintenance of sound financial policies. - 17 - Chapter IV The Use of Resources The Past Pattern S2, Resources available for domestic expenditures grew by 10% less than the 111L;Lk:;U3t _11 L"VU_ UL U UU V:UwtL ± 4U~ LI U iyy-i CL11U ll:ut- WeL U. OIL- U _iUlll ct,.k import surplus corresponding to 9% of the national product in 1949 to an export surplus of 1% of Givr in 1959, Nevertheless, lor the period as a whole, real re- sources available for consumption and domestic investment grew at an average yearly rate of over 5%. 6.3. During the past decade, the growth in per capita private consumption ap- Tarently averaged about 2% in real terms, although there has been a levelling off during the past three years. ;Toreover, the indications are that shifts in income distribution during the period have led to significantly greater improvements for large segments of the population - particularly in rural areas. Government social services have also expanded substantially, particularly for education, and this accounts for the major part of the growth in current government outlays which averaged over 6% in the last ten years. 64. After the drop in U.S. reconstruction aid and the introduction of re- strictive financial policies in 1949, there was a substantial decline in real domestic investment which was not reversed until 1953. Since that period, however, capital outlays have more than doubled, and now probably account for about 14% cf the national product, as compared to about 12% in 1949, -as may be inferred from the expansion of manufacturing described in Chapter III, the great part of the in- crease in investment has been directed to that sector. In agriculture, there has been a doubling in the imports of agricultural equipment since the 1949-52 period, while the steady build up in livestock inventories has continued to be an important aspect of total investment. Public capital formation has remained a fairly sall part of the total - about 25o.. with the emohasis being on transport, communications and electric power. Investment in education and health facilities increased from less than i. of total nublin investment in I951-5L to around 20% recently. 6;. The relationship between aross investment and real output since 1949 has bcl-n quite favorable - the available data indicating a ratio of around 2:1 for the decade as a whole - although somewhat higher in the nast few vears. To a consider- able degree, this was the result of bringing into production unused or under-usel productive fanilities. nrticnlarly in Aorinlture and transportntion. for which ony relatively small investments were often needed. The extent of such under- Utilization is uncloubtedly les tnday As noted in Chanter T_ there are still large tracts of good uncultivated land, but these are in the less accessible rpyinnq of' th1ioecount7r ndr -requiireJ-xP+zt +r) nnpn thpmuiin Sirf.- lar considerations apply to a number of other sectors - e.g. mining and lumber. 1 1 0,41 c~A .,-U,,,-.., .,,.-,,,-4,1-T r- -~c+,-+ 4,, ,.on + iroarc ,,+ ck.r)ir.- Pulse aial. accots. AIU estiatesflJ AA- - -_- J- -~± -~l - 10% or 11% of GNP. However, there is fairly general agreement among Philippine. _1:.;U I UIUW L U Uil~ U I LJU Llj subs " J" Wu erst U & UU. _Li _L UiIi41 I source of understatement appears to be in the valuation of imported durable gcod,s and construction materials. The 141 cited above is based on very roughl estimatqe by the Aission of the extent of the understatement. strain on basic facilities which will have to be met by substantial increases 1:2 ratio for the economy as a whole will, in all probability, be somewhat less favor- nlb--', i.4I 4I.Ie comingL deae anDd. aLi.Lgher.L. . rat of V~ inetmIent wil therefor be~J re0±.-~ cwuired if economic expansion is to be maintained at 4 to 5% a year. ]he Public Sector Program 66. The need for an increased contribution to development by the public sector -s recugII-Zu in the IumInistration s most recent rve Year r' iscal rlan,-' buu- mitted to the Congress in February, along with the proposed budget for the fiscal year 1961. It projects a rise in national government oulays kincluding advances to government corporations) from the -1.1 billion average of 1958-59 to Z1.53 billion in 1964. Of the t430 million increase, P250 million is projected for an expansion (by 65%) of recurrent and capital economic development outlays. About P140 million of the increase is projected for social development (mainly education) representing a proportionate rise of 36% over 1958-59. Local government expenditures, which are Dainly of a current nature, are projected as rising from ;27U million in 1959 to -330 million in 1964. Table 6 Actual and Projected Government Expenditures (billions of pesos) Fiscal years 1958-59 1960 1961 1964 avyerage -- National Govt.* Administration and defense 0.27 0.29 0.30 0.33 Debt service 0.06 0.08 0.07 0.08 Tobacco price support 0.03 0.03 - - Social development 0.38 24Abi 045 0-52 Current 0.33 0.37 0.42 0.49 Fixed capital 0.05 0.04 0.03 0.03 Economic development 0.36b 041 0.56 0.59 Current 0.17 0.21 0.23 0.25 Funds for private credit - 0.01 0.01 0.03 Fixed capital 0.19 0.19 0.32 0.34 Total national govt. 1.10 1.22 1.38 1.53 Local Government 0.27 0.28 0.28 0 2 Total public sector 1.37 1.50 1.56 1.86 includes loans to government corporations from budget funds, the Central Bank and foreign sources, but excludes outlays financed from the corporations own earnings or borrowings from commercial banks. i/Tht nra.ti.e nf nresentinT five year oroiections for public sector activity concurrently with the annual budget requests was initiated in 1957. These n'rnIPItions sometime drnw nn the nlanning work of the National Economic Council, which from time to time issues plans relating to both private and pubic +-ir Th mqt rpnt NRC nlTn iq the "Three Year Proaram of Economic and Social Development" issued in January 1959. This program has nct beeni adopte by'- 11ro. l.Jap.IS±6 - 19 - 67. Assuming a growth rate in the national product of between 4o and 5%, th6 uJauuvo £IIU±tnce Lu ~pub-C eXAPeauLzumes wouiu raise the latter as a percena.'e of GN? from about 13% in 1958-59 to no more than 15% in 1964. This would hard.y Seem an excessive snure in view of thue country's development needs. While the vission did not make a detailed appraisal of the expenditures projected in the Fiscal .Tan, it did get the impression that the funds earmarked for several key sectors may well be too small, particularly in agriculture, transport and municipal develop- oet . 63. In agriculture, there would seem to be considerable scope for a greater ex- pansion of technical training and extension services. Improvement and expansion of existing irrigation systems also seem necessary to obtain an optimum use of in- vestments already made. An intensification of land reform and resettlement pro- grams would be desirable to relieve the crowding and agricultural underemployment in central Luzon. While the agricultural credit and marketing program of the ACCFA has very nearly foundered because of overly rapid expansion and faulty administrati(r there is little doubt that the program can be and should be continued - on a modi- fied basis - and this will require the injection of new funds for credit as well as for storage facilities. In forestry, a major effort will be necessary to achieve a substantial reduction in illegal cuttings and to carry out an adequate reforest- ation program. 69. Similarly, in the case of roads and highways, the moderate increase pro- jected by the Fiscal Plan seems inadequate to meet the needs of improved mainte- nance and additional farm to market roads. Moreover, the Government's announced policy of encouraging - or even insisting on - decentralization of new manu- facturing plants will probably be feasible only if a substantial expansion of road facilities - and provincial airports - is provided in many areas. Moreover, a substantial expansion in facilities for water. sewage. and nower distribution. would appear necessary in order to make decentralization work. The Fiscal Plan does allow for some increases in outlays for these nurnnses particularv in the Manila area. but they seem insufficient, even for Manila, in many respects. 70. In the development of water resources for power and flood control, substantial inetet a1re exPctedr - the4 .To Major- projects1+ beinth Anaat+ ($ ro Millioln) fo_r which IERD financing will probably be sought and the Marikina 7160 million) fo: hTiJ0 Jananese financing is nrnr)tedr Th+se projet. are of high priority- as is the projected expansion of thermal capacity in the Manila area by the Manila Elect:rie Pntrar so, anrivate (TT s -od) firm 1.- I port and harbor, a substaial epnina pandi aclte handling general cargo at Manila, and a loan of $14.5 million from the Eximbank .-S I-n WC- I wa iem , apim vo hel finnc 4k,h i siau .tI An nf1o1 n-±a1 lo~an requ ls has been made to the IBRD for a 16.6 million dredging fleet for work needed both A;r iA 1nw- ;1 --A +I.,- ,_+_ _4- 4-L,- T4-- _ 1 - 4 -.1 -1 _ 4r__-- -4- C r' - - prt , . ±-- _ Q 11 -4S %Vt u jaUu± UQZ, Uli-- -La U UV± L )ti FjJa. U_LUULLL LJ ±IUfrU± UU1iu V - L W shipping. 72. Perhaps the most critical transport problem in the Philippines is the in- a'Aequauy and Lnefficiency of its inter-island skipping. Inese snipping lnes arce in private hands, but clearly the problem of establishing appropriate policies to ensure an improvement in service is a public matter, and little has been done in - 20 - this direction. A mnior tubic investment i.s. however. beinm made in shirs de-- sned for foreign trade; 12 ocean-going freighters have been ordered from Jaopan _t a total cost of is3 million. The Governmentq intnt.in i. to resell these to private Filipino shipping lines, whose total carrying capacity is now only one 1.,Hrr] nf' +ip qlni-,- nr nrlp~-r Tliic! v'a-r l-t Q ,nn +.n -rPni ~-Pq r. +.K- miqpq. nf lrlrLs- ments at this stage, in view of the excess capacity and low freight rates now pro- stantially cut back as compared to earlier fiscal plans, and the current Plan states +'h 1 4+ th GoA reC.~ V ..rne-4IU - I Is ' -ite tin Io se~ ll seve al Of itus presen J ants (cemL A-enVj4..I.1 t1k'.jA. textiles). However, it also confirms the intention to proceed with a 250,000 ton ~cpacity .ln. -0 a4. S40e1J pj ect aJ an es ~Il timaJL1ted cost OI .~LP.L ul _ 1VL IUJ.J.± L -"I which the Government expects to have a substantial equity participation. A loan vi, .'. - uuL UO i 611- LZ= UU11K 01. WuS~lllIItL,UII 1.01- UflLL , PIJtU , - Lb QUL 1iU _.Y U-i"l. U kli sideration. Policies Affectinq the Private Sector 74. The great part of the public sector development program consists of indirect support for private sector expansion, mainly in the form of infrastructure inven_- ients. Given some modifications, this program should significantly increase t'e potential for economic growth. As noted in Chapter III, however, there remains some uncertainty as to whether policies in respect of the exchange rate will perr.it this potential to be utilized in the optimum manner. 75. Also, the attitude towards the inflow of private foreign capital will proba- bly affect the rate of growth. It seems unlikely that the supply of entrepreneurial skills and of domestic savings, though greater in the Philipp:ines than in most other underdeveloped countries, is yet so large that a satisfactory growth rate will be achieved without substantial investment by foreign business. If this is so, care will be needed to ensure that the "Filipino-First" policy is not carried to the point where it will do more harm than good to the economy. Financial Policy 76. The Fiscal Plan projects increases in non-inflationary sources of public finance at about the same rate as the increase in expenditures. A significant rise in foreign financing - mostly long-term debt - is projected for the period. (Tiis is considered further in Chapter V). Also, an increase is forecast in domestic bond purchases by government financial institutions and the public from the average of P10 million in recent years to P65 million by 1964. The latter might be feasible but only if present bond interest rates are increased - unless the Government forces financial institutions to take its securities against their better judgement. But the major increase is scheduled in revenue from taxation. Receipts from the iiiport margin (at 25%) are expected to rise from 180 million in fiscal 1960 to a level of ;240 million by 1961 and increase moderately thereafter. Revenue from other ex- isting taxes is projected to rise only slightly, because of the scheduled decine - 21 - in the "special impor+ tax" from 15% in 1959 to 45 by fiscal 1964. (This ,c.~~1) 1 4l,r -4 -- T-41rn4 A - 1 -4. +In -,,- 4 rc L 4. k-PL U L U±TC5 . $-I fl LJ JL± C:i -r. C1LILr 41 U, -11Z I a U C-,i ,,, -ICA "- been lowered in January 1960 to 10%). However, a proposal is made for new tax mcttota-U-L -tUt-yei -ri(.) 2JL UII 1' 7£u4, WIIZ L±U UIJlt- UUUZUWL L.1 IJ Ail UtUaL '960 million in 1958/59 (and 1.2 billion estimated for 1960) to nearly -1.5 billiAn but it does request that the newly appointed Legislative-Executive Tax Commission ULiate proposals to this end. 77. t seems unlikely that the projected increases in taxation would cnecK IZu growth of private savings. It is estimated roughly that gross domestic private savings have grown from 2400 million annually in the 1949-52 period to a currert rate of about P1.2 billion. The largest part of these savings has been used fcr self-financed investment, but as noted in Chapter !I an increasing share has been channeled through financial institutions in recent years. One way in which the Comestic availability of private savings might be increased is a reduction in capital flight abroad. Given policies which inspire greater confidence in financial stability and a reduction in the present incentives to evade contr(ls, it may be that P60-70 million annually of additional savings - in the form of foreign ex- change - could be achieved from this source. 78. The Fiscal Plan projects a net monetary contraction over the four year period - on the assumptions of a reduced rate of private credit expansion, a continued budget surplus and constant foreign exchange reserves. A decline in the price level of around 5% a year is projected through 1964. It is at least open to question whether the trends projected in this plan can be achieved. Indeed it may be argued that the concept which underlies the plan is not in every respect appropriate to present circumstances. Nonetheless it is very clear that in order to maintain equilibrium, externally and internally, under conditions of reduced restrictions on foreign trade, a high degree of restraint in fiscal and monetary policv will be essential to support the other measures being taken to achieve Lis objective (see para 16 above). - 22 - Chapter V Creditworthiness 79. As already noted in Chapter II, external debt rose from around $120 million in 19 6 to about $300 millinn in Drnvmmbr 1 /with thp -rtn nf inrpnq rpnnl-ina its peak during 1959. Of the total, about $180 million has a term of seven years fer guarantees. Use of medium-term credits ("deferred payments") was being en- a result it was often easier to obtain an import license under these arrangements Moreover, responsibility for keeping track of external debt was not centralized. ~ ~OACiA. U U. ULIi_ l,± U 'U L, U1s q-u--v la_"_L_V1l l1au utull U..L0UUorU uo U December 31, 1959 but the bulk of the shipments against the medium-term credits wil l. be iMade ol"y in 1960U or- 191;L e.g. ten of te ShipS ordered frulomuJpan andl theo equipment for three oil refineries which will arrive in this period alone account for about 97u miLLion of total medIum-Lerm delT. as noteU in para 27, service on the $300 million outstanding at the end of 1959 will average $45 million in the next few years. (See also appendix Table MT). 80. When apprised of the debt level which had been reached at the end of December, government officials expressed considerable concern and indicated an intention to take a much more restrictive attitude toward suppliers' credits in the future - although they pointed out that a number of approvals "in principle" had already been given and that it would be difficult to retract them. At least $30 million worth of additional credits probably fall into this category. Moreover, a number of loan proposals for public sector projects and long-term private projects are now under negotiation or expected to be negotiated soon. Those planned from sources other than the IBRD amount to around $140 million, of which $48 million would be from the Eximbank of Japan and $90 million from the U.S. Eximbank (including the proposed steel loan). -ssuming further suppliers credits are incurred at a moderate rate, the net increase in outstanding debt before allowing for any new IBRD lending would be about 100 million by the end of 1961, bringing the total to around p400 million. 81. Service of debt at such a level would not, however, constitute an excessive burden for the Philippines. Indeed, somewhat higher amounts would seem feasible in view of the economic outlook. To recapitulate: Export growth has been substantial in the past few years, and the potential is good for achieving further important in- creases. Even for those categories of receipts where little rise is expected, the maintenance of recent rates is virtually guaranteed (e.g. for veterans pensions, Japanese reparations and sugar exports to the United States). Another strong point is the self-sufficiency recently attained in the basic food crops and the probability that domestic output of other foods will continue to rise at a faster rate than the population. This, together with the prospect of further major increases in manu- facturing, make probable the maintenance of a fairly high growth rate in GNP, as well as increasing flexibility in the import pattern. 17 This includes the $20 - 24 million due on the so-called Romulo-Snyder loan which is likely to be settled in 1960. It excludes a drawing of $8.75 million on the IF in L9S9 Painst the tntil Philinnine nuota of 4850 million. - 23 - 82. These favorable factors could, of course, be largely negated by unsuitable 1- L. - w U- ul .CO UWUJ y UID UVUZ) II U U t;t U U general deterioration in policies. To the contrary, the performance has been re,21arkably --l-~ of fica P4___1~ ___3 -__1- _ I_ has als b made toward reducIng excess import demand through the 257 margin fee, and toward - -"5 1-a '.vu u .u .mayouoAJun. i1u1ouver~ buLI 1ous xin i Or U.- ne:OA Iour years promises an increased impetus to economic development by the public sector - -66ou au biggr ontrbutio might be feasible if present plans were modified somewhat. In financing the public sector program, it seems unlikely that a de- fltinay infuence wil be exerted on the scale now forecast, but neither does reversion to the inflationary excesses of 1956-58 seem at all likely. Moreover, action is now bein taken t permit decontrol of imports and to encourage exports. Lu ounuZu.L)on, -Lu uoulu seem that tne na.ppines could well support ad-- ditional external debt. If the proportion of medium-term debt is significantly ruuced in the future, there would be considerable scope for an expansion of long- term borrowing. To ensure that this is accomplished will, however, require better Covernmental planning and control over borrowing decisions than has been prevailed in the past two years. TABLE i P'iLIPPINES - SUi-RY OF 11ISTI LD EXTEPRJAL DEBT UTSTNDHG (INqCLUDEIG UNDIS3URSIED) AS OF DECEMBER 31, 1959 L AND li~JOR REPORTED ADDITLONS JANUARY I - JAUjARY 22, 1960 Debt of the Government, Government Corporations and 1'rivate Debt with an Exchange Guarantee (Amounts in thousands of U.S. dollars) Total external Debt of the Debt of Govt. Private debt with an Item debt Government corporations excha:nge guarantee A,nount j, mount Amount TTAL ESTI,ATED EXTERNAL DEBT A 0F DECEBER 31, 1959 . 301,756 100.00 50,872 100.00 27,884 100.00 173,000 100.00 LONG TLRMI DEBT (over 7 years) 122,251 _4o.C1 32,744 6L37 3, 424 46. 53,083 30..68 Frivately-placed debt ,256 ___2.. ,173 2.80 8_ Suppliers' credits 9,935 3.29 2,173 2.80 7,762 4.48 Scheduled deductions of export receipts 2,175 0.72 2,175 1,26 Direct loans 17,146 5.68 17,146 9.91 IBRD loan 18,500 6.13 18,500 23.75 Held by IBRD 17,513 5.80 17,513 22.48 Held by third parties 987 0.33 987 1.27 Loans from U.S. Government 74,495 24.69 3 _4-7 15,75- 20.22 26000 _.03 Export-Import Bank 31,151 10.32 - - 15,751 20.22 15,400 8.90 Other U.S. Govt. loans 43,344 14.37 32,744 6)4.37 - - 10,600 6.13 iEDIUM TERMi DEBT (1-7 years) l_7_1,05 -42 18,128 _.6 .41460 53. 23 119,917 69.32 Privately-placed debt --846¯ ,460 53.23 104, 386 60.3- Sunpliers' credits 98,377 32.60 41,460 53.23 56,917 32.90 Scheduled deductions of export :receipts 6,798 2.25 6,798 3.93 Di.rect loans 1,561 0.52 1,561 0.90 OI. loans 39,110 12.96 39,110 22.61 Loans from U.3. Government _3,I659 11.16 18,128 9.63 15,531 8.98 Export-Import Bank 29,959 9.93 18,128 35.63 11,831 6.84 Other U.S. Govt. loans 3,700 1.23 - 3,700 2.14 See .ootn.ote at end of table. TABLE 1 :PHILPIlS -SUi½Y OF ESTITEfD EXrT.RNIAL3 DEBT OUTSTANDING (INCLUDING UNDISBURSED) AS OF DECEIER 31, 1959 La AND MAJOh REFORTED ADDITIOIN JANUARY 1 - JANUAUY 22, 1960 (CONT. ) Debt of the Government, Government Corporations and Private Debt with an Exchange Guarantee (Amounts in thousands of U. 3. dollars) Page ? Total external Debt of the Debt of Govt. Private debt with an Item debt Government corporations exchange guarantee Amount ß Amount _ Amount Amount _ 1,iAJOR REFORTED ADDITION JANUARY 1 - MIARCH 15, 196o (Long-term Export-Import Bank loan) 9,780 100.00 9,780 100.00 / This table excludes the following loans: 1. $47,500,000 (estimated amount as of December 31, 1959) unallotted line of credit from Export-Import Bank to the Republic of the rhilippines. However, loan requests are now under consideration by the Export-Import Bank for Manila harbor developrment ($14,5 million) two DC 8's for Philippine Airlines ($12 million) and various private industrial projects. If granted, these loans would use up the entire $37.7 million left after approval of a loan of $9,780,000 to the Manila Electric Power Co. early in 1960. 2. Loans repayable in pesos or dollars at the option of the borrower. It should be noted, however, that the Philippines has announced its intention to make repayment in dollars "for the time being" on two DLF loans (totalling $23,75 mill'Lon) in this category. These nevertheless are excluded on the consideration that repayment is likely to be shifted to pesos as soon as certain technical problems are resolved over the peso repayment rate; and will, in any event, be shifted if a serious foreign exchange crisis should develop. IERD - Economic Staff January 21, 1960 TABLE 1I: PHILIPFINES - INTERE5ST AND iRTI21aTION PAYENTz ON EXTERNALh DEBT: ESTIAATED CONTRACTUAL PAYMENTS 1960-1974a ON EXTERNAL PUBLIC DEBT AND EXTERNAL PRIVATE DEPT WITH A\I EXCHANGE GUARANTEE OUTSTANDING (INCLUDING UNUDlSBUiRSED) AS OF DECEI'BER 31, 1959 AND i'AJOR REFORTED ADDITIONS JANUARY 1 - JANUARY 22, 1960 (In thousands of U.S. dollar equivalents) Total P--a ;e 1 Debt of the Government and Private debt with an All debt ovenmet crporations exchange guarantee Year Debt out Payments during year Debt out- Payments during year t nd Payments during year standing----------------standinig----------- ------standing (incl.un (incl. un (incl. un disbursed) morti- In- Total disbursed) AmortJ- In- Total disbursed) Amorti- In- Total January 1 zation terest January 1 zation terest January 1 zation terest 1960 272,499T 30,435 6,621 37,056 105,258 11,973 2,594 14,567 167,241 18,462 4,027 22,4 9 1961 251,844U 38,008 9,687 47,65 93,285 15,146 4,340 19,486 158,559 22,862 5,347 263209 1962 213,836 33,351 8,482 41,833 78,139 12,031 3,824 15,855 135,697 21,320 4,658 25,978 1963 180,485 36,6oo 6,912 43,512 66,108 9,809 3,262 13,071 114,377 26,791 3,650 30,441 1964 143,885 35,474 5,534 41,008 56,299 9,297 2,771 12,068 87,586 26,177 2,763 28.940 1965 108,411 29,684 4,223 33,907 47,002 8,931 2,305 11,236 61,409 20,753 1,918 22,671 1966 78,727 18,560 3,309 21,869 38,071 6,839 1,980 8.819 40,656 11,721 1,329 13,050 1967 60,167 14,316 2,601 16,917 31,232 6,880 1,542 8,422 28,935 7,436 1,059 8,495 1968 45,851 13,309 2,032 15,341 24,352 3,862 1,224 5,086 21,499 9,447 808 10,25 1969 32,542 4,840 1,604 6,44.4 20,490 1,708 1,077 2,785 12,052 3,132 527 3,659 1970 27,702 3,392 1,413 4,805 18,782 1,752 994 2,746 8,920 1,640 419 2,059 1971 24,310 3,435 1,242 4,677 17,03() 1,795 909 2,704 7,280 1,640 333 1,973 1972 20,875 7,482 886 8,368 15,235 1,842 821 2,663 5,640 5,640 65 5,705 1973 13,393 1,894 729 2,623 13,393 1,894 729 2,623 - - - - 1974 11,499 1,948 636 2,584 11,499 1,948 636 2,584 - - a/ ixcludes service on 23.5 million due on the Philippine Funding Loan (Romulo Snyder), the terms of which are being negotiated; also excludes service on about $5,0 million in suppliers' eredits for which no data on schedules were available. L/ Includes $9.78 million Eximbank loan to Manila Electric Co. approved March 10, 1960. APPENDIX TABLE III Net National Product by Industrial Origin at Constant Prices (billions of pesos at 1955 prices) 1949 1950 1951 1952 193.9 95 1956 1957 158 1953 1. Agriculture Export sector .6i 70 .81 .73 .77 88 .88 1.0 1.04 .98 1.01 Principal export crops (.34) 4) 50 46) (7) (.55) (.55) (.61) (6? 5Q) Forestry (.28) (.29) (.31) (.27) (.30) (.33) (.3.3) (.39) (.42) 39) (.43) Domestic sector Cash crops 1.52 1.05 1.77 2.04 2.19 2.26 2.37 2.44 2.53 2.71 2.82 Food and other 6 )9 (4 1.07) 1.09 1.10) (1,17) 1.20) Livestock 63 72) 84) (92 .l5 k.01 0 .10 ( ( 2 Fishing 20 .19 . L LA .28j. (.3 .32)_ 36 A37 Total agriculture/ 2.08 2.28 2.51 2.70 2,88 3.06 3.1 335 3.47 3.60 374 2g Mining 6 07 09 .11 .12 .11 12 .15 15 .17 3. Maufacturing .47 .57 .60 .70 .79 .39 1.00 1.25 1.35 1.51 4. Construction .25 .22 .20 . .22 .2 .3 .31 .25 5. Transport .18 .19 19 .22 .22 .23 .25 .28 .30 .29 6. Trade .65 .70 .74 .72 .76 .86 .97 .98 .9 7. Government .37 .3' .38 .46 .53 :57 .65 .66 .66 .65 8. Other services 11 .3 .. .35 1.62 1.69 1.71 .0 Nationl_( ) .))du(t 5.16 5.63 5.85 ..32 6.72 7.5)8 7.625 (.6 8.80 9.00 9.51 Index of real national. product, 68 74 77 83 88 93 100D ill 115 118 125 Population (millions) 19.5 20. 1 20.7 21.3 21.9 22.5 23.1 23.7 24.4 25.1 25.8 Index of per capita product 80 85 85 90 93 95 101 108 109 108 11.2 a! Net of depreciation SOURCES: All data for 1949-58 except~ agricultural values are f rom the Sta ti4stical R vorter. pbihdb J~NC for April 1959. Agricultural values for all year-s WEre computed by the IBRD Mission on -the basis of detailed volume: data (see Table 2), and unit prices for 1955. The results were :linked to the Statistical Re-lorter estimates4br 1955. Differences in the two series are! insignificant for the period 1949-55, but for 1955.-58, the above data indicate: a grov~th of 14+% as against 7% in the SR series. The difference is mainly due to a different treatment of the estimates of livestock production; the above estimates being based on data more consistent with the official production figures tha.n appears to be true of the SFR series. 1959 estimates for the other sectors were also made by the IBRID iissiol.1, rnrnfqnturi g and mining b'igCb4e on the official production indices for the first three quarters ',see Central Bank ITews Digest for 14arch 6, 1960)J. Note,, how,rever, that the official manufacturing index tends to understate the increase in output sin3e 1955 because! it does not cower most new firms coming into production since that date. APPEUDIX TABLE Iv af Production of Principal Agricultural Products in 1935/39 and 1949-1959 (thousand metric tons) Value of 1955 production/ Commodity L935 112 z942 10 195 122 I12 2a 2 16 - 12 12 2 1952 (AVerage) A. Export Crops 174 Sugar, centrifugal 897 621 848 996 1,012 1,074 1,369 1,147 1,180 1,049 1,205 1,390 86 Sugar., other 70 33 . 37 40 42 57 56 60 5 66 68 70 236 Copra/ 650 698 780 1,072 919 833 1,023 1,104 1,337 1,366 1,126 964 L8 Dessi ted coconut 210 59 66 66 38 48 46 45 44 53 50 49 10 Abaca 166 75 93 130 119 106 104 120 125 125 125 94 :33 Tobacco 35 26. 30 27 22 28 30 38 45 50 50 57 B. Food and Minor Cash Crops 627 Rice (milled)cTW 1,355 1,619 1,694 1,700 2,171 2,060 2,077 2,111 2,155 2,115 2,283 2,447 117 Corn 427 534 574 603 735 746 775 841 901 873 937 956 3 Pulses 8 18 20 26 38 36 39 40 42 44 48 31 - White potatoes -- 7 7 7 7 7 7 7 7 10 10 6 118 Sweet potatoes 202 322 405 426 446 728 757 770 808 773 852 830 42 Cassava 95 121 153 161 169 262 272 271 191 299 307 300 23 Other root crops/ 55 84 106 112 117 145 151 153 182 220 171 162 Onions 5 5 7 10 15 9 13 11 9 10 19 5 Other vegetables 10h 57 62 02 120 150 161 164 167 168 174 181 11 Peanuts 4 6 17 12 11 12 12 12 13 13 13 11 2 Rubber 1 1 1 1 2 1 1 2 2 3 2 3 i Coffee 5 5 6 6 10 6 Caao 1 1 1 1 1 1 2 2 2 2 2 39 Bananas 147 145 178 188 205 263 274 295 319 33 341 330 L3 Citrus 13h./ 15 18 20 20 28 30 32 33 336 42 118 Other fruits and nuts 211 142 174 184 199 266 296 2991 319 337 275 556 C. Meat and FOultry Products 198 219 247 249 297 294 308 328 329 344 362 293 D. Fish 238 220 296 313 306 344 363 394 387 427 440 E. Forestry (million board feet) 417 517 465 40 79Lumber 510 508 Lk36 437 420 419 338 417 51845 4,20 252 Logs 1,055 1,133 1,351 1,152 1,361 1,545 1,663 1,91B 1,999 1,885 2,20 For footnotes see next page NOTES TO APPENDIX TABLE IV a., alendar years 1952-59; crop years 1935-39 and 1948/49-1950/51. b. In millions of 1955 pesos. These will not add to appropriate national income figure since standard correction has not been applied (see general comments on derivation of tables). c. Copra and copra equivalent of coconut oil. d. Government inspected fibre only. e. Reported as paddy with a 65% conversion factor. f. Gabi, ubi, and tugue only. g. 1939 only. h. 1938 only. SOURCES: Data for 1952-59 are based on official Philippine Government crop estimates converted to a calendar year basis by the U.S. Denartment of Agriculture. DatB for earlier years are crop year figures provided to the IBRD Mission by the Central Bank, Appendix Table V Production of Minerals (Thousands of metric tons) 1940 1242 - 1-950 195L 1252 125 1_ 1955 1 195 1238 19.9 a P:rodluction Gold '/ 1265 c/ 288 334 394 49 481 416 419 406 380 423 200 Iron ore 1241 370 599 903 1170 1218 1425 1433 1440 1346 1099 653 Chroiute, refractory 165 209 302 491 468 388 535 582 612 382 260 Chromite, metalurgical 81 42 33 52 89 63 63 127 113 34 66 Copper (metal) 9 6 10 13 13 13 14 18 27 40 47 25 DKnganese ore 49 26 30 22 21 22 9 12 4 30 22 27 Quicksilver d/ - - - - - - - 63,5 3015 3363 3321 1867 GoE.1 n.a.. 123 159 151 139 155 120 130 152 191 108 20 Index of Physical 42 55 68 84 88 82 90 100 112 110 126 Pooduction of Mining (1956=100) a/ January to June only. «b/ 1,000 oz. 'f 1941. d/ In flasks of 76 lbs. of mercury. APPENDIX TABLE VI Manufacturing: Gross Value of Output for Selected Sectors (vilions of pesos) 1953 19-5. 1955 1956 1957 L95 MAnufacturing 826 882 1,169 1,379 1,580 1.948 Non-durables 721 754 980 1,143 1,276 1,590 Beverages 125 126 130 142 149 164 Tobacco 16 15 18 19 21 ,265-I- n Z Textiles 56 56 69 94 122 179 Footwear, wearing apparel and 50 5 5 42 44 made-up textile goods raper products 26 27 34 45 49 61 Printing, publishing 7 6 8 12 13 18 Leather gooas iexcept footwear) 2 3 4 5 4 Rubber products 7 12 13 17 44 69 retroleum and chemicals 122 128 188 230 250 320 Miscellaneous 3 25 109 140 156 18q DNirables 104 128 188 236 304 358 Wood and cork 7 15 17 21 24 30 Furniture and fixtures , 6 8 7 8 11 8 Non-metallic mineral products " 50 51 53 61 74 90 (of which cement) (24) (25) (32) (36) (41) (51) Metal products (except machinery) 18 19 44 65 100 224 Machinery 5 7 15 21 28 35 Transport equipment 14 24 44 51 57 56 Miscellaneous 3 4 8 9 10 13 Source: Central Bank of the Philippines, Annual Report 1958. Based on data furnished by cooperating firms: note, however, that number of reporting firms varied: 954 in 1953-54, 1035 in 1955; 1068 in 1956-57; 1131 in 1958. This sample is incomplete. This is gross value of output whereas national income statistics give, of course. net value added. a/except products of Petroleum and coal. åppendix Table VII Direction of Forein Trade Values (villions of dollars) Percentages Total of which: Total of which: United N.West United N.West States Japa _n Europe Other States Japan Europe Other A. Exports 1949 248 176 11 29 32 100 71 4 12 13 1950-54 (average) 387 251 38 57 34 100 65 10 15 9 1955 401 23? 58 65 35 100 62 15 17 6 1956 451 241 81 88 41 100 53 18 19 10 1957 432 226 78 85 43 100 52 18 20 10 1958 493 274 97 87 .35 100 56 20 18 7 1959 a/ 437 252 102 '55 28 100 58 23 13 6 P. Imports 1949 586 469 16 19 82 100 80 3 3 14 1950-54 (average) 429 311 9 24 81 100 72 2 6 19 1955 542 356 44 42 100 100 64 8 7 21 1956 506 301 51 61 93 100 60 10 12 18 1957 615 337 74 88 116 100 55 12 14 19 1958 562 292 81 71 118 100 52 14 13 21 1959 a/ 367 171 63 55 78 100 47 17 15 21 a . january to September. Source: Statistical Bulletin of Central Bank of the Philippines, Vol. XI - No.3 (Sept. 1959), pp. 131-133 and U.9Y. reports. Ar! 2luL T .BL VIII iantum. Price and J-Net Terms of Trade 1950-1959 __ (1955=100) feriod Juant.wm index ites index ret ter:: Imports icporpor ts orts xports of trad 195d 63.8 70.6 98.6 119.7 121.4 19-1 7 0.' ;7 a 111 S 127.7 114,S 1952 72.3 88.3 109.5 100.6 91.9 1Q 'M170,0 1,' nA4c 10 11 7 1954 88.3 91.7 100.0 109.0 109.0 194ino n rnna M ( n In M nrn n 1956 98.2 114.3 101.6 101.4 99.8 10r,7 innj -Iz. -11,1 Z ,, n1 n Ila -LV 7* J- -UO 4 -LU4. - ±I%..? .V 1958 96.6 115.8 107.0 106.9 99;9 1 7. #;15.)4 -LU7.0 116.O 10. Nvote hese indices are not fully consistent with the current value of imports and exports as reported in the customs statistics, The main reasons appear to be a) that coverage of trade is not quite complete in the above series, and b) that these annual averages represent the unweighted averages of monthly indeces, rather being based on comprehensive annual quantities and unit prices. 1-UU66: The 1949-50 relationships are derived from the IFS; other years from the Statistical Bulletin of the Central Bank, Table 67 (Sept. 1959), p.128 Lp.endix Table IX Value of Philipnine Exports 1949-59 (yä!9 25ý£pesos) 1949 (Average) 1T5 1956 12' 192 1959 £/ Goconut produets ID/ 25_9 329 305 352 346 368 156 Copra 179 251 237 268 264 278 114 Coconut oil 35 38 33 48 43 48 22 Dessicated coconut 39 31 26 26 30 33 16 Copra cake or meal 6 9 9 10 9 9 4 Sugar 92 176 223 211 179 246 146 Centrifugal 90 161 213 201 166 231 137 Other 1 16 10 10 13 14 9 Abaca and manufactures 62 91 60 75 83 63 1 Unmianufactured 58 86 56 70 7ö 58 3 Other C/ 4 6 4 5 5 5 3 Forest products 7 46 87 103 158 99 Logs 2 37 O3 70 123 72 Lumber 4 13 16 14 12 16 8 Pyod* * 2~ 32 5 11 Other 2 2 3 3 6 5 Mineral produets 26 58 81 114 10 105 6 Copper concertrates 5 2 11 25 25 30 17 Mi.xed concentrates d/ n.a. 23 22 27 16 16 1 Iron ore 5 18 21 23 22 18 10 Chrome ore e/ 6 14 21 28 33 25 23 Other 10 6 6 11 14 16 12 Fruits and Vegetables f/ 15 20 22 20 l4 12 Pineapple g/ 14 18 12 19 19 13 11 Other 1 2 3 2 1 1 1 Tobacco '7 8 11 10 16 . Rw 7 -9 16 6 4 ( 17 j.k Cigars and other *1 1 1 * * All other exports 32 23 22 18 18 16 15 Total Exports p/ 496 760 801 906 863 987 539 a 7fJanuary to June. b/ tems may not add due to S/ Principally ropes and mats. di n non-mo-nar grold in mixed concentraes+~ (copner, iveJIXOr ri fynd old- and copper and gold). e_/ Aproxmate yr 5-s refractorycroe r/ Excluding coconut products. U anned anU juic h/ Differs fro total shon in "exports" in Balance of Payments table principally by theamunt of non-montary gol eUxtJUueu. * Teze t.han 49; millinn. Appendix Table X Volume and Unit Values of Principal Philippine Exports, 1949-59 1950-54 t99 Average) ~~ 97 15 A. Volume (Thousands of metric tons) Copra 529 703 805 966 943 812 258 Coconut oil 61 71 74 109 98 87 30 Dessicated coconut 58 51 48 49 55 52 21 Copra cake or meal 65 69 81 100 99 94 33 Sugar,,centrifugal 415 686 927 894 709 970 566 Abaca, Unmanufactured 63 109 112 122 116 93 52 Logs and lumber b/ 43 375 726 875 854 1370 777 Copper concentrates 23 7 e/ 31 71 111 161 78 Mixed concentrates n.a. 57 e/ 55 59 39 48 4 Iron 350 1064 1271 1476 1307 1049 591 Chrome ore 235 426 657 726 733 606 546 Pineapple c/ 40 61 38 66 71 41 34 Tohann., raw 5 A 8 11 10 14 5 B. Value (pesos per ton) Copra 338 357 294 277 280 342 442 Coconut oil 573 535 445 440 439 552 733 Dessicated coconut 672 608 541 531 545 635 762 Copra cake or meal 92 116 111 100 81 96 121 Sugar, centrifugal 217 233 230 225 234 238 242 Abaca, unm-.anufactuTed 921 789 500 574 672 624 731 Logs and timber / 140 117 1L/4 111 105 101 103 Copper concentrates 217 329 eJ 355 352 225 186 218 Mixed concentrates n.a. 404 e/ 400 458 410 333 f/ 250 g/ Iron 14 17 16 16 17 17 17 Chrome ore 25 33 32 39 45 41 42 Pineapple c/ 350 295 316 288 268 317 324 Tobacco, raw 800 875 875 909 900 1143 1200 a/ January to June. b/ lillions of board feet. c/ Including juice. d/ Pesos per thousand board feet. e/ Average of four years. f/ Coppergold and silver concentrates only. g/ Copper and gold concentrates only. Appendix Table XI + m~4 io 1 T"-- (Mllions of pesos) ood1949 _Q L2Z 1954 1955 1956 1957 1 Food 296 154 153 158 205 176 216 235 59 of which: Cereals 118 69 43 52 74 52 75 104 21 Coffee, tea etc. 22 6 9 11 12 9 12 7 A Dairy products 54 48 48 48 57 59 63 58 18 Meat and fish 46 20 27 28 42 39 43 51 12 Other food products 56 11 26 19 20 17 23 15 4 Law rubber - - - - - 2 6 7 4 abber products 23 30 32 28 33 29 19 10 3 T;t1 IbeLrs 2 5 6 5 7 12 1 6 1 Thread and yarn 13 12 17 24 22 23 30 21 9 C .ey, wiLe & printed cloth 4 / 53 51 44 47 49 34 / 26 6 7inished textile & related products 159 98 83 93 99 62 76 66 23 Clothing & footwear 20 13 20 16 11 3 3 5 2 %inB nl 7 21 91 A i.0 19 Fefined petroleum products 71 83 91 101 87 79 86 79 36 Paper, paperboard & products 35 31 30 32 38 36 41 .34 16 Medicinal & rharmecutical prmucts 23 17 2L 23 25 20 27 23 9 lanufactured fertilizers 7 21 14 8 12 8 20 14 10 Othhr 7hemica 40 27 39 35 50 50 67 A 35 7ise metals (including structural shapes) 61 42 62 60 77 89 129 101 46 'anufactures of metals 55 37 36 36 37 30 37 38 13 Non-elec. machinery & parts 59 64 81 88 104 155 166 155 6F Pran-n,nrt. Pninment 57 42 43 51 Al A 67 57 2 Elec. mach. app. & appliances 34 22 27 35 44 39 50 41 33 Xil other 129 59 75 90 83 72 91 74 35 1172) AP Q~ 109 orAV i2~ na;iiqi5 izI. AQ 3ource: entral BanK of Pnilippines, Statistical Bulletin (June 195), supplemented by data provided directly by Central Bank Research Department. / January to June only. Total imports for Jan-June 1959 amounted to P%69 mi2lion, a, compared to P567 million during Jan-June, 1958. / Includes other cotton fibers, bleached, semi-bleached, dyed, printed, plain weave, stiffened and colored, nes (Incl. flannelette, cotton fabrics, pique, gris or chambray, gingham). Les than half millin np.o,q APPENDIX TABLE XII Philippine Balance of Pavments 1949-1959 (millions of dollars) 1949 1950-54 1955 1956 1957 1958 1959 average _Est._) Receipts I.Merchandise exoorts 261.0 367.8 389.7 437.7 L29.3 482.6 S25.0 2.Non-monetary gold 10.0 14.6 14.7 14.2 13.3 14.8 13.9 3.U.S. Government pavments 163. 117-1 127-7 11/8 10Q6 w-nf , gn-2 4.Other invisibles 9.5a/ -38. -35.' -5. --a/jW2.a 5.Total goods And srvice .0 527.6 56R.n A1Q1 Aio1 A99 671. 6.Reparations - - - - 26.4 11.8 12.1 7.Private donntionn/ . - 10.r 90n 10.2 15.7 7./ 8.Total of above 463.0 542.5 578.5 628.1 646.7 659.3 690.9 Exenditures 9.9erh mrts 561 r, . 55 r7 r, A aAa. 616 5 C A z57. 2 10.Freight 70.5 44.3 60.2 54.9 75.2 62.2 44.1 1L.Investment remittancc-es 39 24.o L9.0 1.8 24.5 -Ltg7. u 12.Insurance ( - 8.1 7.6 8.5 7.5 7.5 6ý9 «L3-.Tors (UL 51 40.5 12.644 15. b 13.-ý-4 -L8.7 12.4 159.7I 14.Others (_29.0 25.0 31.3 _ 13.a/ 21.5a 15.Total goods and services 731.0 564.5 678.2 633.6 777.1 6 f3.7 636 16.Private donations 3.5 6 2.7 3.ý -3.6 1.1 0.7 17.Total of above 734.5 571.0 680.9 637.1 780.7 684.8 637.5 18.Net current account -271.5 - 28.5 -102.4 - 9.0 -134.0 - 25.5 53.4 Capital Items 20.U.S. grants and other transfers 203.0 46.4 24.1 33.4 28.5 19.8 48.3-' 21.U.S. section 402 lopns.' - - - - 8.8 5.0 6.0 22.U.S. PL 480 salesf/ - - - - 1.5 11.2 0.1 23.Private investment a) New capital 12.9 8.1 4.3/ 4.0/( b) Withdrawals ( ''' '' - 4.3 - 4.0 - 1.6 - 11.bt- k 24.Official loans a) Eximbank - 4.0 6.4 2.9 0.8 10.5 15.4 b) IBRD - - - - - 7.5 7.7 25.Suppliers crecitsf' - - - 5.4 7.4 8.1 5.7 26.Debt service/ - - 5.0 - 6.4 - 7.2 - 7.4 - 8.9 - 29.2, 27.Other 4 ____ - 0.2 1.5 1.0 1.3 _13..2' 28.Total foreign capital 213.5 49.0 33.5 40.1 43.3 46.9 43.6 29.Use of reserves (net) 161.5 2.0 735 -0_.7 _114.9 __0,3 -5.2 a) Reported reserves , 160.0 2.0 63.5 - 15.5 84.7 - 5.3 - 25.1 b) Other Govt. assetsY' 1.5 - - - 0.2 - 9.8 - 2.3 1.9 c) IMF drawinps - - 10.0 5.0 - - - 15.0T/ d) Other Govt. liabilities- - - - - 4080 8.1 _.1 30.Total reported financing 375.0 51.0 107.0 29.4 158.2 47.4 - 39.7 (28 + 29) 31.Errors and omissions (18 minus 30) -103.5 - 22.5 - 4.6 - 19.4 - 24.2 - 21.9 - 13.4 (For footnotes see next page) '0 -..-4-. 4-. M-1-1. 'VTTI a/ Not comparable with period 1955-57 because of partial netting out. / Includes CARE shipments financed under PL 480 Title III. c/ Excludes reinvested earnings, estimated as follows for 1950-54 (average), 1955, 1956, 1957 and 1958: 36.0, 50.2, 55.0, 47.5 and 41.5. Estimates for 1949 and 1959 are not available. d/ Includes gold devaluation claim payment of $13.9. e/ Data for 1958 and 1959 are derived from data provided by ICA. i/ Based on receipts from sales, as reported by the U.S. Treasury. g/ Includes rough estimates of equity investments in kind (machinery, etc.) for which no Philippine data are available for these years. Amounts estimated are $5 million in 1956, $4 million in 1957 and $3 million in 1958. h/ Includes $10.2 million transferred abroad by means of domestic gold purchased with blocked Peso accounts (at rate of about 4:1) and sold to the CB for dollars (at the official rate of 2:1). i/ These data are official Philippine estimates. but are considered quite rough. Includes the following repayment items: 1955 1956 1957 1958 1959 U.S. RFC 6.o 6.0 6.0 6.0 6.0 GSA loan 0.1 0.1 0.1 0.1 0.1 Eximhnk 0.3 1.1 1.3 2.1 8-7 MRR bonds and other - - - 0.7 4.0 Siunlier. nrp.dits - - L Total 6.4 7.2 7.4 8.9 29.2 k/ Includes $1.1 million 18% payment to IBRD. which are excluded from published foreign assets. m/Tn ad-di+4JO-n + the repurcahSe of .411Jn n 195% t,he hlnn paid $8.75 to the IAF as part of its increased capital subscription, an,A made" a ne dawngo th same amun 4 A, +&hv +1w^, n/ Represents short-term loans from U.S. banks and 180 day acceptances. Source: Information provided by the Central Bank, Research Dept., V " J U t' ".I LAAL .8 1 ±JLUU11UUU 0 V, L.8 . I" APPENDIX TABLE XIII Foreign Exchange Reservesl' (millions of U.S. dollars) End Period Central Bank Other Banks Total Net IMF Other Total Net Gross Assets (Net) Reported Position2/ Liab ]i- Reserves Reserve ties2 1948 400 63 463 - - 463 1949 230 53 283 - - 283 1950 296 60 356 - - 356 1951 247 59 306 - - 306 1952 236 70 306 - - 306 1953 240 56 296 - - 296 1954 207 65 272 - - 272 1955 155 54 209 -6 - 203 1956 161 64 225 -11 - 21/4 1957 June 119 71 190 -11 - 179 1957 December 71 69 140 -11 -40 89 1958 June 70 AA 1 -11 -2' in 1958 December 92 53 145 -11 -48 87 1959 June 69 68 17 -9 -8 12n 1959 December. 91 73 164 4 - 163 1960 March 3 88 81 IAQ 4 - 171 EwnIiir = 'h 1jji? o f one 0le A;J . t.LdJ and~. Fiscal Agency Fund, which are relatively small. 2/ The net Philippine position in the IMF is derived by deducting from total drawings the Philippine gold subscription - which was $3.75 million through early 1959 and $12.5 million since. 3/ Short-term loans from U.S. banks and 180 day acceptances. APPENDIX TABLE XIV A National Government Revenues kmli-Lions of pesos) (Est.) Yiscal Years 2) I2r ;L22=2m2 2 1-)22 ZEO General Fund Corporation income taxes 67 63 76 83 96 93 117 126 Personal income taxes 51 45 53 59 58 69 67 80 import taxes Special import tax1/ 115 126 112 97 97 80 74) 2282/ import duties 28 35 148 74 104 87 89) Advance sales tax on imports 80 72 78 70 80 68 54) Other business taxes 54 74 - 88 112 100 104) -'- Other excise taxes 118 134 125 146 167 171 186 197 Other taxes and duties 54 39 23 34 33 40 42 43 Other ordinary income 20 26 49 45 60 89 92 44 Extraordinary income - 2 - 4 8 8 29 1952/ Returned to local Governments J 1 j45j _61 6561 _611 J742 (64} j23j Total general fund 539 570 607 643 754 732 788 1019 Special and Fiduciary funds 92 105 133 164 173 209 190 202 Reparations counterpart fund - - - - -- - 7 _ 23 631 675 740 807 927 941 985 1244 1/ Up until mid-1956, this was called the foreign exchange tax. 2/ Reflects removals of excemptions to special import tax. / Includes R180 million from 25% margin fee. Government Expenditures and Deficit Financing (millions of pesos) 1953 194A. I,1 lqA 1957 1qrA 199; 1 Q94 1. Nat'1 vovIt obligations i;gy RA ki, QA ln7> InCAA inio1 inio 2, Lag or lead in disburs. n.a. -132 -3 -47 -70 6 5 - 3. Estimated nsh-i arn. n,a AA 31.5 015 1n00 1 1017 1132) 4. Advances to govIt corp. a) NPC. MRR and NAldARA 01 24 2n n 32 36 36 4 b) RFC (DBP) - 77 17 6 11 11 3 d) NARIC and others ) ) ) 1 21 86 -50 () e Snh otal 21 In 6 30 105 152 11 0 5. Total expenditures n.a. 787 914 995 1107 1280 1028 1216 T. r,cc-P/01 4 " _- r7ir n 6n7 n - rl n1 ocl '1 ,-11 1 u_J -L U.J Li 1) 14J Oki ( -7f ( 74-L Y(JL i4 7, Overall deficit n.a. 112 174 188 180 339 42 -28 8. Borrowing from abroad 21 21 - - 10 8 17 22 0L1 Ij k1&LVZJ - - - - - b) NPC (Exim and IBRD) 21 19 - - - 8 17 12 9. Borrowing from public .. .. .. (21) 42 -18 8 45 a) Uov Ufnancial inst. .. .. .. .. 37 -18 5 ) b) Companies and indiv. .. .. .. .. 5 - 3 ) 4 10. oUrrowing from banks .. .. 140 261 34 3 / -0 a) Gov't securities .. .. 112 319 34 137 183 W uther credits . .. 2 -56 5U 214 92/ 11 Use of Treasury Cash -35 -94 60 -9 12.Oter -,) -b 2 - ../ INot available l/ Excludes ;84 million borrowed by National Government from Central Bank for increased capital subscriptions to IMF and IBRD. 2/ Includes r45 million increase in Security Stabilization Fund. 1 : Data as provided by Budget Commission to IBRD (adjusted to include disburse- ments of foreign loans to 10C in 1960). Includes obligations of National Government for General Fund, Special and Fiduciary Funds and Bond Fund. 2 Estimated by iBRD on basis of difference between total obligation (including advances to government corporations) and total financing data as obtained independently (i.e. total of lines 6, 6-12). 4a-4c : From data provided by Budget Commission to IBRD on growth in public debt (similar to Annex L-I of Budget Message for Fiscal 1961). 4a : Data are for net bonds issued or foreign borrowing of: National Power Corporation, Manila Railroad and National Water and Sewage Authority. 4b : Net bonds issued by Reconstruction Finance Corporation (later the Development Bank of the Philippines). 4c : Securities of the ACCFA, mainly held by Central Bank; includes funds advanced for tobacco price support ,-rogram; excludes funds provided for initial capital from counterpart. Sources and Notes by Line (conttd) 4d Advances to government corporations by commercial banks, mainly to NARIC for financing imports of rice and corn. Source is banking data provided by Central Bank. o See Table XIV A 8 Same source as lines 4a-c, except for borrowing by NDC for ships which is estimate by 1BRD of value of two ships from Japan (less down payment) which arrived in 1960 under deferred payment contract with Eximbank of Japan. 9 : From data on holdings of gov't securities supplied by Central Bank to IRD, see Table XIV C, 1960 is Budget Commission projection, 10 : From banking data, see Table XVI, except for 1960 which is residual. 11 : From data on cash balances of the national gov't. These are not the sane as the govit cash balances reported in the monetary statistics (e.g. in the Central Bank Statistical Bulletin) as the latter include counterpart balances and various trust accounts. Fiscal 1959 data contains an adjustment of r45 million to include a temporary increase in the securities stabilization fund, apparently resulting from a refunding operation. 12 Represents difference between data on bonds issued as reported by Budget Commission and bonds purchased as reported by Central Bank. APPENDIX TABLE XIV C Holdings of Government Securities Dec. June Dec. June Dec. June Dec. June Banking System 622 795 793 53 944 1051 1143 1243 ~ 11 c$-~~ rv~1 1 uentra.L DaUxA =1o op) 491 94± o/ 114( Lu4o -.LL7 Philippine National Bank 143 316 141 223 34 40 26 32 Other commercial banks 83 94 201 95 90 084 or Government Financial Institutions 118 144 202 181 167 163 171 168 RFC (DBP) 4 29 1 23 8 75 3 GSIS 38 51 49 32 5 1 38 24 Social Security Sgytem - - - - - 2 14 1 Gov't trust funds-'/ 0 44 17 62 59 81 91 99 69 Other and unallocated;4/ 32 47 70 67 73 52 45 60 Private Sector 10 16 20 21 25 21 16 24 Insurance companies 5 7 9 13 10 6 7 Other companies 2 6 3 2 5 7 9 9 Individuals 3 3 8 6 10 8 10 9 Grand total 750 955 1015 1061 1136 1235 1330 1435 1/ Includes all CB loans to the ACCFA (see item 2c in Table XVI). =1 Held mainy by Central Bank / Includes unallocated DBP bonds held outside banking system; as follows(in millions of pesos): 27, 38, 46, 57, 58, 40, 39, 40. Source: Central Bank and total commercial bank holdings are from Table AVI* all other data provided directly by Research Department of Central Bank. APPENDIX TABLE XV A Comercial Banks A V-4n4- q--+-- T-,,-+---4+- P Q lcc4-A 1l T0+ +n4VIII1uA.) Jm. SCLm V"_A. S t i t " t i.n S (amount outstanding end period in millions of pesos) Year ending June 30: 1955 19S6 1957 128 1259 Public sector institutions Development Bank of the Philippines 458 468 475 504 500 ACCFA (except tobacco program) 30 50 70 87 88 Government Services Insurance System 140 158 241 324 325 Social Security System - - - 15 20 Government Dawn shops 7 9 12 14 16 Subtotal 635 685 798 944 949 Private Sector Institutions usurance Cumpni-)1ait5n e, ,. 200 230 262 Building and Loan Association 7 8 9 9 10 Mutual. Lunus kes-.] _J- Subtotal n.a. n.a. 209 244 287 Total Fublic and Private n.a. n.a. 1007 1188 1236 SOURCE: Central Bank Statistical Bulletin and data provided to the IBRD Mission. B. Required, Excess and Potential Reserves of Commercial and Savinas Banks (M;1r,-, nf' rpss Rnri nri M I~ 1. I95 416 57 lq58 1L959 AvailRhli Rqerv. 16A 19 236 206 330 303 Less: Required Reserve 118 _1 7 16 _1 259 Excess Reser7"es 48 X52 73 12 P 5 I44r J Potential Reserves 158 265 374 177 12 150 Subtotal: Excess and Potential 206 317 447 219 278 174 SOURCE: Central Bank Statistical Bulletin and Central Bank News Digest. -l i2!-DIX TABLE XVI Analysis of Factors 7=T ing,=oney Supply (millions of pesos) June Dec., June Du ,june Dec. June Dec. june Nov. A.Goermet eco1J955 1955 1956 1956 1957 19 57 1958 1958 1,959 19592 A, Government Sector 1. Government securities held by: a) Central Bank 295 396 385 451 511 78:5 842 933 1009 915 b) Other banks 178 226 410 342 318 124 124 115 124 118 2. Other loans, to: a) Natt1 govt. from Central Bank 81 21 21 21 21 21 96 21 135 10 b) ACCFA from CB - -. - 30 35 85 95 110 140 c) Other Govt. corp. from other banks 9 3. Gross credit to govt. 564 653 826 828 910 1009 1264 1220 1440 1422 4. Cash resources of nat'l govt, 198 161 292 267 2 165 241 210 326 5. Net bank credit to govt. (u3-4) D --ne Nov. 366 492 534 561 678 844 1023 1114 118 B. OhrPublic Sectcor offsets to xns - -1. - - 30 35 85 9 5 2 110 10 6- Counterpart balances & trust accounts inCB ( 38 36 54 36 58 63 (52) 51 7. Reconciling item in cash balances a/ (39 (24 -8 -29 -26 -35 -24 -49 -15 (-15) 8. Savings and time deposits of corp. 9 12 14 27 36 45 38 60 77 (107) 9. Govt. funds sterilized in CB - 7 9 10 10 10 3 5 4 52 10. Liabilities to IMF and IERD 3 3 3 3 3 3 68 65 11. Capital accts. of Central Bank 29 34 _1 3i6 38 6 45 5- _i5 12. Subtotal other public sector 80 80 87 3 115 105 123 137 241 328 C. Total Public sector impact on m/s (5-12) 286 412 457 478 563 739 900 883 873 780 a/ ifference between national government cash balances as reported by the Treasury (line 4) and as reported by the Central Dank Research Dept. APhFEDIX TABLE XVI(Cont'd.) June Dec. June Dec. June Dec. June Dec. June Nov. 1955 1955 1956 1956 1957 1957 1958 1958 1959 1959 D. Private Sector 13. Loans, discounts, overdrafts, etc. 962 1097 1102 L240 1373 510 1435 584 1647 1761 14. Corporate securities 6 4 3 2 2 3 __ 15. Sub-total (13+14) 968 1101 110)5 1242 1375 1513 1439 :1588 1650 1765 16. Savings, time and other non-money deposits 488 538 547 591 636 717 769 766 813 (853) .17. Net miscellaneous accounts of private banks 96 107 117 128 140 160 165 164 185 (190) 18. Net miscellaneous account of CB and PIAB -7 -70 -72 -76 -64 -50 -40 -26 -:2l 19. Sub-total (16, 17 and 18) 517 575 592 643 712 837_894 904 97( 1023 20. Net credit to private sector (15' minus 19) 451 526 513 599 663 676 5,45 684 674 742 921. Total credit to domestic sector (5 0inus 12 737 938 970 1077 1226 1415 1445 1567 1547 1522 + 20) E. International Reserves ,22. Gross reserves of Central Bank 384 310 3:32 322 2:39 142 1.39 183 138 178 23. Net reserves of comrercial banks 105 110 135 12 7 142 138 133 108 15 164. 24. Total reported reserves liabilities 489 418 467 449 381 280 272 291 273 342 of Central Bank 25. Drawing on I28F 20 20 13 3 0 30 30 30 43 18 26. Short-term loans from U.S. banks - - - - - 80 50 70 - - 27. Acceptances - --n/ 28. Sub-total liabilities 20 20 mins 190 0 30 110 80 _ 26 16 158_7 1 29. Net international reserves 469 398 438 419 351 170 192 165 216 324 F. Tota s C reuter oCnevnSural 1206 8 336 1408 496 29 15 1637 1732 13 18 23 etrsevsofcmmrl bns15 10 1 2 1/72 1585 13 0 1735 186, G. Record in Lar ts 4 - 9 3 -12 13 1 6 27 - H. a~ctual l.lne -Sur-)-ov 1210O:L336 1417 1499 1565 1598 1638 1738 1790 1846 Source: Data provided by the Research Dept. of the Central Bank, except for line 4 which is from data provided by the Budget COM MiSsion. AMAlDIX TABL XVII Frice Indices (19'55=100) 1939 1949 95' 1951 1952 1953 1294 1955 1 195719581959 Wholesale - 1.98 106. 119.6 109 4 108,3 102.7 100.0C 103.1 107&6 111.2 112.7 Export 112.1 122.9 126.7 100.8 123.5 108.5 100.0 104.3 109.2 120.8 136.5 DOmestic/ 25 115.1 105.4 115.9 108.9 106.8 101.4 100.0 102.0 106.1 108.5 106.7 Imported 84.4 112.5 128.9 114.4 108.5 105.2 100.0 108.8 114.6 119.2 129,9 Retail 1C7.0 108.6 120.4 113.4 108.4 132.5 100.0 104.6 107.6 112.4 112.5 Domestic 113.1 110.7 121.8 114.6 108.3 102.1 100.0 103.3 106.2 111.0 108.4 Imported 85.8 101.2 115.5 10l9z4 108.8 1L3.7 100.0 109.0 112.6 117.6 126.8 Consumer-/ 31 28* lC1.6 104.7 113-.4 106.1 1025 101.0 100.0 102.7 10/ .5 108.0 107.0 Foodstuffs,' 107.6 105.3 113.1 108.0 102.0 100.8 100.0 103.3 108 113.4 108.7 g 104.6 105.2 112.9 106.' 102.4 100 3 100.0 101.9 103,, 106.8 101 .7 77.4 100.2 117 3 103: 103.5 106.5 100.0 111.5 116.1 121:7 13Ê.3 B/as;ed on linking o-Ld price series reported in IFS with new index. _/ Dcmestically produced and consumed. 2/ These indicas use the same basic data, but differ in their weighting patterns. 1/ Inclu.des imported foodstuffs. SOURCE: Central Bank News Digest, March 8, 1S 0. Int riiLrrintH 0 40 80 120 160 Miles r Ratways Approximate areas above 2000 feet •Dams T Power plants - Sao' erando ø LUZON POLILLO BsTAANIUZ C ATANDUANES VdA NUQUE \ NDN c TALAsSI9YAN V V MASBATI' IRN&t o PANAY 1 Afr LEYTE GUIMA DÉNAG T Princesa NEGROS PALAWAN < DI0UIJR s u L u S E A Iljøan A-A --BALABAC MINDANAO NORTH BORNEO- C E L E B E S S E A MARCH 1960 IBRD-667