While the cost of gasoline and other oil products is rising because of the depreciation of the peso, Socioeconomic Planning Secretary Arsenio Balicasan was reported as saying: “I wouldn’t want to see the peso appreciate to 37 or 38 [to the dollar], or simply the 30s territory. That would hurt our industries.” (Inquirer, 7/9/13)
Not being an economist, I am always puzzled by this statement by finance officials and establishment economists that a weak peso is good for our economy. Our currency has been depreciating since 1962, when then President Diosdado Macapagal devalued it by 100 percent from the exchange rate of P2 to $1 to P4 to $1. Later placed on a floating rate by President Ferdinand Marcos’ finance secretary Cesar Virata, the peso has been steadily losing value until it is now P43 to $1.
If our economists are right, then our economy should now be many times stronger than it was in 1962, instead of being the laggard of Asia. In the 1950s, when our peso was fixed at P2 to $1—and our government under Presidents Ramon Magsaysay and Carlos Garcia adopted the policy of import substitution through import and exchange controls—the Philippines was considered next to Japan in economic development in Asia.
David G. Timberman, a specialist in Southeast Asia with degrees from Tufts and Columbia Universities, wrote that from 1949 to 1957 (at P2:$1), “the industrial sector in the Philippines grew more than 8 percent a year,” while “per capita income also grew at an average of 3.6 percent a year during the 1950s, a rate that rivaled that of most other countries in the region.” (“A Changeless Land,” 1991, published by the Singapore Institute of Southeast Asian Studies)
Renato and Letizia Constantino, in their book “The Continuing Past,” also wrote: “More than 5,000 new industrial enterprises were established during the first four years of controls [from 1949]. By 1960, the economy could boast of a modest industrial base with its food, wood, pharmaceutical, cement, flour, textile, paint, pulp, paper, glass, chemical, fertilizer, telecommunication, appliances, electronics, intermediate steel, shipbuilding, motor vehicle, machine parts, engineering and other industries.”
Because of the increase in industrial jobs during this period of import controls and fixed exchange rate of P2:$1, wages rose above the 100 index. But from 1962 to 1986—the period of continued devaluation and floating rate—the wages of skilled workers fell from 100 to 27.8 index points, and those of agricultural workers, from 100 to 70.7.
Indeed, according to the OECD study conducted by Massachusetts University economics professor James K. Boyce (“The Political Economy of Growth and Impoverishment in the Marcos Era”), “Both agricultural and urban real wages fell, but the latter fell even more sharply …” Thus, the living conditions of the working class, especially industrial workers, plunged precipitously under peso devaluation and market-directed floating currency rates.
Stressing further the benefits of import and exchange controls, Renato and Letizia Constantino stated: “The transformation of the economy was reflected in the higher percentage share of manufacturing in the total national income. From a mere 3 percent in 1949 (the year economic controls were imposed), it rose to more than 14 percent in 1956, and almost 18 percent in 1960.
“More significant were the figures in the participation of domestic capital in the economy. In 1959, Filipino capital constituted only 55 percent of the investments in new enterprises in the country. By 1961, this had risen to 88 percent. And from 1949 to 1961, Filipinos invested a total of P1,400 million in new enterprises; the Chinese, P425 million; and the Americans, only P31 million.” No wonder the foreign business interests were against import and exchange controls.
Thus, it can be seen that it was during the era of a fixed exchange rate, when our currency was strongest, that our country experienced the highest economic growth rate in Asia, especially in the industrial sector. This factual experience is directly contrary to what our economists in the government, academic and private sectors have been theorizing ad nauseam.
“The devaluation of 1962 struck hardest at the growing Filipino industries,” the Constantinos asserted. “Debts initially contracted at P2 to $1 for the importation of capital goods and machinery now had to be paid at P3.90 to $1.” Since we use dollars for our imports and debt payments, our government had to borrow heavily. Foreign debt soared from $600 million at the start of Marcos’ administration in 1965 to $26 billion by the time he left in 1986. It was $60.3 billion as of June 2013, comprising nearly 25 percent or one-fourth of our total production of goods and services (GDP).
According to our distinguished economists, the policy of cheap currency will make our experts more “competitive,” thus making us sell more abroad, and generating more income for our country.
But according to the National Statistical Coordinating Board, the Philippines had a foreign trade deficit for 20 of the past 22 years. We are selling less and buying more in the world market. We enjoyed a surplus in our foreign trade (value of exports over imports) in only two years—1999 and 2000.
The highest trade deficit was $12 billion in 2011 (up from $3.4 billion in 2010), equivalent to the total amount of remittances we received from our sacrificing, hard-pressed overseas Filipino workers. We have to pay for this deficit from our income from internal taxes and external credits, including OFW earnings, foreign grants and aids, and foreign borrowings.
We also pay for these foreign loans from our taxes as our law mandates that payment for the public debt shall be automatic and shall have priority over local needs. Thus the onerous value-added tax, and—despite the promise of President Aquino not to raise taxes—additional imposts on cigarettes and liquor, among the few comforts of the hard-working poor.
Every time our peso depreciates, the amount of pesos required to pay our foreign debt increases proportionately. Hence our widening annual budget deficit that prevents our government from spending on infrastructures, education and health, which are the primary needs of our people. Bayad muna utang bago kain(Pay debt first before eating).
So why do our so-called economic technocrats in the government, business and the academe continue preaching a doctrine that is so obviously ruinous to national wellbeing? Is this not the economics of poverty?
Manuel F. Almario (mfalmario@yahoo.com) is a veteran journalist, semiretired, who is also spokesperson of the Movement for Truth in History (Rizal’s MOTH).