Republika g Pilipinas

Political Economy

Data as of June 1991
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Immediately after independence, the government concentrated its efforts on reconstructing and rehabilitating the war-damaged economy. In 1949 import and foreign exchange controls were imposed to alleviate a balance of payments problem. Imports fell dramatically, providing a stimulus for the development of light industry oriented toward the domestic market. Manufacturing growth was rapid, averaging 9.9 percent per year during the 1950s. Initially, textiles, food manufactures, tobacco, plastics, and light fabrication of metals dominated. There also was some assembly of automobiles and trucks and construction of truck and bus bodies. By the early 1960s, however, manufacturing growth declined to slightly less than the growth of GNP. The share of the labor force in manufacturing in 1988 was 10.4 percent, less than it was in 1956, although the share had grown to 12 percent in 1990.

By the late 1980s, and in part the consequence of local content laws that were intended to enhance linkage among various manufacturing industries and increase self-sufficiency, the industrial structure had become more complex, with intermediate and capital goods industries relatively large for a country at the Philippines' stage of development. By the mid-1980s, an ambitious US$6 billion industrial development program originally undertaken by the Marcos regime in 1979 had resulted in operational copper smelter-refinery, cocochemical manufacturing, and phosphatic fertilizer projects. A cement-industry rehabilitation and expansion program and an integrated iron and steel mill project were still underway. A petrochemical complex appeared about to be undertaken in 1990, but was bogged down in a dispute over location and financing.

Manufacturing output fell in the political and economic crisis of 1983, and industry in 1985 was working at as low as 40 percent of capacity. By the middle of 1988, after economic pump priming by the Aquino regime, industries were again working at full capacity. In 1990 the Board of Investments approved investment projects valued at US$3.75 billion, including US$1.48 billion targeted to the manufacturing sector.

Manufacturing production is geographically concentrated. In 1990, 50 percent of industrial output came from Metro Manila and another 20 percent from the adjoining regions of Southern Tagalog and Central Luzon. Prior to 1986, government efforts to distribute industry more evenly were largely ineffective. In the post-Marcos economic recovery, however, investment grew in small and medium-sized firms producing handicrafts, furniture, electronics, garments, footwear, and canned goods in areas outside of Metro Manila, particularly in Cebu City and Davao City.

In 1990 the industrial sector was inefficient and oligopolistic. Although small- and medium-sized firms accounted for 80 percent of manufacturing employment, they accounted for only 25 percent of the value added in manufacturing. Most industrial output was concentrated in a few, large establishments. For example, a six-month Senate inquiry determined in 1990 that eight of the country's seventeen cementmanufacturing companies were under control of a single firm.


The 1980s were difficult for mining in the Philippines. In 1990 the mining and quarrying sector contributed 1.5 percent of GNP, approximately half the percentage it had accounted for ten years earlier. Mineral exports were 5.4 percent of merchandise trade in 1988, whereas in 1980 they constituted 17.8 percent. Rising operational costs and a depressed market severely affected the industry. In 1990 mining operations suffered from labor disputes, higher mandated wages, higher interest rates, typhoons, an earthquake, and power shortages.

In the early 1990s, the Philippines had large deposits of copper, chromium, gold, and nickel, plus smaller deposits of cadmium, iron, lead, manganese, mercury, molybdenum, and silver. Industrial minerals included asbestos, gypsum, limestone, marble, phosphate, salt, and sulfur. Mineral fuels included coal and petroleum.

In 1988 the Philippines was the sixth largest producer of chromium in the world and ranked ninth in gold production and tenth in copper production. The country's nickel-mining company, Nonoc Mining and Industrial Corporation, ceased operation in March 1986 because of financial and labor difficulties. The Asset Privatization Trust, a government entity in charge of selling firms acquired by the government through foreclosure proceedings, sold Nonoc in late 1990. The new owners expected to resume operations in the middle of 1991 and produce some 28,700 tons a year, which would again make nickel a major export earner for the Philippines.


During the 1970s and 1980s, the Philippines sought growth and self-sufficiency in energy production. In 1972 the government altered the legal arrangements for oil exploration from concessions to a service contracts, and serious oil exploration began in the mid- and late 1970s. As a result of exploration in the Palawan-Sulu seabed, oil was discovered in the Nido oil field in 1976. Commercial production began in 1979 and yielded 8.8 million barrels. Successful wells also were drilled in the Cadlao and Matinloc fields off Palawan in 1981 and 1982, but the fields were relatively small. The level of production varied during the 1980s but never exceeded 5 million barrels in any one year. In 1988 local production - 2.2 million barrels - accounted for only 3 percent of domestic oil use. A study released in early 1990, indicating that the geology of the Philippines was a favorable indicator of possible additional petroleum deposits, was used by the government to encourage oil exploration firms. Production-sharing arrangements allowed a firm first to recover the cost of its investment, after which 60 percent of profits would go to the government. In December 1990, there were new discoveries of oil and natural gas off the northwest coast of Palawan Island. Tests showed that the oil well could have a flow rate of 6,000 barrels per day, with potential reserves of about 1 billion barrels.

Between 1973 and 1983, power generation increased at an annual rate of 7.0 percent, two percentage points above the growth rate of real gross domestic product (GDP). In 1988 the National Power Corporation, which produced approximately 90 percent of the country's electricity, had a generating capacity of 5,772 megawatts. Of that, 42 percent was from oil-burning plants and 7 percent from dual oil-coal facilities. An additional 37 percent was from hydroelectric plants, and just under 15 percent was from geothermal plants.

The Philippines had a wealth of potential energy resources. It ranked second behind the United States in production of electricity from geothermal sources. Installed capacity in 1988 was 828 megawatts; estimated potential was 35,000 megawatts. Undeveloped hydroelectric potential of 3,771 megawatts also was identified. Coal resources, estimated to be 1.2 billion tons, also were plentiful, although of a rather poor grade for electrical generation. In addition to these sources, solar, animal waste, agriwaste, and other nonconventional sources were utilized for generating small amounts of electricity and other energy needs in rural areas. Together they accounted for about 15 percent of energy consumption.

In 1990 the Philippines was confronted with a crisis of insufficient electrical generating capacity. Metro Manila and the thirty-three provinces in the Luzon power grid experienced brownouts of up to four hours per day, with the grid averaging a daily deficiency of 262 megawatts. At the root of the problem was the decision by the Marcos regime to build a 620 megawatt nuclear-power plant on the Bataan Peninsula. The Aquino government decided not to use the facility because it was located on a seismic fault. As a result, a badly needed expansion of generating capacity in Luzon, which accounted for 75 percent of national electric consumption, did not come on line. The problem was compounded by inadequate planning and bureaucratic delays. There were delays in the building of a facility capable of generating 110 megawatts of geothermal power in Albay Province and a 300 megawatt coal-fired plant in Batangas Province. The short-term solution was to put up a series of gas-turbine plants with a combined rating of 500 megawatts. Only 245 megawatts came on stream between 1987 and 1989. Economists estimated that to achieve a 5.6 percent growth rate in real GNP, the country would need an additional 300 megawatts of generating capacity yearly.

Efforts also were being made to expand the country's rural electrification program. In 1985 it covered the franchise area of some 120 electrical cooperatives, reaching around 2.7 million households. The government planned to expand the coverage to some 4 million households by 1992.


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