The late President Elpidio Quirino was quietly buried in the Libingan ng mga Bayani the other day. To our mind he excelled in different directions, in both domestic and foreign affairs. His total economic mobilization program under a regime of import and exchange controls catapulted this economy to the take-off stage.
In his inaugural address he promised that “in the next four years, there will be efficient delivery of public services, more stable public finances, and a broadening base of economic security for all… I repeat, our own program of economic development is essentially a program of self-help. We encourage our neighbors to do the same. We invite them to cooperate with us in an effort to coordinate the measures for our common full development. We must pull ourselves out of the treacherous morass of misery and want, and assume a new dignity in our international relations…:”
Elpidio Quirino succeeded President Roxas and carried on where his predecessor left of. Under his watch, the economy shifted from being a colonial and highly protected one, to a controlled economy.
The Quirino administration introduced economic policy reforms including import controls, which were implemented for almost two decades. These import controls resulted in the growth of the Philippine entrepreneurial class that, in turn, helped the growth of the economy.
Import controls and manufacturing gains
Quirino’s administration promoted institutional reform and economic consolidation by enhancing important pieces of legislation that were vital to the foundations of an independent Philippine economy. The economy started protecting itself from foreign exploitation and many took advantage of the opportunity offered by the economy. His administration was marked with considerable reconstruction of infrastructure and general economic movement forward.
A constellation of economic policies were institutionalized during Quirino’s administration. Quirino introduced controls to the Philippine economy in order to restore a tolerable equilibrium in external payments, after the unprecedented post-war import surplus, stimulated by changes in Filipino consumption patterns and peso overvaluation. The Quantitative Controls over imports were established by Republic Act No. 330 of July 15, 1948, which authorized the President of the Philippines “to establish a system of import control by regulating imports of non-essential and luxury articles, creating an import control board, authorizing the issuance of rules and regulations to carry into effects such control and penalizing violations of this act.”
Furthermore, in 1950, President Truman agreed to send an economic mission to advise the Philippines on the establishment of a sound and well-balanced economy. This mission outlined a series of institutional reforms and policy changes which occupied the attention of the Philippine government in the ensuing four years. These policies include increase in tax revenues, including tax reforms in order to make it more progressive, expansion and improvement of agricultural production, land reform, and assistance to small farmers, and diversification and expansion of industry and improvement of transportation facilities.
Expansion of industry was the priority of the Quirino administration. Among the policies the administration pursued in order to expand industry was import control and the establishment of the Import Control Administration (ICA) which was authorized through Republic Act No. 426 of May 18, 1950.
As a result, import restrictions stimulated the manufacturing sector and sparked industrialization. Initially imposed in response to a balance-payments-crisis in 1949, the controls quickly became an instrument to protect domestic manufacturers of consumer goods from cheap foreign competition. Manufacturing net domestic product at first grew rapidly, averaging 12 percent growth per annum in real terms during the first half of the 1950s, contributing to an average 7.7 percent growth in the GNP, a higher rate than in any subsequent five-year period. The Philippines had entered an import-substitution stage of industrialization, largely as the unintended consequence of a policy response to balance-of-payments pressures. The share of manufacturing in the net domestic product rose from 10.7% in 1948 to 17.9% in 1960. The growth brought the emergence of a new “industrial class,” drawn from “the more enterprising members of the moneyed class, including sugar-associated interest.”
The levels of net investment maintained during 1945-1949 were sustained by external savings transferred to the Philippines through a surplus of imports of goods and services. During the four years following 1945 the import surplus amounted to P2, 121 million, which was more than matched by the United States government disbursements of $1,041 million.
Despite serious flaws, many technocrats supported the controls and argued that it is vital in restructuring the economy. Among them was the first Central Bank Governor, Miguel Cuaderno. He argued that 70% of Philippine imports consisted of consumption goods and this indicates a fundamental defect that prevented the economy from realizing its full productive potential. As such, although free trade develops the special capabilities of every nation through the operation of the law of comparative advantage, the kind of free trade that the Philippines experienced during that time was a free trade on with the US but restricted trade with the rest of the world. Thus, while the imposition of exchange and import controls was an emergency measure, it was, in a more important sense, converted as an opportunity to initiate change by restructuring the pattern of the economy.
The economist Amado Castro considered exchange controls as the chief instrument in restructuring an economy. Controls are used to lay the foundation for a viable modern manufacturing sector and reduce the role of agriculture, give Filipinos a larger share of economic activity, and enhance economic independence in relation to the US.
The exchange and import controls gave the State the powerful tools to determine the course of economic development and strengthened its role as an arbiter in determining who, for example, receive the dollar allocations. With the stoppage of the foreign exchange hemorrhage, the industrialization program was promoted by powerful incentive seeking to establish ‘new and necessary’ industries. The incentives included tax exemptions, liberal credit facilities and windfall profits an overload peso – all of which provided a high degree of protection to domestically manufactured import substitutes.
There is a consensus that the exchange and import controls system produced structural change in the economy. This view is reflected in a report of the First National City Bank of New York which noted that “The exchange control system helped set in motion a radical acceleration of the country’s economic structure. Stimulated by an effective barrier against foreign products and by preferential access to foreign exchange . . . an entire spectrum of new or expanded local industries came into existence. The traditional trading-in-finished goods orientation of the non-agricultural sector soon changed into packaging, assembly, and light manufacture.”
Aside from import controls, the Quirino administration also enacted the Price Control Act through Republic Act No. 509, which was approved on June 13, 1950. This act authorized the president to fix commodity price ceilings until April 30, 1951, and provided for a Price Administration Board (PAB) to recommend maximum prices. This act allowed, the government, with the approval of the President, to import directly such article goods, or commodity for distribution in the local market through such channels as it may choose, and such importation shall not be subject to any quota requirement provided for by any economic legislation.
The initial price order under the Price Control Act was Executive Order No. 331 of July 7, 1950, which fixed minimum prices that importers’, producers’, wholesalers’, and retailers’ could charge for a large number of local and imported commodities.
Quirino also signed into law Republic Act No. 265 on June 15, 1948, which established the Central Bank. A major turning point in the evolution of the Philippine monetary policy occurred during 1950 and 1951. Instruments of control over foreign exchange payments and the international reserve had been developed during the first year and a half of the bank’s operation.
Following the recommendation of the Bell Report for increased revenues, the Philippine Congress in the spring of 1951 enacted a special tax of 17% on sales exchange – Republic Act No. 601 of March 28, 1951. This was followed by additional revenue bills including a productive tax on sales of foreign exchange.