Report No. 1095a-PH

I he Philippines U{ILE Copy)Priorities and Prospects for Development-Basic Economic Report(In Three Volumes)Volulme 1: Jummar; aiuy C orl,cuiu,

An Overview of Development Prospects in the PhilippinesStatistical Appendix

May 5, ITl7JPaT'J TMEast Asia and Pacific RegionEast Asin Andl Pi,cfi Pr ogr m. flnnr%nrmen, - -- -- -- --

FOR OFFICIAL USE ONLY

Box Nolq AS~R-SA AAl-I l~ -

Document of the World Bank

This document has a restricted::L i used by recipienfs

only in the performance of their official duties. Its contents may nototherwise be disclo,sed wiithout i ^v' ,rld- R;ank ;iiuthorization.

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rTT>2Pr'V AI(TfL OT'PHP T?nITTITAT .T7TTq

Currency Unit Peso (P)

US$1.00 = P 7.5

P 1.00 = US$0.1333

US$1 million P 7,500,000

Fiscal Year

Through 1976 July 1 to June 30

Beginning 1977 January 1 to December 31

Tables

zero or negligible

-- - not applicable

n.a. not available

rTTPpp1mrv AmJT flTT4F vnfTjTIAT.17JTr,

Currency Unit = Peso (P)

US$1.00 = P 7.5

P 1.00 = US$0.1333

US$1 million = P 7,500,000

Fiscal Year

Through 1976 July 1 to June 30

Beginning 1977 January 1 to December 31

Tables

.. = zero or negligible

-- = not applicable

n.a. not available

FOR OFFICIAL USE ONLY

This report is based primarily on the findings of an economicmission which visited the Philippines in April/May 1975. The preliminaryf4nding-Is of the m,

4 sson, were furthe.r upd. a-ed after d4 SC wit4.-h the-

Government in December 1975 and January 1976.

Mission Members

Russell J. Cheetham Chief of Mission'DueJuones General Ecouiouiiist~i

Madhusudan S. Joshi General EconomistCarroll Lon,g Editor/Urban Specialist (Consultant)Guenter H. Reif General EconomistEllen Schaengold Research Assistant/General EconomistKevin Young General Economist

Vladimir Dragomanovic Industrial EconomistFrank Lowenstein Agricultural EconomistPeter K. Pollak Commodity SpecialistAugustin V. Que Financial Economist

Mr Hajimu Maeda and Ms Inai Y. Bradfield also contributed to themission's work in the tields ot power and transportation, respectively,as did Ms Beatriz A. Florendo in the collection and tabulation of theexternal debt data.

The report was completed under the direction of Mr Edward K. Hawkins,Senior Economist.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

THE PHILIPPINES

PRIORITIES AND PROSPECTS FOR DEVELOPMENT

Volume I

List of Acronyms Page No

Basic Data

Social IndicatorsEconomic Indicators

Man

rhanptr 1 - STTMMARV AND rON rTTTqTnm1

Glhapter 2 - AN OVERVWTT OF THT. DEVELT.PMWNT PROSPECTS

OF THE PHILIPPINES 16

Statistical Appendix

Population and Employment.Nat4r.-nl ITncom Accounts

Balance of Payments and External TradeExte.lmal Debt

Public FinanceMoney and3 Bankr.gP Dan .LLLge

Prices and Wages

VOLTuME TT

Chapter 3 - UTTRRAN ThNTFT.nlPMFNT

Chapter 4 - PRTFILE OF THP PURAL SEPCTnR

Chapter 5 - STRATETGIES FOR PTTUATL DEVELOPMENT

- Trur tCuA?TrlTM.TDO 17n1 (W T'NTmTT(ZTPVChapter 6 - THE M.-C-CN ROT E OF -NDUS --v

Chapter,...- 7 - MUT A To DLC!OTTDrLE ThFETrTnM NTT

Appendix I - AGRARIAN REFORM

Appendix II - THE ROLE OF ENERGY

Appendix III - THE POWER SECTOR

VOLU-LTIt III

Chapter 8 - THE LEVEL AND ALLOCATION OF INVESnMENI

Chapter 9 - DOMESTIIC RESOUKCE MANAUEMENT

Chapter 10 - THE ROLE OF THE PUBLiC SECTOR

Chapter 1i - THE ROLE OF EXTERNAL TRADE AND FINANCE

LIST OF ACRONYMS

ACA Agricultural Credit AdministrationAGF Agricultural Guarantee FundAGLF Agricultural Guarantee and Loan FundALF Agricultural Loan FundASEAN Association of South East Asian NationsASM Annual Survey of Manufactures

BBR Bureau of Barangay RoadsBCS Bureau of Census and StatisticsBABCON Bureau of Agricultural EconomicsBOI Board of InvestmentsBOT Board of TransportBRP Barrio Resupply Points

CB The Central BankCBD Central Business DistrictCOPE Coordinating Officer for Program ExecutionCSMI Commission on 9nall and Medium IndustriesCSO Central Statistical Office

nAR Pnartment. of Agrarinn RefnrmDBP Development Bank of the PhilippinesnDEG T)n.QprTmnPn eof Riiinntinn nndi ni1+.irqDLGCA Department of Local Government and Community DevelopmentDOH Depart.maent of HealthDOI Department of IndustryDPH Departm=ent of Pblic HighwaysDPWTC Department of Public Works, Transportation and Communication

E,PP Export. PA.w^o4+4res UIovJ* ~ ~ J~JA LI + I).- . "J± .L UJ4 S .J..C

EPZA Export Processing Zone Authority

FAO Food and Agriculture OrganizationFACO-A Far .,.ersI- -4 -V -Cooeraiv Marketir. Associatio--4 nx I J X ± I-. wvvJkJo± L U.1V~ VJk.L 1.=U.LSS LULJ6

FAPE Fund for Assistance to Private EducationFF Fede1 -VuIration of F-ee FA,FIA Fertilizer Industry AuthorityFIES aralu.±ly jlcuvilu ndAjj I. -e S-vey

FNRC Food and Nutrition Research CenterF ALiC Farmn -y-stertis Dei-veomn Croa

nAmm - -- A mI A.Uti I I ueneral Agreemerull on Tarlfs an diraueGRAMACOP Grain Marketing Cooperative of the PhilippinesGSIS Government ServLce Insurance System

ILO International Labor OfficeIPP Investment Priorities PlanIRRI International Rice Research institute

LBP Land Bank of the PhilippinesT Labi T -i.or Forc Particip PU D-4.-

LWUA Local Water Utilities Administration

COi M 111arkiL.la Ej±Lec trL ic C., o,-,,pMGC Manila Gas Corporationif'lIA is. I --- lta..I... I Ž £ -- rirh M riaila meiropo iuin AreaMMCC Metropolitan Mayors' Coordinating CouncilM-1 C Metropolitan Manila Transport CouncilMTC Metropolitan Transit CorporationMWSS Manila Waterworks and Sewerage System

NCC National Computer CenterNCSO National Census and Statistics OfficeNEA National ELectrification AdministrationNEDA National Economic and Development AuthorityNFAC National Food and Agriculture CouncilNGA National Grain AuthorityNHA National Housing AssociationNIA National Irrigation Authority

NtL.U L National Investment and Development CorporationN'MYC National Manpower and Youth CouncilNNC National Nutrition CouncilNPC National Power CorporationNSCC National Schistosomiasis Control C,pmmission

PACD Presidential Aim on Community DevelopmentPAHRA Presidential Assistance on Housing and Resettlement AgencyPCA Philippine Coconut AuthorityPDAP Provincial Development Assistance ProgramPDC Power Development CouncilPDCP Private Development Corporation of the PhilippinesPHILEX Philippine Exchange CompanyPIECO Population Information Education OfficePMS Project Monitoring ServicePNB Philippines National BankPNOC Philippines National Oil ComparyPNR Philippine National RailwaysPOPCOM Commission on PopulationPRC Philippine Railroad CompanyPROD Presidential Regional Officer for Development

RDC Regional Development CouncilRHU Rural Health UnitsRMTC Regional Manpower Training Center

SSS Social Security System

UPPI University of the Philippines Population InstituteTISATIn Unitetd States Agencv for International TflovP1npment

rrade iPayments and Capital Flows

Balan,2e of Payments Merchandise Exportr; (1972-74 Average)

1972 1973 1974 Millions olE US dollars Percentage

(Millions; of US dollairs)

Exports of goods and nonEactor services 1.,432 2,443 3,357 Coconut products 403 21.2

Imports of goods and nonfactor services 1,484 2,058 3.782 Sugar products 426 22.4

Resouirce gap (deficit = -) -5:> +385 -425 Forest: products 3.37 17.7

Mineral products 393 20.7

Interest payments (net) -92 -53 -55 Fruitus and cther agricultural products; 117 6.2

Workeirs' remittances - Other manufactures 224 11.8

other factol payments -333 -60 Total 1,900 1()0.0

Net transfers 1818 249 271

Balance on current accoulat 11 521 -210

Direct foreign investment -22 54 54 f

Net MLT borrowing External Deblt. December 31. 1974

Millions of US-dollars

Disbursements 414 377 592

Amortization 2413 370 414 Public debt, including gtuaranteed 1,113

Subtotal 1615 7 178 Nonguaranteed private debt 985

Capital granits Total outstzanding and disibursed 2,098other capital (net)j 63 54 188

Other items, n.e.i.- c -18D -41 79Increase in reserves (+)- 3B 595 289/

Increase in reserves (+)-- d/ 3B _T9 5 289 Debt Service Ratio for 19748/ Percentae

Gross reserves (end yeadI- 735 1,416 1,978

Net reserves (end year)- 80 753 934 Public debt, including guaranteed 6.6

International reserves (end year)-' 282 876 1,166 Nonguaranteed private delbt 8. Si

Total outstanding and disbursed 15.5

Fuel and related materialsImports olE goods and nonfactor services 1,514 2,008 3,782

of which: petroleum 147 184 653 World Bank (IDA Lending. January 31. 1976 (Millions of US dollairs)

World Bank IDAOutstanding and disbursed 237.0 7.3

Undisbursed 453.4 14.9

Rate of Excilange Outstanding including undisbursed 690,4 22.2

1965-69 1970-771US$ 1.00 = Ps. 3.92 6.4'1Ps. 1.00 = US$ 0.26 0. 16,

April 1972-July 1975 Since JUlY 1975

US$ 1.0(1 = Ps. 6.78 US$ 1.00 = Ps. 7.5Ps. 1.0() - us$ 0.15 Ps. 1.00 = US$ 0.133

a/ Includes SDFRs, short-tens privaite loans, CerLtral Bank liabilities and use of. IIMF credit

b/ Errors and omissionsc/ Includes net commercial bank hcldings plus foreign exchange holdings of Central Bank and monetary gold. This entry is equivalent to the

change in irkternational reserves.d/ Includies Central Bank andi commercial bank reservese/ Cross reserves of Central Bank plus net reserves of coummercial banks

_t Excludes short-term debt and IMF standby credit and is on a dis;bursement bas is

g/ Ratio of debt-service to exports of goods and non-factor services

SOCIAL INDICATORS

PnWfrl ATrTA.tT V TT f40.2 -nii-ion (mid-1973)

Rate of Growth: 3.0 percent fr n1960t°7in-

AREA, DENSITY300.000o k,,2/ 134 per kn-/

per korl Of arable land

POPULATION CHARACTERISTICS (1970) HEALTH

PoDulation ner nhvsician 27linCrude b hra.tLC I,peL r J t)J .J U-, - -- -Crude death rate (per 1,000) 12.0 Population per hospital bed 797Infant mortality (per 1,000 live births) 80.0

INCGME DISTRIBUTION (1971) DISTRIBUTION OF LAND OWNERSHIP

Percentage of national income, highest quiritile 24.8 Percentage owned by top 10 percent of owners - n.a.loest queintile 3.9 Percentage owned by smallest 10 percent of owners - n.a.

ACCESS TO PIPED WATER (1970) ACCESS TO VTrWTrTCTTV (1o7A\

Percentage of population - urban) 3 Percentage of dwelling units - urban 63.0) 23.0- rural) - - rural 6.uJ

NUTRITION (1970) EDUCATION

Caloric intake as perce,tage of requirements 85 Adult literary rate as percentage 12 (IQ197Per capita protein intake (grams per day) 43 Primary school enrollment as percentage 112 (1971)

GNP PER CAPITA in 1973-1:US$ 280

The per capita GNP estimate is based oh the 1975 world Bank Atlas. n.a. not available

ECONOMIC INDICATORS al

Annual Rate of GrowthGross National Product in 1974 (In percent at constant prices)

Millions Percentage 1960-65 1965-70 1971 1972 1973 1974of US Dollat oXir.

GNP at market prices 14,550 100.0 5.5 5.7 6.5 4.3 10.0 5.8Gross domestic investment 3,630 24.9 12.6 1.6 5.9 -3.5 9.4 23.4Gross national saving 3,420 23.5 15.0 3.6 13.2 -8.2 49.1 -11.6Current account balance -210 -1.5 -- -- -- -- -- --Exports of goods and nonfactor

services 3,357 23.1 11.0 4.5 5.0 1.5 18.7 -24.1Imports of goods and nonfactor

services 3,782 27.2 7.3 7.2 5.4 2.7 13.1 20.4

Output, Labor Force and Productivity in 1974

AAA..A ~~~~~~~~~~~~~~~~--- .. ....Value Added -1__vajue auded rer worKer

Millions Percentage Millions Percentage US dollars Percentof US dollars Composition of US dollars Composition

Agriculture 4,187 36.0 7.6 53.9 551 67.0Industry 3,850 33.2 2.4 17.0 1,604 194.9Servires 3581 30.8 4.1 29.1 942 114.5

Total/Average 11,618 100.0 14.1 100.0 823 100.0

emitral Government Finance

Millions o pesos Percentage of GDPFY74 FY74 FY71-73

Current receipts 11,832 12.2 9.0Current expenditure 7,915 8.1 8.0Current surplus 3,854 'A v.uCapital expenditures 2,646 3.1 1.4External assistance (net) 186 0.2 0.4

Money, Credit and Prices 1965 1969 1970 1971 1Q79 7on 10in7(Millions of pesos outstanding at end of period) -_

Money and qu,asi money c 5,136 8,959 10,140 ii,720 13,243 16,837 19,766Bank credit to public sector,- 980 3,565 3,749 3,907 4,817 6,820 7,627Bank credit to private sector 8,223 13,139 15,396 18,010 21.531 2s q06 34,326

Money and ouasi money aspercentage of GDP 21.1 27.0 25.0 23.2 23.5 23.5 19.9

General price index (1963 = 100) 100.0 111.4 137.7 159.3 175.3 218.4 fl7 sAnnual percentage changes in:General price index 2.2 1.3 23.6 15.7 10.0 24.6 54.5Bank credit to public sector n.a. 27g9 -2.4 l2.3 22.3 41 6 11 8Bank credit to private sector n.a. 9.0 17.0 17.0 27.0 25.0 27.6

NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the periodcovered.

a/ At current factor costb_ Total labor force; unenployed are allocated to sector of their normal occupationS/ Covers credits from all important financial institutions

IBRD 121601100o 12'0 114e MARC. t9t6'

CLASSIFICATION OF PROVINCESBY GEOGRAPHICAL REGIONS

I1 -.r V! WESTERNil [T VISAYA C

1 Ilocos Norte 37 Aklan2 Abra 38 Cepiz I?3 1locos Sur 39 Antique 8 20014 Mountain ~ 1101

5 La Union 41 Negos OccidentalBev S L aUnguet VI) CENTRAL VISAYAS

7 " Pan LEYinn 43 Negros Oriental11 CAGAYAN VALLEY 44 Bohol

8 Batanes 45 Siquijor9 Cagayan VII EASTERN VISAYAS r'

1 iKalinga-Apayao 46 Northem Samar Bahlan Channel11 Isabela 47 SeyanaChanne

1 2 N -u -a- 48 VE sote E rne fI . .-e fI R A ILW A Y S13 Nuen iey 4 Leyte - RVNCA OUDRE14 Ciirlno 50 Southem Leyte Lg / I 9 ---- PROVINCIAL BOUNDARIES

III CENTRAL LUZON IX WESTERN MINDANAO / - REGIONAL BOUNDARIES15 Nueva Ecila 51 Z7-1o,npa del None INTFRNATinNAI BOUNDARIFS

16 Tenon 5~2 Z mboanp del Sur '\) Oaeotn___17 Zambales 53 BasilanJ

I1 Pampanga 54 Sulu Ifill BobcYat S5 Tawiluwi 3 1 4 olIC '

20 Batean X NORTHERN MINDANAO 4IV SOUTHERN TAGALOG. 56 Surigao del Norte ( ) i '12 - ,1

21 Quezon -CuiunSe*ot'e--3C vitde 59tLU N > O 01 50 100 150 200 250 30524 L"vguna A, ~13C50 10 l5I-co 25 BBatngas 60 Misamis Occidental \ KILOMETERS IB°

Muarinauque e1 us. a y No o27 Mindoro Oriental 62 Lanao del Sur28 Mindoro Oecidental 63 Bukidnon ILE29 Romblon 64 Agusnn del Sur ) 716le/

1S0Ceb.

30 Palawan 65 Surigao del Sur 17' <III . rp a or 0ll"'ll by'lV BICOL XI SOiUTHERN MNDANAo 0 '-V/' ' fl9y eeankment l aetnekbyt31 Cemarines Norte 66 M1guindanao I ',i a t 2l O

66 Muguindenuo ~~~~ 'K .11~21 ?32 i-U North Cotabato ':C7 20 X-ati,ie ) P S33 atnduaner 20 'aae> imanl. P H ILZI P PI/NE S E A

34 Albay 69 Daao Oriental35 Sornonon 70 D,novdel Sa a 233 J

36 Masbate 71 Sultan Kudarat Wlaf enPele*. ,;_ Deet72 South Cotabato < \ ,r Bw$"

< OC..Pn 2 S- \NJ \ e /

"MINDORO (\sourH C H N A 8 51 VU YANSEA t5

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| vir_SEA \J 9 MABAE re 120-] <z

n V \N SETh'S 46E A A III -A! ttfi / A? VI /8f'I L E YTE, a

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3/43uettopnlnee i43 j iI7 PAaW 1/ND'.AN AO SEA

SULU SEA | I 6

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t8e - 61 f 4 ,>o1A 63 I8°

| COINA (7TlAIwAN l l1 ° 68 \16967~~~~~~

[ ~ ~ ~~ I f .!( j t.eJienet/r/ I ( 7*- ,* -||~z' < kOZontio MoreoGl/f (66 -b( XI

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CHAPTER 1

O1TTUMAflV AXTh On'1COT 7TCTA?dC

O3urlvrinix . -1 Nt .j ,au.3.AJ

Overview of Development Prospects

1.01 The outlook for the Philippine economy during the next 5 to 10 yearsis heavily influenced by recent economic events. Tne rapid improvement in tnelevel of economic activity in 1973-74 was based on more favorable prospectsfor exports. This was a welcome improvement foliowing the acute baiance orpayments difficulties of the early 1970s, but it was soon curtailed by theimpact of sharply deteriorating terms of trade in 1974, followed by a world-wide recession in 1975. The growth in real GNP, which had averaged 5 per-cent a year in 1970-72, increased to 10 percent in 1973 but declined to 6percent in 1974-75. The most important reason for this deterioration was anincrease in the prices of fuel imports which, unlike the price hikes forimported food and raw materials that occurred at the same time, was not sub-sequently reversed.

1.02 The economy was in a stronger position to deal with the balance ofpayments deterioration of 1974-75 as a result of the measures and policiesthat had been introduced to deal with earlier economic difficulties. Theprospects for the next decade must be viewed against the policies for inter-nal development which have evolved since 1972 and the distinct change ofdirection which has been introduced into the economy by these policies. Thischange arises partly from the nature of the policies and partly from the needto adjust to the increased dependence upon foreign inflows which the oilprice increase and other external factors has brought about. During thenext decade the economy will be dependent upon foreign inflows to financeprospective balance of payments deficits that will be larger than those ex-perienced in the recent past. These deficits, however, do not reflect afundamental disequilibrium in the economy but are instead the results of adeliberate set of decisions to finance a higher level of capital formation,partly in the public sector or through the initiative of public bodies,and partly in the private sector. The dependence upon foreign inflows willbe relatively large in the remaining years of the 1970s but is projectedto gradually decline in the 1980s.

1.03 Such projections are based upon assumptions concerning futureprospects for exports and price trends for both exports and imports. Thelikely outcome for the balance of payments is very sensitive to the rela-tionship between export and import prices, as measured by the terms of trade.That ratio is assumed to improve gradually after 1978 and to be above the1974-75 level by 1985. If this assumption is not vindicated in practice,the balance of payments situation will require a reassessment of economicpolicies, especially those involving investment expenditures with foreignfinancing requirements.

1.n4 The rising level of canital formation foreseen reflects a clari-

fication of objectives on the part of the authorities and an increasedability to imnlePTnent invPqtmPnt nrroiprtq Much of the canit21 fnrmation

consists of a group of relatively large resource-based industrial projects,

-2-

together with the substantial increase in the power program required tosupport the operation of such new industries. The power investments willnot only lessen the dependence of the economy upon imported fuel, but willalso eliminate the backlog in the growth of generating capacity, encouragethe decentralization of economic activity throughout the country, and en-able the economy to make better use of its natural resources. This componentof the industrial program will necessarily be capital-intensive because ofits technological requirements and will not create much direct employment.

1.05 The economy will also move during the next decade into a secondstage of import substitution involving industrial projects for the produc-tion of intermediate and capital goods. Here there is some overlap with thefirst group of investment activities and once again the technological require-ments point to this group of industrial projects being relatively capital-intensive. In both cases, however, it is expected that the indirect employ-ment creation made possible by the operation of these projects will be muchlarger than the direct addition to job opportunities.

1.06 The third element in industrial investments will be the expansionof manufacturing production for export, particularly in what is, for thePhilippines, nontraditional lines. This part of the Philippine manufac-turing sector has recently experienced a rapid rate of growth from a smallbase. The task ahead will be to ensure a continued but more modest rateof growth sufficient to establish a larger manufacturing export sector, andto expand the export earnings of the economy in a way that cannot be donewith the more traditional export products of the country. This is the mostsignificant structural change expected in the country in the next decade.Not only will it provide an essential part of the growth of foreign exchangeearnings but such a growth manufacturing for export is not unrealistic inthe light of what has been achieved in other economies in the region at simi-lar stages of development. However, substantial efforts will be requiredif this obiective is to be reached; not enough is known at present as towhat determines and limited the opportunities for manufacturing exports ofthis kind.

1.n7 Other imnortant asnects of develonment strategy include the ex-pansion of public investment in infrastructure and the provision of publicservices. A wide varityv nf nrnograms lintdrway arp aimed at strenot-heningr

the public sector so that it can provide better public services. Atten-tion will have to be given, however, not only to raising the efficiency ofthose services but also to expanding them more widely through the economy,so as to lessen the predo[.inance of econom.lic activities in the metropolitan

Manila area. The manner and form in which these services will be provided. 4 I 1 - - - -4 :C 4 cAn b 4 -_ A A 4 A v _ 4 A . . v4 -__ -- tWll LL a CVt1: a 0 0L

6tiL JAE1 1 L UlOC L LLLr, J[I C iLhJYILClL, VLL.JiLC U .LD LLa U U- LVII IIU LLI

reduction of poverty. These aims are greatly influenced by the high rateof population growLh and the coisequerit high rate of growtIl O tie laDorforce. Because the area of new land available for agricultural productionis declining, thne prospects for rural development are less hopeful unlessnew policies are developed to raise productivity and incomes. In the shortrun it may be necessary to allocate resources to those areas which are cap-able of expanding production with the use of modern inputs and the limited

- 3 -

extension facilities available from the public sector. Such an agriculturalpolicy may well permit the economy to become, on average, self-sufficientin food production in the next decade. It is recognized, however, thatsuch a balance of policies will not leave many resources available with whichto make a major direct attack on the elimination of poverty in less favoredparts of the country.

1.08 This dilemma highlights the necessity of proceeding with thoseoptions already available to the authorities which will have an impact on thewell-being of the poor. The most important in this respect is agrarian reformiholding out the prospects of a major redistribution of assets. Such a redis-tribution of wealth would be a powerful contributor to the longer run possi-bilities of a more equal distribution of income. Other elements of Governmentreform could also substantially affect the poorer groups throughout the coun-try. Continued tax reforms, for example, can be carried through in a prog-ressive manner, especially if they are accompanied by careful attention to suchmatters as public utility pricing, irrigation charges, and the provision ofother services relevant to the poor.

1.09 Three areas of particular importance will be education, health,and family planning. The Philippines is fortunate in possessing a large,diversified. and dynamic education system which should now be adapted toserve the development needs of the country more effectively. A relativelyhigh level of literacy and a well educated labor force are substantial assetsin economic development and will be necessary if a resolute attack is to bemnde on the hi4h rnte of nonn,l,t0in growth The high growth rate of nontiul-

tion arises from a high level of fertility. If economic development proceeds,fertility can be expected to fall but every effort must be made to encourage

and, where possible, speed up such a decline in fertility. The widespreadnrov7icirin of fam1,l nlpnnincr servirces Till heln to hriny ahoult thait decline.

Nothing would do more to improve the long-term economic prospects for theaverage Filipino thanna fall in the rate of growth of the population.

1.10 The development strategy disc,issRd in this renort is a distinct

departure from the policies of the 1960s. Its objectives appear modest,particularly in the areas of employment creatIon and the rediuct4on nf poverty,but they are not insignificant. The achievement of the objectives now beingpursued will make possible a monr effecti-n anprnn,h ton oncil nhA-ecivsc

in later years, the immediate tasks are essential steps to an ultimate improve-man F n n t. TO 1 1 wellhab A;, rv of the alverage P 1F ilii Theyrl r tnnnot he reA

1l ac ab iA,

other policies which are likely to be more effective in the short run. Thetask of thie nexitc AecaAe is to lay the founAations for future growth that the

Philippine economy can achieve in the rest of this century.

Urban Development

1.11 The urban sector in the Philippines, representing almost a thirdof the total population, is characterized by the dominance of the ManilaMetropolitan Area (MMA) and by a number of rapidly growing secondary cities.Much of the growth of these urban centers may be attributed to migraltS fromrural areas who are searching for more productive employment. Despite the

significantly higher average incomes of households in urban centers (almostdouble those in rural areas), the disparities are greater and a substantialproportion of the urban population lives in absolute poverty with inadequatehousing and limited or no access to water supplies, sanitation facilities,electricity, and transportation.

1.12 Private and, to a large extent, public investments have been con-centrated in the MMA. The relative neglect of other urban centers has rein-forced the significant degree of regional income inequality and constrainedthe arowth of urban incomes outside Central Luzon. More attention will there-fore have to be given to the decentralization of social and economic infra-structure and services awav from the MMA to a limited n_mber of other growth

centers. The Government has already designated these regional growth centers,and some efforts haue begun to encourageaprocess of decentralization. Localgovernments have been granted the power to borrow from lending institutions,for e nmnle- nnd the Rnord of TnvectmPntf hnq nenoitrnaod tho Iotntion of in-

dustries outside the MMA. But clear and detailed policy guidelines are stillnecessary.

1.13 The encouragement of economic activity to locate outside the MMAwill, of course, depend in large part on the development of infrastructureand service_-S i n other areas. Populaticon growth appears to have outpaced the

provision of public services in most urban centers, and many variations existin the provision of servi.es among ----- io a-- amon r J uts ictions within a

single region. The Government's provincial water supply, electrification,power, and Aflood0 control progrann.s sh-ould contribute lowardA amellorating-r C[U £- 1)). L Ui L- i. t s m al) Ut LA t 'L .- L_ LU WCh U iie 4-) L.L.Lir

some of the existing disparities, but much more public sector activity willhave to takLe pLace lin the provision Uf housing, sewage disposal, adi trans-

portation.

1.14 Increased emphasis will also have to be given to improving the accessOL low-income households to public services in growing urDan areas. BecauseManila is and will remain for some time the largest city in the Philippines,accounting for a large share or the urban poor, particular emphasis will haveto be given to improving the quality of life of the urban poor in that area.One important means of remedying disparities tnat currently exist in tneprovision of services among neighborhoods in the MMA is administrative, andthe recent creation of a Metropolitan Manila Commission should serve tofacilitate the coordination of the activities of 17 local governments andthus lead to a more equitable provision ot services and racilities. A con-certed effort will need to be made to increase the capacity of existingtransportation facilities in the MMA and to build a viable public transportsystem through more effective management and regulatory procedures, as wellas through the integration of transportation planning wit4hin overall urbandevelopment plans.

Profile of the Rural Sector

1.15 While rural incomes increased from 1961 to 1971, there has been adeterioration in the distribution of incomes and share of expenditures amongthe rural population. The levels of living of the lowest income groups in

- 5 -

the rural areas appear to have improved somewhat, but not as fast as thoseof groups higher in the income distribution scale. For the rest of the 1970sand perhaps for a period in the 1980s, it is unlikely that there will be anyimprovement in the distribution of incomes in the rural sector.

1.16 Approximately 90 percent, or 14 million people, of the lowest 40 per-cent in the national income distribution scale reside in rural areas. As withthe rural population as a whole, most are engaged in farming and a substan-tial number have important secondary earnings from nonagricultural sources.Agricultural employment (excluding fishing and forestry) has historicallygrown at about 2.0 percent, but will probably expand by only about 1.7 per-cent a year during the next decade. Nonfarm employment, which has been grow-ing at about 5.6 percent a year, should increase by about 4.5 percent a yearduring the same period.

1.17 An important characteristic of the agricultural sector is thedominance of small farms in most cropping activities. In 1960, 74 percentof all farms were less than 4 hectares in size and 41 percent were belowtwo hectares. Since 1969, there has been a significant increase in thenumber of small farms, a change which reflects to a considerable extent theeffects of growing population pressures on the limited area of arable landavailable.

1.18 Another important characteristic of the sector is the pervasivenessof farm tenancy. About 40 percent of all farms are operated by tenants,which is one of the highest tenancv rates in Asia. The Government has hada long-standing commitment to a program of agrarian reform which wouldabolish shanrrnepping and providp graptpr sprcritv nf tpnure. Tn 19792

a substantial program was undertaken to transfer about 1.5 million hectaresto almost one million rice and corn tennnts Tmnle .tni-inn of thland

transfer program during the first year proceeded at a fairly rapid pace buthas qloAwed cnnsiderbhly sinrce then. Although the national government will

continue to carry the major responsibility for promoting rural development1, lal communities could also play a greater role in their imple-

mentation. Administrative reforms should take place that enlarge local res-nonsibillty for formlunt-f-ng and administerino developmenrt projects and pro-

grams, and the amount of financial and technical assistance available atthe local level should be increased.

1.19 The Goverrnment has also been placing greater emphasis on the rural

cooperative movement and on developing farmer organizations. These farmerorg5anizLations pid,4Ae such services as the A4strilbJUtion ofl prodUCton inputs

and the processing and marketing of members' products, but their effective-ness lida Ub een:mUII.WaidL UnuerILminedU uy i[tLUrgalnlLdzLU[idl cUoILnLLC LaD dIU Ltle

duplication of services.

Strategies for Rural Development

1.20 One of the Government's main development objectives is to achieveself-sufficiency in rice and corn production. Until the 1960s, tne increasesthat took place in rice production were achieved primarily by an expansion

- 6 -

of the physical area. Because the possibilities of expanding cultivation ontonew arable land are severely limited, efforts to raise production in thefuture will have to depend on increasing the irrigated area and on improvingvields= Tt shouldbe ponnihlp for the PFhlinnines to meet domestic demandfor rice and eliminate imports by 1985 if total rice production expands byabout 4.0 percent a year.

1.21 mlrn production alcs increias suilbctanntial lu rdiuring the latter nprt

of the 1960s. Increases in cultivated area and yields contributed equally tooutput growth until 19070, but since that time y7ields haver bee,n at-agnotincy-

The rate at which corn yields increase in the future will largely depend onth1 e successf. ul Uevelopment of new hlgh[yieldi n g var4eties and Giovernment ef-forts to provide the necessary supporting services. With a more concertedefLfLort, thL-Le Ph.lLJippinLe C poILAU jO ssJibly hiavie aln exporLtLbable surplus oIu0f co0rnLL i

the 1980s.

1.22 Efforts will be needed to increase the marketable surplus of otherproAucts such as meat, pouuLtry, and fish bUecause ofL their relatively highelasticities of demand and the projected increases in the proportion of thetotLa'L popullation Liv L1 4.n urb centeL. Programs to increase L- e - --

tion of these commodities could also provide excellent opportunities forLl11t:! abLa 1V, Lilt! iaLLuie L Ilidlly ±1UW LLIIILC LaiLt .L.L 0 1 I U 1L ai. aDo.

1.23 ~Agricultural export production, which is domlinated Aby the coconutI. . L J LI it. ULLUtd C p L -LL jtIU Ut. L-At, Wt.LI. i £ U til Ii CaL L

1I. l.- I.tL tc

and sugar industries, has been growing at about 3.5 percent a year sincetIle eartly I9u6s. Gover.-irent eLflorts to revitalize tLhC e UecLiLiLgLL, coconut

industry have been hampered by a lack of funds, staff, and coordinationamong various quasi-GovernmenL agencies aii ULither oLganizat_Lio[n cuinceLrned

with the industry. It is expected that more than 80 percent of the coconutexports would be in the form of coconut oil.

1.24 Sugar production has been expanding steadily at about 4 percent ayear since the early 1960s. Raising yields further on existing land willdepend on the enforcement of strict schedules for harvesting and deilveryand better farm management practices. The Philippines is currently thetwelfth largest exporter of sugar in the world, and it is reasonable toassume that overseas demand for Philippine sugar will expand in line withworld demand.

1.25 Increased land productivity will depend in large part on the qualityof agricultural supporting services, particularly those to small farmers.It will also require the continued expansion of rural infrastructure (includ-ing irrigation, electrification, transport services, and water supply), morefinancial services and increased allocations of credit, improved marketingfacilities, and a more dependable supply of nonfarm inputs. A more effective,but not necessarily larger, extension force will also be needed, and therewill have to be continued close attention to input and product prices to en-sure that there are sufficient incentives for farmers to adopt more productivetechnologies.

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The Changing Role of Industry

1.26 The pace of industrialization in the Pniilppines since Worid War IIhas been only moderate despite abundant natural resources, a literate and rela-tively cheap labor force, virtually free access to the U.S. market, the proxi-mity of the Japanese market, and a rather unrestricted inflow of direct for-eign investment. After 1946, the Government began the industrialization pro-cess by initiating a major import substitution drive which resulted in a sig-nificant industrial growth of 10 percent per annum during 1950-60 and in theemployment of surplus labor. But industrialization was strongly biased infavor of domestic production of light consumer goods through a set of policymeasures such as quantitative import controls, an over-valued exchange rate,low long-term interest rates, and a protective tariff structure.

1.27 The emphasis on finished consumer goods implied an increase in thedependency upon imports on the part of manufacturing production, since therewas little stimulus for the development of domestic raw materials or inter-mediate goods. The built-in preference for production for the domestic mar-ket and the absence of a systematic orientation towards exports left thePhilippines at a disadvantage at a time when several other countries in theregion had successfully launched extensive export drives. Moreover, thepreference for large-scale, capital-intensive enterprises tended to putsmall-scale producers at a disadvantage and to reduce the labor-absorptivecapacity of manufacturing industries.

1.28 The growth momentum was halted towards the end of the 1950s whenthe primary exporting sector was no longer able to supply all the foreignexchange needed to keep industry expanding. A severe balance of paymentscrisis developed and the industrial growth rate dropped sharply. The Gov-ernment devalued the peso and relaxed exchange controls in 1960-62. Al-though quantitative import controls were replaced by relatively high importtariffs, the basic incentive structure, subsidies, and other price-distortingfactors remained largely untouched. Import substitution began in intermediategoods and some new exports were induced by the devaluation, but there wasno major change in the rate and pattern of growth. With a growth rate of 4percent, the relative contribution of industry to GNP remained stagnant ataround 19 percent during 1960-65.

1.29 The Government subsequently undertook a series of measures to at-tract more investment into industrv. redirect imnort-reDlacing nroduction.and give an impetus to export industries. The measures included the Invest-ment Incentives and Export Incentives Acts of 1967 and 1970, respectively;the establishment of a Board of Investment (BOI); a 40 percent devaluationof the peso in 1970; and the tariff roform in 1972. However, these ponlicipebrought little improvement in overall growth trends except in the exportsector. During 1968-74, the industrial growth rate slowed down further andindustrial employment virtually stagnated as employment gains in new indus-tries were more than offset b- declines i, the large cott-ag induct-ry crtor.Manufacturing investment also stagnated. Moreover, no adequate strategy hasye at been found to de al wit. h1. th-.e Ilow emp.l cIp o. I -th

industrial sector, undoubtedly the most difficult problem inherited from thepast.

- 8 -

1.30 The performance of the industrial sector will have to be significant-ly impr,ove if t-h Phili inneinso i c tor hbe reascnnaly u iirrcacessfiiu in expndnfing

productive employment and in easing the burden of the foreign exchange con-strai-nt The repnort reonmmenrs an invToetment stratneox that will ensure a

rapid expansion of industrial exports and will produce at least 75,000 new4,obs a year in industry by the early 1980s. To -ciiet tjic ar--t, the

Philippines will need to expand investment in export industries and in a widerange of inte,medilate goods1. ie - - - - are

reasonably good. As finished consumer goods industries producing for theionestilc m.arket are generally labor-intensive, their further growth would

be very important for employment generation and low-cost investment. Whilethe prospects for the tradltional cottage industry (which still employs over

L ~LU£ 1i L. U LULdLA.L L6C.LIU L £ y WLL.LLti L~ C LL.L CUpLUyaUV~

two-thirds of the industrial labor force) are not very bright, there is con-siderable potential for developing muodern final demand irndustries in suchareas as food processing, wearing apparel, and durable consumer goods whichwere handicapped in the past by the relatively weak growth of domestic demand.Improvements in the living standard in rural areas and in urban areas outsideManila should cause domestic demand for such products to increase. A iargegroup of intermediate goods industries offers considerable room for accel-erated growth andu foreign exchange- savng in -h dead ahad Ria~L~LU 6LWL[ dLI LULL~i ~ALidLL~ aViII1rb iLLl LIIB uecaue aheadi. Rela-tive to the growth of incomes, domestic demand in these areas is likely torise much faster than in most final demand categories. Government invest-ment plans for the coming years include large import-replacing projectsfor intermediate and capital goods such as steel, non-ferrous metals, fer-tilizers, other petrochemicals, pulp and paper, and shipbuilding.

1.31 In addition, industry will have to play a much greater role in thecountry½s exports. After allowing for the probable increase in agriculturaland mineral exports, some US$4 billion of nontraditional manufactured ex-ports would be needed by 1985 to finance the projected level of imports.This implies an average annual increase of about 18 percent a year in realterms or 27 percent at current prices.

1.32 Such an industrialization strategy requires major policy changes.In order to improve the cost-consciousness and efficiency of domestic pro-ducers, quantitative restrictions will have to be gradually removed, tariffsrestructured and lowered, and protective elements deleted from other fiscaland monetary policies. The present import and capital bias of the incen-tive system also needs to be eliminated. As employment creation and exportexpansion deserve the highest priority and the rapid growth of labor-intensive exports will probably be the most important goal of the futureindustrial strategy, the incentive system and other policies should reflectthese priorities. Finally, in order to revive and sustain the growth inmodern small-scale industries and to keep employment in the traditionalcottage sector from declining further, the Government will have to reduce,as much as possible, artificial disadvantages affecting small-scale indus-tries and actively promote those firms within the traditional cottage in-dustry subsector that have favorable prospects. These efforts should gohand-in-hand with policies aimed at regionally balanced industrial growth.

-9-

Human Resource Development

1.33 Rapid population growth is restraining the growth of incomes; exacer-bating labor absorption, nutrition, and income distribution problems; and over-burdening schools and other facilities. The Philippine population, because ofits youthful age-structure and falling mortality, has a growth momentum thatmakes it difficult to slow down the rate of increase quickly. In 1970 theGovernment initiated a family planning program; the proportion of eligiblecouples practicing family planning increased from 2 percent in 1970 to about20 percent in 1974, and the population growth rate fell from 3.0 percent inin 1970 to about 2.8 percent in 1975. This is a very creditable achievement,but the program is falling somewhat short of the possibly unrealistic targetsit has set for itself. The basic problem is that family planning practicerates remain low in the rural areas where the majority of the population lives.The Government is taking appropriate steps to deal with this problem, includ-ing expanding the distribution of family planning assistance from clinics tocommercial and community outlets, retraining personnel for rural family plan-ning work, and increasing the involvement of local governments. Even withgood progress in family planning, however, the population growth rate is like-ly to remain above 2 percent for at least another decade.

1.34 There are three maior nutritional problems in the Philippines: gen-

eral caloric inadequacy due to "nutritional poverty," infant and child mal-nutrition, and vitamin and mineral deficiencies. Solving the first problemdepends on increasing food production, improving food processing, and raisingincomes: it therefore goes beyond the boundaries of narrowly defined nutri-tion programs. The Government's nutrition program focuses on infants andchildren Ps well as pregnant and lactating women. which is entirely appro-priate; the efforts include nutrition education, the development of cheaperwpnnin0 foodq- nnd ciinnl1mentnrv fpedinsr Mftherrrnft activitv dsprv Ps tn

be expanded, and greater mobilization of domestic food resources is necessaryif all of the rhildren in need are to he reachped. Nutrition2l educatii on and

the promotion of vegetable cultivation on local plots are taking place toremedy vitamin and mineral deficiencies: cereal fortification also meritsserious consideration. In general, the nutrition program has made good pro-ore.c in a rol Atiypl u chart nrlerld of time0_ - - ---- r- - ~ -^

1=3S Aside from malnitrlit-ion infectiousii dise2se iq the rhief health

problem of the Philippines. The incidence of infectious disease is highbecause of unsanitary water supply and waste disposal, and insufficientpreventive treatments such as immunization. The urban/rural distributionof health care services 4s very uneven, and the rural health care system

suffers from inadequate facilities and shortages of supply and personnel.Ihte IJIpCL LtLiI r L ntL nen ealth IhLas therefore emUbarkled on a -proLgram. to upgrLdeU

the rural health care system which includes the construction and rehab-iiitation ol' R-ura-l nHealLL1 UniLtsLL and aad[1ULator poLrLUrL[L oLf erLviLe ini ruraL

areas for newly graduated physicians and nurses. Increased operating sup-plies and better career development are also needed in the rural healthservices. The Philippine medical education system tends to produce toomany specialists and not enough basic levei heaith workers, particuiarlyfor the rural areas; this suggests that the system's relevance to nationalneeds deserves close examination.

1.36 The Philippine education system is characterized by high enrollmentratios, the dominance of private schools at the secondary ana tertiary levels,and inadequate expenditures leading to low quality in many institutions. Atthe elementary and secondary levels, the chief need is increasing tne supplyof textbooks and other educational materials in order to effectively imple-ment recent curriculum reforms. This should be accomplished by increasing thebudget for education rather than by reallocating it, since teachers' salarieshave already been eroded somewhat by inflation and it would be undesirableto retrench on the school building program. At the tertiary level, the es-tablishment of a nationwide entrance examination has been an important ad-vance. Proposals to promote accreditation and quality in private higher edu-cation through fiscal measures deserve serious consideration. in the fieldof vocational training, the facilities now being developed should provide anadequate supply of trained workers for industry for the remainder of thedecade. Agricultural training, however, is still in need of rationalizationand improvement.

The Level and Allocation of Investment

1.37 Gross fixed investment in the Philippines (at constant prices) rose

from about 13 percent of GDP in the early 1950s to around 20 percent in thelate 1960s due to heavy investments in steel, chemicals, cement, and otherintermediate goods industries. The rate dropped to an average of 18 percentin the early 1970s as a result of sluggish domestic demand , excess capacity,and sharp increases in the costs of imported capital goods after the 1970devaluation. FolLowing the 1973 boom in incomes the rate of gross fixed in-vestment recovered to over 20 percent in 1974 and 1975.

1.38 Past development has been characterized by a high level of invest-ment relative to output; the average incremental capital-output ratio in the1960s was 3.9 percent. Mining and manufacturing accounted for about 40 per-cent of the total in the early 1970s; investment in the transport sector wasprimarily in transport equipment rather than in public investment in trans-port infrastructure; and agricuLtural investment was less than 10 percent ofthe total. In general, the private sector has undertaken a large share ofthe investment in areas which are the responsibility of the public sectorin other countries. Public sector investment. less than 2 percent of GDP,has only in recent years begun to increase its share.

1.39 Because of the need for larger investments in utilities, especiallyin power generation and transmission, and the initiation of a number oflarge capital-intensive industrial projects, the ratio of fixed investmenttn nThP iR PRtimatpd tn rise hv 12 nerrpnt a vear in real termsR reAchingabout 23 percent of GDP in 1980; it will need to be maintained at least att-hat le7e1 in t-he earlv 1q980s The inrrement21l ranital-output ratio is ex-

pected to remain roughly at the current level of 3.4 percent through 1980as better capital utilization in industries such as steel, wood products,pulp and paper, and cement will be offset by capital-intensive projectsw4ith long gestation perods (Isuch as the planned nuclear pourer plant). Rai-

sing aggregate investment to this level will require vigorous efforts to[obDi ize .more AomLesLc. resources -o compensate for the required reducition

- 11 -

from the present heavy dependence on foreign inflows. At current prices, thedeficit of goods and services (excluding net transfers) would decline from7.5 percent of GDP in 1975 to 5.2 percent in 1980 and 2.4 percent in 1985.

1.40 Public investment will have to rise from the current level ofabout 3 Dercent of GDP to at least 5 Dercent by 1980 as programs to expandproduction and employment in agriculture and industry need to be complementedhv incre2sed public outlays for infrastructire and mannower training. Also,social equity will require better education, housing, and social services forthe Iowpr incnmp grnupin in hnth iirhan and rir1 areas Th sharnplv expandedlevel of public investment reflects sizeable investments in power, transport-2tinn; irricatinn- and watpr siupply The nowpr setor's share in the infra-structure program would rise from its 10 percent level in recent years to about35 percent in the future. Electricity generation wniild inrree bhv 11 percentper annum and installed capacity would almost triple, reaching 8500 MW in19Q85 RocBsicd mneeting the noerlnl decomand fnr aloetrirityv thi c inrronP in

power investment also reflects recent policy changes giving the public sectorSole r-esp-o-nsiii--,t- fo,r,l dvlong n r ger.ratin faclitie and the na-tional grid.

1.41 As a result of the power sector's increased share, the proportionA; | 1, AI t 4c ._ 4 ~_ -* - -. iA_Avss1 A A14_A L PUUJ L Ut LU U L 4 U LU Ut LLML A. X LUL AV WU UiU U .A..1LC

the share of transport would fall from about one-half currently to one-thirdin 1 . espite these canges in te composition o

would still be a significant growth in real terms in public investment inal'l sectors. C,ompared to past accomplismns thi repesnt an l lbitiou-s

dli ~tLLL)A. 0 UI pd U LU PabL_ aUULCUiILp.L.OiLLUtIe LLO, LILLO_, AUP. "_6ULLL~ei CLO i dI:1UiL-L_LUU

program and substantial efforts will have to be made to improve the capacityof Government agencies to plan, prepare, and implement projects if thisprogram is to be achieved.

1.42 The other major change in the pattern of public investment relatesto the regional distribution ot expenditures, as greater ettorts are neededto use public investment programs to improve the regional distribution ofthe benefits of development. This will necessitate a relative change inthe geographical concentration of public investment away from MetropolitanManila and Central Luzon to other regions such as Mindanao, Bicol, theVisayas, and the Cagayan Valley.

1.43 If the proposed investment program is to be successfully imple-mented, the construction sector will have to grow at about 12 percent ayear during 1975-85. With the acceleration in the investment program, theconstruction sector could play a major role in employment creation in thedecade ahead, generating close to 100,000 jobs a year in the 1980s. Itsprecise impact will depend on the extent to which the productivity of con-struction labor rises, which in turn depends largely on the techniques usedin construction. The Government has demonstrated considerable interest inthe possibility of expanding labor-intensive techniques for road and floodcontrol projects and experiments in this field have been encouraging. Thedetermination of how efficient these methods would be when applied on alarge scale in the construction program is not yet resolved, however, andwill have to be examined further before being implemented on a significantscale.

- 12 -

Domestic Resource Management

1.44 If the growth strategy outlined in this report is to be realized,the investment rate will have to rise from its present level of about 20percent of GDP to about 25 percent by 1980 and be maintained at that level.Raising total investment to this level, however, will require vigorous ef-forts to mobilize more domestic resources. Domestic savings will have tobe increased from their current average level of 20 Dercent of GDP to about22 percent, leaving the equivalent of about 3 percent of GDP to be financedfrom external sources. In addition to increasing the rate of domestic sav-ings, there will need to be important changes in the intersectoral sourcesnndl nIIPC of fuinds. -Even nfter tnkinv fnrpign sniirres in to ncniint- it isunlikely that sufficient resources will be generated by the corporate andthe niphlic secrtors Consequentlvy the household sector will have to in-

crease its savings to finance the higher investment level.

1.45 The form of savings, however, is as important as the level ofcnwqinoc An incrPos1ncy qhnrp nf the qn,ina will hnuvp tn hp in finnnrinl

forms with longer term maturities to ensure that resources are channelledinto the nrioritv sectors of thp development program. Tt is therefore es-sential that the Government maintain the flexible approach it has demon-strated in its recent financial reforms and periodically reviewe its fi-nancial policies to see if adjustments are needed to ensure the appropriateallncati4on of resources.

1_46 As more savings flow from households to flovernment and the cor-porate sector through financial intermediaries, interest rate and creditpolicies will .bDecome increasingly important. The Governr..ent s rolCe Will e

a critical one in ensuring that the interest rate level and structure are inline with the opportunity cost of capital in the economL.y an' satisfy lot'

savers and investors with rates that reflect different maturities and risks.At the beginning of 1976, the Goverunent initiated reforms which indicate abroad thrust toward increasing the mobilization and allocation of long-termresources as against short-term funds and rationalizing tne level and struc-ture of deposit and lending rates. Efforts were made to control short-termmoney market operations and strengthen the organized banking institutions.For the first time, a distinction was made between short-term and long-termlending rates and deposit rates were raised for the second time in eighteenmonths.

1.47 Efforts will still be needed to strengthen the institutional frame-work of the financial system in order to enable it to undertake its increas-ing responsibilities. The Government, through the Central Bank, has startedthis process with a program to increase commcercial bank capitalization.More needs to be done, however, to clarify the allocational role of eachtype of institution and to improve the quality and broaden the coverage offinancial services. This would involve stimulating the growth of thriftbanks, insurance institutions, and the rural banking system, as well as en-couraging the emergence and development of stronger securities markets.

- 13 -

The Role of the Public Sector

1.48 Until the early 1970s the Philippine public sector was small, play-ino nilv a minor rnle in economic develonment: the level of government reve-

O -

nues and expenditures was low by international standards. The countrysiuffered from inpfficilnt fiscal administration and uncoordinated financialplanning; the tax system was strongly regressive and enforcement deficient;an.d the scarcity of financial reoulrro and insiiuffirient administrative ca-

pacity resulted in inadequate levels of public investment in social and eco-nomic infrastructure which became a major bottleneck for economic development=Local governments were neglected since their administrative powers were weak,and their tax base was gratlyv Prnodd- The a_tivfitip nf npulirc 1 authnritie

and corporations were mainly limited to power and railroads, but the invest-ments w--re Sm eal and concentrated in urban areas.

1.49 The situation has changed since the early 1970s then the government

formulated a long-term strategy which called for substantial growth in publicsector investments; an expansi0on and improvement of governm.ent services at

all levels; a restructuring and revitalization of the local governments; anda greater role of puDlicly ow.ned corporat4ons, agenc4es, enterprises, -andbanksin the economy. Simultaneously, the Government began to expand public re-sources t1hrough -a shLIarp---- inrae ntxreeusLe~~~~~~ LIIL UU~~~~~~~~~~~~~~~~,11 d ~~~~~~~~~~~~IIaL p .LLIL L ~~~~~~~~~~~~~~~~~~~~~~~~~~d ~~~~~~ Lu ~~~~~~~~~ £ CV CLIUC J LL LM O - L L t. L ~ V ~ L *

1. ~ 1'b0The Governmen-t can claam. considerable achibevement-s in all of these

areas. National government tax revenues, partly as a result of tax reformmAsr, ros 'o 124 pret) o __ C NI) 4n I'l Comae to I to Jn percnt _a mealuit;:tULC;) L 1 PJ:OC LU X LZ..U ~CL LC[LL U ] VLMt IJY 41 r1) X v Jul~LCrU LL v LU L U LL : I*IL d

few years earlier. The overall level of national government current expendi-tures increased significantly and there has been a noticeable shift in thesectoral pattern of allocation as Government services have been expanded, es-pecially for agricultural and rural development. Tne Government's projectpreparation and implementation capability has greatly improved, budget pro-cedures have been modernized, and the administrative structure streamlined.There has been a sharp increase in public infrastructure expenditures andsubstantial capital transfers from the nationai government to its expandingcorporate sector. Local governments have been provided with more authority,better administration, and sounder finances. The latter has been achievedby reforms of local government taxation, and the system of alloting nationalgovernment revenues to the local level.

1.51 The role of the public sector in the economy will have to expandsubstantially in the future if the Government's development programs are tobe implemented. Large public investments in economic and social sectors willbe required while current outlays will also have to increase significantlyif public services are to be improved. This will claim considerably moreresources, both domestic and external, than in the past, requiring concertedefforts to mobilize domestic resources. Adequate mobilization will depend onthe results of the various tax reforms currently in progress or contemplated.

1.52 The tax reforms proposed in this report would widen the domestictax base, reduce the country's revenue dependence on international trade,

- 14 -

and improve the tax system's social equity by a sharp rise in direct taxationof goods and services consumed by higher income groups. Also, a nationaltax on land and on ruraJ property is suggested, as are major improvements inrevenue administration. These measures as well as improvements in local gov-ernment taxation and higher social sector contributions are estimated toincrease the aggregate tax effort from the current level of 14.2 percent ofGNP to almost 20 percent by FY85.

1.53 National government current expenditures may rise to about 13 per-cent of GNP by FY80 with more emphasis on education and social services anda more equitable regional distribution of Government outlays. National gov-ernLment canital ependnituires, includ(ing capnitalq t-ransfers to local cgovernme.n tsand public corporations, may reach 5.2 percent of GNP by FY80. If the pro-jectedr levels of cuirrant cnpendina can ha keptf within tha liTnits of then octi-

mates, national government savings would be around 3.7 percent of GNP in FY80,financing someT.whtf morn than hal f of fhOe 1n,7,rntont'w tntl Onnl t-l ollt 1 ays.

The balance would have to be financed by net borrowing from foreign and domes-ticsources with Ia la rg6eer claim, onA doesi -rvt -avng by -- he -public, _

LtL ~U .f tLIC L LC L.t.LLI i 1 UUI.JU1C LLI FL J.VaLC OCV .L[LrO Uy ULML jUU±L.L1

sector than in the past.

1.54 The Government envisages large investments in the public sector byt-he PUbI4c utiity corporations 4i pA4 tI _cular, w h 1cl r 2.2 1 .p ec I

L 1> G llL WL 11 J W t M L G | 11 s L1 GL E -L LL WllM , - L 11 ZVUU.U LC 1t1 ZL 4.Z P ~LU1 LL

of GNP by 1980, and by Government-controlled basic industries, includingfertilizers, petroleum refining, and steelmalking. Apart from the obviousissue of how these investments will be financed, other key problems will needto Ue reso'LvedU, includii;g Lthlle dlegree ofL autonomy in Linvestment dLecision-r,UkL sniI[dI LIg

which should be given to the public corporations and the means of dealing withtheir operatLing surplus. The JiaanciLnL of Uthese LII eC -wal e pend on

how much the national government is willing or able to finance through thebudget and to what extent public enterprLlses will have to borrow uirc tly,

either domestically or externally.

The Role of External Trade and Finance

1.55 In order to sustain the investment program outlined in this report,the volume of imports will have to expand by about 7 percent a year during1975-85. Assuming a rate of import inflation of about 7-8 percent a year,import payments wouid increase by about 14-i5 percent a year during this peri-od. Any cutbacks in the import level would probably be concentrated on capi-tal goods imports and would have adverse effects on income and employmentgrowth. Imports of finished consumer goods are only a small proportion oftotal imports and reductions in imports of intermediate goods would have animmediate and unacceptably adverse impact on production and employment, es-pecially in the nontraditional manufacturing sector where growth depends onthese vital imports. Similarly, cutbacks in capital goods imports at thistime, when locally available capital goods are in short supply, would hamperthe Philippines' adjustment to higher energy prices and also have negativeeffects on programs aimed at expanding production and employment. Sincegains from the external terms of trade are expected to be modest during thenext ten years, the volume of exports will have to grow by about 9 percenta year. A critical assumption underlying all these projections is that the

- 15 -

OECD countries will recover during the next decade and experience rates ofeconomic growth comparable with those they enjoyed in the 1960s. SustainedOECD growth will also be required to make the projected capital inflowspossible.

1.56 Exports must grow more rapidly than imports in order for thePhilippines to reduce its current large resource gap. Whether they will beable to do so will depend on the country's ability to increase productionfor export, on the expansion of overseas markets, and on trade policies thatwill keep exports competitive. The ratio of the current account deficit toGNP in 1975 was about 6 percent, largely because of the sharply increasedprices for imported petroleum and related products. A reasonably smoothadjustment to the higher costs of imported fuel and petrochemicals shouldbe made by accelerating the rate of growth of exports rather than by reduc-ing imports. But it will be a number of years before the Philippine economycan complete such a transition to the point where these higher energy costshave been fully absorbed. Increased investments will have to be made in theexDort sector. in imnort-reDlacine industries, and In alternate sources ofenergy. Some of these investments are necessarily capital-intensive withlarge foreign exchange requirements.

1.57 Even if the current account deficit can be reduced to about 4 per-cent of GNP by 1980 and to 2 percent by 1985, the Philippines would need anaverage annnial npt fnreign exchngep inflow of around ITS91 billion in the first

half of the 1980s. The bulk of this amount will probably have to be in theform of medium and long-term loans. GIven reasonable nrosnpcts for futu,rpinflows, external requirements of this magnitude do not appear excessive inrelantion 1-t ciirrent 1l0e1vel of inflo.WQ The ronsQiltativu Groupin and other

official donors will have an important role to play in this area, since, t 1 AeQt oneAthird- o tAh e n o Shod nb. -h- cnA h0 n ce A-AioAnaOl terms toen sur

that the ratio of debt service payments to exports does not rise beyond itspresent levr-el of about 17 percent. For it4s part, the Gover.-ent ., ul A ---eA

to develop a wider range of external capital sources. An inflow of theabove magnitude would be sufficient to ensure that international reservesare maintained at a level equivalent to 3 months of imports. Consideringth chroi s_1Fortg of _ -- 4- nas A _AA ; ;4-nce

*I X VL tfl t IJLLI. CLL*LJL A j V.5

I a. V. IS iA. C ,, , 4%t.LLIflC LflO I. ,,LI 1 ,lt. &X Sj X .LO '1 * 00 C AIjSC L. a CIL L CI

in the past, prudent foreign exchange management in the future would requiretLat reserves bve main.tair,deu at this [level ar.d the dueb't-serviLce ratiLo riotexceed the level suggested above.

Chap,te~r 2

AN OVERVIEW OF DEVELOPMENT PROSPECTS IN THE PHILIPPINES

Economic Trends Since Independence

2.01 Since its independence in 1946, the Philippines has experienced~~~~~~~1 - 4: -1, a p r e - y - ..- 4- An rea Aer s A 4: _er.o 1 F_A

al I : tIUL U k L UWLI. t L L C U1 I UV - tp V. i -, LL a yCat ti, L ca LC Llo Cit LOt U-tO

population growth rate of about 3 percent per annum is taken into account,tLhe average annua l ncrease in per capia Jinciome has_ been -_ -_ J pert - L.

In other words, average per capita incomes have increased 1 1/2 times inthirty years. This would be a satisfactory achievement were it not forcertain characteristics of the growth process. In the first place, it hasfailed to lay tne basis for self-sustained, long-term develop1nent. Second,there has been an unequal distribution of the benefits of growth. These twofeatures are reflected in the tnird characteristic, which is that the rate ofgrowth cannot be sustained without changes in the pattern of growth.

2.02 In spite of the development of industry, there has generally beena strong bias towards capitai-using industries focusing on import-substitu-tion. Because of inadequate support from industrial exports, the burden offinancing the imports of capital goods and raw materials needed by the urbanindustrial sector has fallen heavily on traditional agricultural exports.However, even with agriculture experiencing a moderate growth of nearly5 percent since independence, agricultural exports have been unable to earnsufficient foreign exchange to finance the growing import bilL. The countryhas also suffered from poor fiscal administration and uncoordinated financialplanning that lacks a long-term perspective. The pattern of resource alloca-tion and industrialization has not been conducive to the broad-based provi-sion of the employment opportunities needed in a labor-surplus economy. Asa result, there has been little, if any, change in the highly unequal patternof income distribution in the Philippines.

2.03 This report is primarily concerned with assessing existing and pro-posed policies designed to implement the Government's programs. In general,the authors agree with the main objectives of the Government's developmentstrategy. The principal elements of this strategy are discussed in thefollowing chapters and concern urbanization, rural development, agriculturalproduction, industry, human resources, public investment, domestic resourcemobilization, public finance, and external finance.

2.04 Toward the end of the 1960s, the Government became aware of theshortcomings of past development policies and since the early 1970s it hasbeen introducing economic reforms in an effort to correct the past deficien-cies and broaden the base of participation by the population in the develop-ment process. More emphasis has been given to agriculture and rural devel-opment, to exnort promotion, to public infrastructure, and to employmentcreation. There is little question that the Philippines has the physicaland htuman resources reniireid to achi eve sustained and more equitablv distri-buted economic improvement during the next few decades. Moreover, the economicand snoia1 refnrms th-ait- hep hbecn piiruiedp by t-he -GoirnmPnt in recent vpyers

- 17 -

have contributed towards a better policy environment for sustained economicuevelopmen1t. Nevertheless, such policies will have to ride a knife-edgeof potential problems and it will not be easy to achieve the objectives ofproviding adequate work opportunities and a more equiLaDle iSLtrDULion oiincomes while simultaneously working towards a more viable long-term balance

of payments position.

2.05 Although this report deals witn tne ionger term development pro-spects of the Philippines, the discussion of development strategies andpolicy reforms cannot be divorced from the realities of the short-termprospects facing the country. To establish the proper perspective, it isperhaps best to begin by reviewing the events of the recent past and thepolicy response to those events. Following a period of acute balance ofpayments difficulties in 1970-72,. there was a sharp increase in the level ofeconomic activity in the Philippines in 1973-74. The growth in real GNP,which had been about 5 percent a year in 1970-72, doubled to 10 percent in1973 and then declined to about 6 percent a year in 1974 and 1975. The strongrecovery in 1973 was led by the international commodity boom and the increasedexport incomes for the Philippines that resulted, by a similar recovery inagricultural and industrial production tor the domestic market, and by an ex-pansion in public and private investment. Increased domestic output anda 28 percent improvement in the external terms of trade resulted in a 14percent increase in gross domestic income in real terms in 1973 compared toabout a 2 percent increase in 1972.

2.06 This situation soon reversed itself, however. The abrupt deteri-oration in the external terms of trade in the second half of 1974 and therecession in the economies of key trading partners posed a different set ofissues for managing the economy. The balance of payments deteriorated in1975 and caused a large external trade deficit. The Government's responsein 1974 and 1975 was to try to maintain the growth momentum that had beenbuilt up in the previous twelve month period, while reducing domestic in-flation. The objective was to prevent, as much as possible, any disruptionto the growth in incomes and employment. The strong balance of payments posi-tion that had developed in 1973 was used effectively to ensure the continuedflow of imports that was needed to maintain domestic economic activity. The1973-75 period involved more than a temporary balance of payments upheaval,however; it marked a distinct change of direction for the economy. Theexternal accounts of the Philippines were roughly in balance in the years1970-72. The sizeable current account surplus of 1973 has been followed bylarge deficits, and it is expected that such deficits will continue for someyears. In other words, the economy will be relatively more dependent uponforeign inflows in the next decade than it was in the early 1970s.

2.07 This dependence, however, can be faced with more confidence than wasthe case with similar balance of payments deficits in the past. Since theearly 1970s, the economy has benefited considerably from the policies intro-duced by the Government to improve financial management. The structure ofexternal debt has hben transformed thrnoigh a rduiirtinn in the reli2nre on debtof relatively short-term maturity and careful control over public and privateexternal borrowing. The medium and long-term debt outstanding has increased

by only moderate amounts; at the end of 1974, it was about US$2 billioncompared to US$1.7 billion in 1970. The efforts of the Government, supportedby Consultative Group members, to improve the maturity structure of thePhilippines deht have been quite successful. The share of public debt withlong-term maturities rose from around one-third at the end of 1969 to overthree-fourths by the end of 1974. The share of long-term debt in totalprivate debt rose from 45 percent to 60 percent over the same period.

2.08 There has been a dramatic decline in the burden of medium andlong-term debt in recent years, in large part because of the very rapidgrowth of export incomes in 1973 and 1974. The ratio of debt servicepayments to export receipts, which was quite high at about 27 percentin 197l, decreased to 15 nprcent in 1974. This decline combined withthe much improved external reserves (which stood at US$1.2 billion atthe end of 1974) strengthened the level of the balance of payments andprovided a cushion to help absorb the adverse external position thatdeveloped in 1975.

2.09 The 1970-75 experience can be summ.arized as having been domi-nated by a fluctuating balance of payments situation which initiallybenefited economic activity but also generated inflationary pressures.Toward the end of the period a longer term burden emerged in the formOf higher prices for imported fuel. A-ricultural production was affected

by adverse weather conditions and the objective of self-sufficiency inrice productlon Iw-hnich seemed to be .,fsight of al.ti.LVU inL. early

1970s) was delayed. The authorities took advantage of the boom yearsto adopt policies that would permit tALa kinds of stru.tural cha-anges--

discussed in subsequent chapters.

2.10 The premist.! on which an analysis cr the Philippines' longer termpr s e t -s ba e _ _t _ _ _ , __ L- _ I I - - - - _, - - -- - - -,_1 Z __ _ _ __ Z_.,_I Ic,_,1c1lpro5peLLU .L UdbtU Lb Lild L tL1t LOUUIIL y WLl |JCL UPdLU CL U1L LU) LaK.U LUll

advantage of the opportunities that a ,zorldwide economic recovery willinevitably o,'fer. A policy of accelerated investmlent should be pursuedin the next decade leading to sustained economic growth thereafter.

An Overview of Longer Term Prospects

2.11 Good short-term economic management is a springboard from whichthe country can pursue a development strategy designed to address thelonger term issues. These issues center around the need to maintain iherate ot growth of the economy in the face of a high population growth ratewithout endangering either the internal financial viability or the externalposition of the country. The country's prospects depend upon the abilityto mobilize and deploy domestic resources of all kinds. While the economyis not and probably should not aim to be self-sufficient, the Governmenthas tried to keep down its dependence upon outside resources. Nevertheless,the need for imports of fuel, certain types of capital goods, and foodgrainsis such that external circumstances must be a major consideration in theformulation of an effective development strategy.

- 19 -

2.12 The expectation of continued current account deficits in the balanceof payments, reflecting the foreign inflow required, makes it necessary tofocus attention upon the projections for external trade. After two years ofa strong balance of payments position in 1973 and 1974, imports of goods andservices increased by 10 percent in 1975, while the value of exports fell by10 percent. As a result, the current account deficit increased from 6 percentof imports of goods and services in 1974 to an estimated 21 percent in 1975.This was largely the result of the deterioration in the terms of trade as theyfell back from the verv favorable position thev had reached in 1973 and 1974.

Table 2.1. Terms of Trade

(1967-69 = 100)

Year Prieo TndiireQ Mt Terms of

Imports Exports Trade

1960 87 92 1051970 106 106 1011973 143 140 981974 255 250 981975 27A 203 7A

Source: Central Bank of the Philippines

2.i3 in analyzing the prospects for te next decade, projections hIave

been made in order to test the feasibility and consistency of the develop-ment policies reviewed in subsequent cnapters. Tne Dasis ior tne structuralchanges that are expected is a substantial increase in investment, bothpublic and private, to move the economy in the direction of sustained growthof incomes and employment with a more acceptable distribution of wealth.A large investment program is needed which cannot be financed totally out ofdomestic savings; large foreign inflows will be required not only tosupplement domestic savings but also to cover the costs of gooas ana serviceswhich cannot be produced in the Philippines.

2.14 The expanded investment program will raise the ratio of investmentto GNP to 25 percent by the end of the decade. Such a program is expected tosustain a GDP growth rate of 7 percent (in real terms) provided that importsof goods and services grow at an average annual rate of 13 percent (in nominalterms). The balance of payments prospects depend in equal measure upon theperformance of exports, which could grow at an average annual rate of 16percent (in nominal terms). The performance of exports is seen as doublyimportant in the development strategy. Growing exports are essential to keepthe balance of payments deficit manageable in light of the available sourcesof external finance. Such larger exports are also one direct source ofthe expected increase in incomes and employment that should emerge fromthe development strategy.

- 2C) -

2.15 If the assumptions behind the above projections are realized (andthey are considered the most plausible outcome for the decade as a whole),the total capital inflows required over the period appear to be reasonableand the economy's dependence upon such inflows would be much less in 1985and thereafter than is now the case. It is estimated that the deficit ofgoods and services (excluding net transfers) in 1975 amounted to 26 percentof the value of imnorts and 7.5 percent of GDP. By 198l these nercentages areprojected to fall to 18 percent and 5 percent, respectively, and by 1985, to7 nercent of imports and 2 percent of GDP.

2-16 Such nronictions denend on the qqsimnti ons on which thev nre hbilt

and the above analysis is crucially dependent on assumptions concerning theIYtarnnl Pn17irnnmPnf_t The nrnoiprtfinn h;inoe on tho :ccc,tmnt-inn t-hnt- t-hco xrnlirmn

of Philippine exports can be increased substantially and continuously. More-over, the external trade nroni'cti,onn aren particularly sensitive to the futuremovements of export and import prices. The terms of trade, which measure therelatonsip,.cj between export and -import prireces are prnojeted to improveo grrrad-

ually after 1978; by 1985 they are estimated to be 19 percent above their 1973leve.VC TheLL teLLms ofL utrade are . largeCly LIou.tsid thLC tJL contrl o-JL LLLC. auLIthorities

however; if this gradual improvement in the terms of trade does not occur, thebalance of payments situatinn ic 1JLikIel to require a reass-essment of some

policies, particularly those involving ambitious investment expenditures.

2.17 The longer term projections used in this report illustrate a set ofclrcmIstances in which ILit sL hoUld be possible 'Lo finance thLe required f0rtei6gn

inflow in a way that will not unduly increase the debt service and will stillpermuit the maintenance of a 'level ofL fo0reirgn -xhag reere VIiiln -to ---

only one and a half months of imports. The debt-service ratio was 16 percent-_in 1975; ..f theaov roetin materiallze -' coul rise Ito 1-- 19 percent ---kLiiI k I Li -Lk I H U- UVU PLUJ _-ULkLLUi. iLd k a kii , i , L LLULIU LJLS5U LU 1. 1 )'z.L cent

in 1982 and then fall back to 17 percent by 1985. These projections reflectthe expectation that the country would be able to finance a signiricantproportion of its requirements on terms similar to those of the World Bankand would make prudent use of commercial borrowings and snort-term debt.

2.18 While the above assumptions are all important to the projectedresults, particular attention has to be paid to the basis for the exportprojections. Given the inflexible structure of imports, the importance ofexports that are buoyant has steadily increased; exports accounted for 10percent of GNP in 1960, 19 percent in 1970, and 22 percent in 1974. A highvalue must be placed on further increases in exports. The projected rateof growth, while high, should be attainable; however, it will require struc-tural changes in the economy. Traditional exports will not earn suffi-cient foreign exchange to maintain a manageable balance of payments. Non-traditional exports--which are principally manufacttures and now accountfor 17 percent of total exports by value--will have to play a larger part.In earlier years they were insignificant, hut since 1970 the total has grownat the rate of 40 percent a year; by 1985 they could account for 33 percentof total exports.

2.19 The compositnoio of imports into the Philippines is already controlledin order to conserva foreign exchange and to protect markets in cases where

- 21 -

import substitutes can be produced locally. Import substitution has beenachieved to a considerable extent in the manufacturing sectors producingconsumer goods for the domestic market, but has not yet made much headway inthe intermediate goods and capital goods sectors. The import substitutionprocess has not reduced the total demand for imports, however, but redirectedit to new materials, components, and other requirements for the production ofproducts which were formerly imported.

2.20 Estimates of import requirements must reflect the future evolutionof import substitution as the economy's structure changes, industrial produc-tion expands and becomes more complex, and food production increases to supplya larger proportion of domestic needs. The projections used here are based onone possible pattern of changing import requirements over the next decade.The total projected imports of goods and services and the pattern of growthover time would have to be altered if import substitution were to proceedmore rapidly than expected.

2.21 The net result in terms of foreign inflows required to financeprosnective balance of navments deficits is the product of assumptions aboutboth imports and exports. While many combinations of such assumptions areposihle,- the most nessimiqtir niitcnme would he the gase where exnorts failed

to grow at least as fast as import requirements. Such an outcome would re-riquire much larger borrowings which might not he feabhle; ePven at more un-

favorable terms at the margin. There would certainly be a consequent rise inthe deht-service ratio toa range of 25-30 perrent.

2.22 The nrioritv of noindlv mnaged pexternal arrounts should not de-

tract from the pursuit of other elements of a balanced development strategy.The growth of aggegate income and output should be accompanied b- i-

crease in productive employment. The increase in employment opportunities; O .- An. .; _O1 e 4 A ,o1....< t 4 .,,A; kn nr I- _,n'A Fn -h e.nvrr ruu, r antr...; .. ko-tAFQ.1. 4. CM L.4. CL 0 Ca jJSAM a a.4.1-- 1 VL _U W VLt PJI L V V..& 1.1 LIt V .. 6 vS V. v1 II L111L U% L LL1t1 S

ing the labor force as a result of the high rate of past population growth.Pnroluctitve employmuent is also part of the elfort that wil b1 -e required loL u _L U jJLuyL_kL ±bd.Ls pr L L L _ ~L UL L.11 L_ _W±. Li L _MLL

achieve a reduction in relative poverty by raising the incomes and welfareof tLLh e Jlower 4t0 percentLL ofL the population. Al development strategy ai 4.ed at

improving the lot of the lower income groups will also involve directingmore :pUUbic s a vicesU oUL'l gLrUb oup 11 UULII L ULraL anU UrUdnL areas. 11

would be consistent with present plans for a wider regional dispersal ofboth public and private investments. Such a strategy is possible and isessentially already underway in the Philippines. It has to be translatedinto sectoral plans and activities, however, and the key elements of suchsectoral strategies are outlined below and discussed in detail in laterchapters.

The Burden of Rapid Population and Labor Force Growth

2.23 One of the major tasks for the Philippines is to decrease the rateof population growth, which for much of the past two decades has been growingat about 3 percent a year. The rapid rates of population growth in the pasthave created a young age structure which provides a built-in momentum forfuture growth. By 1975 about 43 percent of the population was less than 15

- 22 -

years of age. There are indications that in recent years fertility has begunto fall, but even the most optimistic projection expects a population growthof more than 2 percent a year at least until the 1990s. By the year 2000 thePhilippine population could be in the neighborhood of 80 million, or approxi-mately double the present population.

2.24 The social and economic costs of absorbing these additions to thepopulation are enormous. The cost of rapid population growth falls mostheavily on the poorest members of society. Some of these costs are borneby the individual household, though often only by depriving the youngestchildren in the family of minimal nutritional support and health care.Other costs, such as education, tend to fall as much on society 1/ as onthe individual.

2.25 RaDid DoDulation growth also means a raDidlv 2rowing labor force.A major constraint on increasing productivity in the Philippines is thescarritv of capqital At nresent a large nortion of thp funds available

for fixed capital investment is required merely to hold constant the amountof c rapiti-l no r w.nyr ar , 1 o:nrincy I J tt-l a frvr inirootmant, t-n i"n,r,ano the no"tn-

per worker. The rapid growth of the labor force has led to high rates ofundereMnloAmnt annd dwnwartd nressiure on wuagsQ. Tn agriuiiltu-i the effe

has been land subdivision and fragmentation among a growing number of smallfar.m.ers and possibly an increase in the num.ber of landless laborers.

2.26 The significance of the need to provide productive employmentopportunities for a growing working age population is so great that it isworth[wile to stressO the. nna6,. e of the task. The w ork1ing age poulatio(defined as ten years of age and over) is estimated to have been 29.6 millioncin 1. 9.17 5. .In 1 i1,.t U was 21.4 m11iion and in 1955 about 1it million. T.h_

average rate of growth over the two decades was, therefore, slightly morethan 3.0 p ercent, so thata th[e nuImber AouIbleA in 23 years. Th e l ab or force

participation rate, or the proportion holding or seeking employment, has beenf_a.l±llng during this period andu is now about 49 percent. Tiis means tLiha Lile

labor force currently numbers about 14.6 million, of whom an estimatedJOU,UUU, or 4 percent, WwtrL UInmloIjJiUyteU Lin 19714. LI anl coULUomy such as the

Philippines, where 56 percent are engaged in agriculture and an additional27 percent in se-rvice activiLies, the distinction between "empioyed" and"unemployed" has to be made with caution; for many it is access to productiveopportunities that matters, rather than a formal distinction between "employed"and "unemployed". Even for the employed, incomes may not be adequate to raisethem from the level of relative poverty.

2.27 Nevertheless, it is useful to make employment projections to seethe order of magnitude of job creation required to accommodate the numberwho will be entering the labor market. Labor force growth reflects populationgrowth; the projections detailed in Chapter 7 forecast a fall in the rate ofgrowth from 3.2 percent per annum between 1975-80 to 2.8 percent between 1985-90.

1/ The level of expenditure needed to provide full enrollment to the 6-14years' age group by the year 2000, under a low fertility assumption,would be 47 percent less than the amount needed if no decline in fer-tility were to take place.

The result would be an average annual increment to the labor force of 500,000a year for the next decade. If all the annual increment could be accommodatedwith productive work, the present backlog of the underemployed and unemployedwould remain. If any inroads are to be made on that problem, the number ofwork opportunities required each year will be closer to 600,000.

Agricultural Development

2.28 In order to meet the domestic demand for food, agricultural output(excluding fishing) will need to grow at an average annual rate of about 4percent during the next decade. Growth in agricultural production will haveto come primarily from either an expansion of acreage or an increase inyields. Although there are still some areas of unused cultivable land inthe Philippines, the expansion of the arable and harvested area combinedis unlikely to exceed 1.5 percent per annum over the 1975-85 period. Thismeans production from increased yields needs to grow by about 2.5 percenta year--that is to say the latter would need to account for about two-thirdsof the increase in production during the coming decade. To achieve significantincreases in output from existing cultivated areas, new technologies will berequired, the irrigation systems will need to be expanded, and improvementswill have to be made in sunnorting services.

2.24 Whill investment in Irrigation has been exnanding ranidlv in the

last several years and the Government's supervised credit programs have beenproviding production loans to many small farmers, a key rnsQtraint remains theproblem of organization and management. This is particularly true in the caseof the extension wh ices Ich must re_ach weT ll Ver ove m4illion famts leSs than4 hectares in size. Given limited manpower and institutional capability, itmay be necessary over the nextl decade to focus eftfortJs on the more productive

small farms, especially those engaged in the cultivation of rice, in orderto meet tlfhLe Aor,estic AemanA for foodu.

2.30 -Thi wUld mean concentrating LtLh supriL c red. programs foL

small rice farmers primarily on the irrigated areas, which is essentially thetactic presently being fol-1lowed b-y the G verntme-t The-s n 99 -------

LCCL.L.. L CCLLLJ.y ULLL _.L £.W U I.%. Li O tJV CLL LLL=UL L 1110LA V=OMCXLLO ;77 F U6

L Cli

for small rice farmers, was designed to provide production credit withoutcollateral, to offer 4_proved exVension. serviCeS, dU tLo eou Lure tILe use oL

modern farming practices. Despite the lack of reliable production data and thevariousi enco-untered d11LUUHL uring the first two years, supervisedcredit programs have an important role to play in the intensification of landuse and in providing much needed production cred it to small fa-rmers. nowever,even with this strategy, the deficit for cereals will still probably beabout 10 percent of total net supply in 1980.

2L.31 A number of measures could be taken to increase production for thesupervised credit programs in particular, and for the agricultural sector ingeneral. For the next years, at least, emphasis should be placed on upgradingthe quality of the existing extension services rather than on expanding them.in addition, prices received by farmers will have to provide sufficient incen-tives for them to adopt the improved technologies and farming practices that

- 2) -

will be needed to raise outDut: this will require closer attention to theinterrelationships between product and input prices and to the impact ofcommodity tax2tion than has been the case to date. The rpI.tlonshin bhet-wpenthe price of fertilizer and the farm gate prices for crops--particularly riceand lik7r--i. 1 fkplv to he Penecr!i llv imnortant for the sucrePss of fuitulre

programs to expand production.

2.32 Increased investment in the construction, rehabilitation, and main-tenance of lrrigation ttorks 4s also criti4ca to the expansion of aicu4- -tral

production. The National Irrigation Administration has prepared a ten-yearprograt , wit.LU is 1-0 V ery ambitiucs. The 1rga . uild1 irrgat an adtional

1.3 million hectares of harvested land by 1985, using large-scale gravitysystem.s on about 700S154,0001UU.C hectares and small-scale pmttp and comn.nunal systems

on about 600,000 hectares. In addition, the program calls for the rehabili-tation of systems sCervin som 300,00 Innaes ofn Ihc -about- -P.,4I, 1 1-75,000 aretatin Ii ~~L~t1~ ~tvLL1, CJURLU .JUU,VUUU LIiL~LCL_C, 151 WLLIA.Ai CaUUUL L/-J,tUVU are

already included in the on-going projects being financed by the World Bankand' the A'siLan Developmuent BDanr,k. Irn view of the present amnsrtv ndtLULileIi.idtLueveupieu LDdLLS..LI V LW UL LIU~ JJLCOCL CULL1LLITh>LcL LLVt: aiIUL

technical constraints, a more modest but more feasible target for 1985 wouldbJe 500,000 hectares of new andU rehabilitated L large-sca'le gravity systemas andU

300,000 hectares of pump and communal systems. This would mean almost a 50percenLt incrtease in the_ irrigated haveteaea A- arpotono th-e

1 JeL ceii L tIlL I e ~ ~ L.11 LIl U L. L .L Lr u a hatILLI L1 V ~_0 L U ~tA L C e . L`IC da L UPU L L-LULI 15 L It~

total harvested area, the irrigated area would increase by about 10 to 15percent by 1985. In the long term, this expansion in Lhe irrigated areawould increase the number of man-days per hectare by 90 percent and wouldraise production by about 150 percent.

2.33 An increase in cereal production is likely to come primarily fromconcentrating capital investments, purchased inputs, and new technologies ona relatively small percentage of the cultivated area. Wnile this is largelydue to the fact that land and water resources are better in some regions, italso reflects the uneven distribution of available capital. The concentra-tion of resources on areas where output increases are most readily obtainableis a sound strategy when the aim is to increase the marketed output as quicklyas possible. However, in order to balance the concentration of efforts toimprove supporting services on the more productive small rice and corn farms,programs will also be needed to increase the incomes of the population livingon farms with less production potential. More attention will have to paidto the development of more widely adaptable varieties of rice and corn strainsas well as to marketing arrangements for farmers in these areas.

2.34 Other measures to raise living standards among these families mightinclude improving their access to social services such as health and education.Although it is not known exactly how many of these farms are covered by thecurrent land reform, the effective implementation of this program (includingthe transfer of titles and the leasehold component) would be another way ofsubstantially increasing the earning capacity of those farms which are tenanted.In addition, some of the farms may be in a position to shift from the cultiva-tion of rice or corn to that of a higher value crop such as sugar, or toraising livestock.

2..5 he ariculuralexport sector could b-e expeCted to absorb some ofZ. J J iI e agrt.uL u~La.. IJ~J.t CUJ ..UA I, vp -Ut IA LoJL ~1L.'the increasing labor force, but growth in this sector will be constrained byoverseas UeruardiU. It is , theref'Lore, 'ik ely that tLe more Lfavorale opporuni=ties for increasing incomes for many families will have to come from nonfarmempIoy-ILeIIL tEiU Lile UULrden UL pLrVU±idLng emLU_L[YU1LL WiLL-L LCL-ot ULL L sLLI vc

construction, and industrial sectors in both rural and urban areas.

Industrialization

2.36 There will have to be major improvements in the performance ofthe industrial sector if the Philippines is to be reasonably successfuiin expanding productive employment and in easing the burdens of the foreignexchange constraint. An investment strategy is required that will produce atleast 75,000 new jobs a year in industry by the mid-1980s is required. At thesame time, substantially larger investments to expand tne capacity ot tradi-tional and nontraditional industrial exports will also be necessary. Thisis a minimum goal and any shortfall would have dangerous repercussions, e.g.,a rise in open unemployment or more underemployment in urban and rural areaswith attendant social unrest.

2.37 To achieve a higher level of industrial growth, the Philippineswill need to expand investment in a wide range of intermediate goods indus-tries where domestic demand prospects are reasonably good, and at the sametime accelerate investment in export industries. Larger investments in pro-cessed agricultural products, minerals, and wood products will be needed,but these alone will not be sufficient to satisfy employment and foreignexchange objectives. Much larger investments in the production of a widerange of labor-intensive industrial products for export will also be needed.In looking at how these objectives can be met, it is convenient to centerthe discussion on some of the key sectors within industry: the finishedconsumer goods industries catering primarily to the domestic market, theintermediate and capital goods industries, and the export industries.

2.38 Finished consumer goods industries producing for the domesticmarket are in general labor-using and their accelerated growth wouldbe very beneficial in terms of employment generation and low-cost invest-ment. However, traditional cottage industry--which still employs close toone million people, or over two-thirds of the industrial labor force--hasbeen declining in terms of employment and value added during the past fiveyears. Limited to providing goods at a cost and of a quality competitivewith larger scale manufacturers using more efficient production methods,cottage industries are unlikely to assume a maior role in future indus-trialization but may be expected to maintain their present employment levelduring the next decade.

2.39 Industries nroducing finished consumer goods with more favorableprospects include food processing, wearing apparel, and durable consumeronnds indusitripqe Theps incduistripe haive beekn handicapnnPd hv the- re1ative1v

weak potential growth of domestic demand. As a result of developmentefforts to improve the* living standard in rural areas and in the urbanareas outside Manila, domestic demand for their products is likely to rise

- 26 -

noticeably. Hence, tnis consumer goods sector may be able to play an in-creasingly significant role in the industrialization effort.

2.40 Many intermediate goods industries--including basic metals andother metal-making, chemicals and chemical products, mineral fuels andlubricants, pulp and paper, cement and other non-oil and nonmetallic mineralproducts--offer room for accelerated growth in the years to come. Relativeto the growth of incomes, domestic demand in these areas is likely to risemuch faster than in most final demand categories. With relatively generouspreferential duties for imports of many of these items under the existingincentives schemes and the existence of appealing investment opportunitiesin other highly protected areas, producers have, until recently, not beenencouraged to turn to higher manufacturing stages. However, current invest-ment plans indicate that a significant movement in this direction is likely totake place in the coming years. The bulk of investment plans relating to thedomestic market consists of large import-replacing projects for intermediateand capital goods (e.g., steel, fertilizers, other petrochemicals, pulp andpaper, and shipbuilding). Import dependency is very high in many of theseindustries, which suggests significant scope for import replacement and for-eign exchange savings in the decade ahead, but not for substantial employmentopportunities. Although these projects do not offer substantial directemployment opportunities, they are required at this stage of industrialdevelopment in the Philippines to make use of the natural resource endowmentsof the country. To operate efficiently they will need to use techniques thatare necessarily capital-intensive. However, it is expected that the furtherindustrialization permitted by the output of these industries will result in asignificant number of new job opportunities.

2.41 Much of the potential for this second stage of import substitutionwill be realized by the mid-1980s. If this strategy is successful, less than15 percent of aggregate demand for industrial goods (finished and semi-finishedproducts) in 1985 will be met from imports, compared to 24 percent in 1974 and19 percent projected for 1980. Most of these imports will then be confinedto goods whose local manufacture will not be feasible either because ofthe lack of technological capability or because of the limited size of thedomestic market.

2=42 Tn addition to import repn1rPmPntj the industrial sertor will haveto play a much greater role in expanding export earnings in the future. ThePhilippines wiIl need tn aim for an averae increonco of hbut- 16 percent a

year in the value of exports during the next decade. Since earnings fromexports of traditional agricultural products are unlikely to expanrd at amore rapid rate than in the past, the required growth in foreign exchangereceipts will have to come from. an an ei p--;a -a-iue at ending.-A4

exports of wood products, minerals, and nontraditional industrial exports.The long-term prospects for substantially larger exports of processed woodand mineral products appear to be good, although the shorter term prospectsare clouueu bUy uncertainty about thLe pace oI recuveLy from1 Ltie recession in

Japan, the United States, and Europe. The Government is, in fact, planningfor large private investments in these areas.

Table 2.2. Past and Projected Export Earnings(In millions of US dollars at current prices)

Actual Projected1960 1970 1975 1980 1985

Agricultural products 384 471 1,363 2,331 4,126Wood products 102 295 226 793 1,423Mineral products 61 224 330 1,204 3,035Nontraditional manu-

facturing products 13 93 392 1.384 4,291

Total 560 1,083 2,311 5,712 12,875

Source: Central Bank of the Philippines

2.43 A level of commodity exnort earninas of about USS13 billion (at cur-rent prices and exchange rates) by 1985 would support the required levelof imnorts- After allowing for thp nronirtpd PynanAion in agricultur2l e1x-

ports by 12 percent a year and assuming annual growth rates of 20 and 25 per-cent for exnorts of nroressed wood nroduits and mineral nrodiirts rpnprt-ivplvnontraditional industrial exports will also need to grow at an average ratenf 97 nprocnt n yelr (at ciurrent nrices) if the npronataed level of exnort

earnings is to be achieved. This rate of growth, while it is less than thatexperienced by other countries -in -ho r-gin, should ba achieveable. Formost industries in which a large increase in export sales would be needed, themai,n unncrtaninty on the sly side *mold appear to bie t-he wilingness of

entrepreneurs to undertake and finance the investments necessary to attainthe targets. For a broad range of-manufactures, the effective exchangerate apparently continues to favor investments in productive capacity thatis pr4lmarily 4ntenAed to sen.ve thoe Aome"s-ic rket. T.he r-lat-4ive attractiv

ness of investments in capacity for exporting will have to be increasedb.y clanges in the structure of incent'vs for expor an mpr ubttui-

La .Li 0O Lu LL ~L.UL.UL IJ. ±1.L ±V0 = .L '.JJ 0J1LL 1. LLLU .LPJJJjJ.L L. C cULJOL~L L UL. ~LtJindustries; this will probably require an improvement in the effective ex-change rates Lor noutraditional InHustrLa'l exports relat i-v Lo LtiUs fLoimport substitution industries.

2.44 There are other constraints to be considered which will hinder thefurther development of industry and or manufacturing exports. First, notenough is known about the factors that currently limit market expansion forthe country's exports. Second, while there has been a substantial develop-ment in the numbers, experience, and sophistication of Filipino entrepreneurs,more such skills and experience will be needed it industry is to expand inthe next decade. A wider range of technical skills will be required andfinancial constraints will need to be overcome. In addition, Filipino inter-national trading skills will have to be developed rapidly and trade institu-tions and promotional efforts will have to be strengthened to enable industry

- 28 -

to achieve the large projected expansion of exports, especially as far asnontraditional exports are concerned. The achievement of the export goalswill, of course, also depend to an important degree on the abolition ofimport restrictions by major industrialized countries vis-a-vis Philippineproducts.

ExDanding Public Services and Infrastructure

2.45 Programs to expand production and employment in agriculture andindustry will need to be complemented by increased public outlays forinfrastructuire and mannower training. Moreover, social eouitv considera-tions will require that access to education and training be expanded; im-provements are also needed in qnrial sprvicspq suich na health, niitritinnand other public services, especially among the lower income groups in bothurban and ruiral ara

2.A4 P,,ubl inverastmant in infraQtrucnt-iure Twill nead tor ha ranisc- t-o a,bt-

US$1 billion a year by 1980 compared to the present level of about US$400mllionL (bothl at 1974 prices). Assull.ing a G1NPC growth rate olf about 7 percentLa year, public investment would need to be raised to at least 5 percent ofGNP compared to the present 3 percent. Such an increase -ncs-o only

to provide for future growth but also to overcome the existing backlog result-£16ng£1)1 fro.. yer of neleCJ.ct~COI and low C lv lst of LLL. publi lnvstLIICL

2).4A7 An expanded level of pulcinvestment is also requir eA because of~~ 11 -n -iljan-Cu ±>V. l i- ofJUX.~l. L1IVOLM-ILI £0 aJOL, tC-ji-LL CCO

the need for a large increase in the power program and investment in suchareas as tranisportatiLon an.d iriato in dletspor fefrts -oepn

dLCI~, d LLdI~~ULdLILI dlU 1LI dLLa _Uti III U-LLt:LL .3UjJJULL U t _L.LULL,- LU 1-APCILU

production. In relative terms, the power sector's share of the infrastructureprogram. would pLrobUUbly Lrcrtease sUIIle I0 perUcentageLC poIILnt, LU JJ peLct LCL, UULrI1n

the next ten years. The increase in expenditures in the power sector is due torecent policy c-lhIang-es thatd hlaVe glVenI Lite pUbli sec btor sole rs bponiblUitllLy for

new generation facilities; it is also due to the Government's efforts to reducethe dependence on imported petroleum by developing alternatlve sources ofelectrical energy by constructing nuclear and geothermal power plants. It isimportant to note, however, that the programs proposed in other sectors wJll beconstrained by the large size of the investment in the power sector, since theGovernment's capacity to carry out a large program is limited. The transporta-

tion sector's share, for example, would fall from one-half to one-third of thetotal program.

2.48 The Government has also embarked on an ambitious water and seweragesupply program to remedy the past neglect of these sectors. The Government'swater and sewerage supply program in the Manila area and its water supply pro-gram in a number of provincial cities would result in an increase in thissector's share of investment from less than one percent in FY75 to 6 percentin 1980.

2.49 In addition to public infrastructure, there is need for attention tothe nation's housing needs. The housing backlog in the urban areas is enormous,and is particularly acute in Manila. Rough estimates for 1970 show a backlogof around 1.1 million dwelling units in the Philippines as a whole, including

- 29 -

around A 750',000 unCits in -he mZaJor urban areas. Giver. the large influx ir.tourban areas since then, the backlog has undoubtedly increased in the last fiveyears . Because oi th1e IgL cost of construction and thLile shortage ofL credUiLavailable to low income families, it is improbable that the private marketwill lue ablue to proviLUe audequate housing for the buLk ol the population.The need for Government intervention is clear. Fully meeting the popula-tion's hLousiLng needAsU, IhUWCVrL, is LeyVLLU LLIy L .LLLCLhef Lnn La dLLU physiLal capa-

cities of the Government. Past Government intervention in housing con-struction has been inadequate both qua-ntitatively and qualitatLvely.

2.50 A new approach by the public sector is required which wiii notput undue strain on the national government's budget and which will pro-vide realistic housing solutions for low income families. Tnis approacnwill need to be consistent with Government policy on rent control andactions taken to encourage house ownership. Housing designs could takeadvantage of the lower income groups' ability to construct their ownhousing, with emphasis placed on sltes and services projects and the up-grading of existing dwellings. Very basic standards should be adoptedin order to ensure the widest possible coverage.

2.51 It is estimated that a ten-year program for Metropolitan Manila,which would provide sites and services for housing to about 75,000 peopleand upgraded housing to about 400,000 people annually, would cost aboutUS$350 million over the next 10 years and improve the housing conditionsof 4.8 million people. If extended by about a third to cover other urbanareas, the total program would be the equivalent of approximately 0.2 percentof GNP by 1980. This would be a substantial improvement compared to the pastprovisions of housing by the public sector, yet it would be modest in rela-tionship to the private housing market. The key provision of such a programwould have to be its self-financing nature. Loans could be extended to thehomeowners on terms which would cover the full cost of housing investments.Total housing investment (both public and private) as a percentage of GNPshould probably increase from about 2.3 percent in 1974 to about 2.8 percentin 1980 and 3.0 percent in 1985.

Distributive Impact of the Development Strategy

2.52 The growth strategy of the Philippine Government for the nextdecade will focus on: (i) rural development, with an emphasis on foodproduction; (ii) accelerated industrialization, both in capital-intensivebasic industries and in labor-intensive export industries; and (iii) on asubstantial expansion of public sector infrastructure investment, parti-cularly in power, to support the growth in the productive sectors. Thefollowing is a summarv of the Dossible distributive imDact of the develoD-ment strategy discussed throughout this report.

2.53 During the next decade, the Government will be confronted with a3 percent per annnum nnniilatinn and nlabr force grnwth ratep 1nfortunateP1v

this growth will occur at a time when agricultural production can no longerbe expanded solely by increasing acreage. Ac a result, nmnlnxm.nt- in ari-

culture proper will probably rise at a slightly slower rate than the previous

- 30 -

2 percent a year. The increase may be around i.7 percent, which would beaccompanied by an annual improvement in agricultural labor productivity of2.3 percent. Growth in employment (including that in fisheries and forestry)may be around 1.5 percent, with value added per worker rising more sharplyin the nonfarming subsectors.

2.54 On the basis of available investment plans, employment in themanufacturing and construction sectors is estimated to grow at about 5 percenta year, on a net basis, during the next 10 years, creating almost 160,000additional jobs a year by 1985. This goal, even though it is the minimumthat must be achieved, will be a difficult one to attain when viewed inthe perspective of the inadequate growth in manufacturing employment inthe last five years.

2.55 In order to achieve the estimated labor absorption, value addedin manufacturing will have to grow at about 8 percent per annum during1975-80 and at 9 percent per annum thereafter. Equally important will bethe successful expansion of the labor-intensive industrial sectors. Here,the promotion of the export sector is of crucial importance, because theexpansion of consumer goods production for the domestic market is currentlylimited by the low income levels and the low income elasticity of demandfor most of the goods produced. In the export sector, vigorous effortsto increase the exports of manufactured goods will be necessary by boththe Government and the private sector.

2.56 Because of the importance of attaining the labor absorption target.the Government will probably need to rethink its investment program at themargin if industrial production does not provide sufficient iobs. In thiscase, reductions and/or delays in the very large power investment program orin some of the nlanned large capital-intensive industrial investments mighthave to be considered. At the same time, some of the labor-intensive in-frastriiuciirpe programs (e.g those for road building- irrigation- and hoiing

construction) would possibly have to be expanded.

2.57 Employment in commerce and other soft services, the sectors whichhave been the main assimilator of the labor surplus not absorbed by agri cul-tural in the past, could rise at only 5.0 percent a year, compared to a rateof ovner 7 percent durin g 1970-74, if rmplJret in manuifarturing and onstruct-,,o

tion grows at 5 percent a year. This would allow for a growth of labor pro-Auctivity - of ab. o 1 rc --- r --nn nd h- l reducen .,nernmnl ,nnn- ln

this sector.

2.58 Projections based on an extrapolation of the growth pattern of the1975-85 perod show that the present developm,ent strategy, ifl vigorouslyJ. 7 I JO0J pert iuu tiW Lill LIC p OL UV eLJLULL L L. ~~ 1 V ~LLUCLimplemented, will considerably improve employment and incomes on a sustainedDasis in the long run. Under L[he assumlipLiont L[lat the growth of the labor Lorcewill decline from 3.0 to 2.8 percent a year beyond 1985 (reflecting the impactof falling fertility) 15 percent of the employed will be working in manufac-turing and almost 9 percent in construction by 1995 compared to 10 to 3 percent,respectively, in 1975. Agricultural employment will have declined from 54

Table 2.3. Enploynent

Annual Growth RateSector :1960 1965 1970 1975 1980 1985 1965-75 1875-80 1980-85

Agriculture, forestry andfisheries 5,777 6,272 6,256 7,661 8,250 8,890 2.0 1.5 1.5

14ining 28 22 57 42 50 70 6.7 4.0 7.0Mkanufacturing 1,142 1,205 1,383 1,454 1,690 2,010 1.9 3.0 3.5Constructiqn 254 320 389 428 650 1,050 3.0 8.1i 10.0Transport-a and utilities 320 398 537 534 600 700 3.0 1.7 3.1Commerce and services 1,920 2,846 2,813 3,864 5,220 6,170 3.3 6.2 3.4

Total employed 9,441 11,063 11,437 13,983 16,460 18,890 2.4 3.3 2.8

Total labor force 10,076 11,794 12,37'8 14,650 17,129 19,802 2.2 3.2 2.9

a/ Including coirounications

Source: Statistical Appendix and Mission estimnates

- 32 -

percent to 40 percent, while employment in commerce and the soft services,after having risen to around one-third of the total emnlovyd in 198U, willstay at roughly this level.

2.59 It is difficult to determine precisely the impact that presentpolicies will have on incomes. Past changes in emplonxment and valued addedsuggest that, as far as the distribution of income is concerned, it will benecessary to t ake addit-ionnal mesunires t oensuire mO!e~ eqa I-Ii ty. Land efr

will have the effect of redistributing assets in a more equitable way, andhct-i- ru,ral andi uirba,n progrnms aimce at nr7ovrty groupc -o- als mak sig-

nificant contributions to reducing inequalities. A more equal distributionof incomes and assets w-ould increase the size of the domestic market formanufacturers, construction, and services, and would thus give a furtheriL,ptL s Uto J .mlty LCLIt .reatio.L

TT'he Rolle of GovernmenLt anA AAministrati4ve Rlef1orm

2.60 mThe role of the public sector in th-e economiy will have to expandL.. UU IIIC £ U.LC Ut LiiC j)~~~~~~~~~~~~~UU±J _ EL L L III LLC UitLI Wi.L ILV t XjaL

significantly in the future if the Government's development programs are tolbe implemented. T,hiJs explains th~e importance ofL ongoing reform-s in the adl-ministrative structure of government, but even greater efforts to upgradethe quality of administration in both national and local government willbe needed to maintain the momentum.

2.61 An expansion in the role of the public sector in the Philippinesbegan in the early 1970s with efforts to improve tne aevelopment orientationof the government. This expansion was a major departure from the policy ofthe 1950s and 1960s when the private sector had been regarded the principaiengine of growth and the public sector had been confined to a limited, largelysupporting role. Tne correction of this imbalance has been gradual and someof the achievements to date may appear modest. Compared with the publicsector's poor performance in the past, however, significant progress has beenmade in virtually all areas of fiscal and financial performance. Nevertheless,the large public investments proposed in the various economic and social sectorsin the future and the substantially higher current outlays as public servicesimprove, will claim considerably more resources than in the past, place addedburdens on administrative capability, and require more emphasis by the Govern-ment on training and on administrative and organizational improvements. Theincreasing importance of the national government will mean that the divisionof responsibilities among the various levels of government will have to beclosely reviewed.

2.62 Major changes in adm.nistration at the national government levelhave already been made with the execution of the Integrated ReorganizationPlan. The plan's proposals have been implemented in nearly all departmentsexcept for some units of the Department of Public Works, Transportation andCommunications. The Government has now begun to evaluate these administra-tive reforms and to identify areas for further improvement.

2.63 Despite the expandiug role of the public corporate sector in thePhilippines, the Government reorganization plan has not dealt with that

- 33 -

sector nor with its relationship to the national government. The futuredevelopment of the Philippines will require much more participation by publiccorporations than has been the case in the past. This is true not only forpublic utility corporations such as the National Power Corporation, whichin the medium term would claim one-third of public investment expenditures,but also for public enterprises which will be established in such areas asfertilizer production, steel making, and shipbuilding. Because the effective-ness of this sector will be critical to the success of the proposed develop-ment strategy, it is essential that its role be defined more precisely andaction tnken to ensure that its imnlementation capacities are appropriate

to its assigned tasks.

2.64 While the reorganization plan advocated the decentralization of thenatinnal oavprnmpnt- it did nnt dpel ndeniiutelv with the role of 1nrA1 govern-

ment. In the past, the centralized system of government did little to encour-age local initiative and resulted in the national government hping insuffi-

ciently informed about local needs. While in the future, the national govern-men t w ivl 1 h oa r-n -,-nt f- a on r0xri,at thp m-b-y-r -rcnnnzN-iI i tx, fnr nrnmcltina

development, local communities will need to play a greater role in implement-ingT development programs than they have to date.

2.65 The importance of broadening the base of pnat t local

level is recognized by the Government and in the past few years there havebeen a number of manor refol.s deesig-ned t-no expand the role of local authori1 -

ties in development. However, there do not appear to be any clear-cut guide-lines on 4ust- what- this role should be 4in the i.-Med4ate future; even less

clear is what their role should be in the more distant future. The situationis further comlplicated b-y the currently uneven levels of responsiibillitie-s15 £ U Lil~i LULL Lc LU LII.l U L ~LLL L~ U.C .CSJ .C 'LCU.. kLL

exercised by local governments. One area of responsibility that could begiven to local authorities in tie niear Luture is tLe building and mainteance

of roads. There is also scope for expanding the services provided by localgovernments in thre area of filshing 1/ and Lhey could participate in national

nutrition and health care programs. In enlarging the role of local govern-

meents, Llowever, care will hLave to be takLen to ensure that thLe devolution

of fiscal authority does not proceed more rapidly than the training of localofficials and that conflicts which arise as a result of overlapping jurisdic-tions and responsibilities are minimized.

2.66 Another important problem is the need to upgrade the quality ofmiddle-level managers in the public service. A series of reforms have re-cently been introduced to improve the quality and performance of the civilservice. In addition, the training of Government otticiais who belong tothe Career Executive Service is being expanded by the Development Academyof the Philippines which has the primary responsibility for this function.Important as they are, these reforms in the civil service appear inadequatein the face of the task ahead. Efforts should be made to broaden the coverage

1/ More facilities are needed in rural communities to facilitate thestorage and processing of fish, for example.

of training to make a maximum impact on middie-ievei managers as weii as toprovide more in-depth training in the management of development projects.Since the Government must be able to compete effectively with the privatesector for highly trained manpower, some revisions in the civil servicesalary structure and in its recruiting practices are needed.

2.67 The priorities for development in the next decade must be trans-lated into sound programs within the various public agencies concerned. Thiswill involve a considerable expansion of development projects and programs inthe pipeline as well as an improved ability to implement them. Besides im-proving implementation capacity, it is crucial that the development programbe designed within a clear and consistent framework, taking into accountthe particular circumstances and overall development objectives of thePhilippines. In this regard it is important that the Government continueits efforts to improve its planning capacity both by further strengtheningthe links between the National Economic and Development Authority (NEDA)and the line agencies and the capabilities of the various agencies in-volved. The Government has recently prepared a series of plans for themajor sectors. While this exercise should be continued in the future,there is a need to prepare a longer term (e.g., 10 year) perspective planwhich integrates the sector plans into the overall perspective of a macro-plan.

Tax Reform

2.68 Since the late 1960s, the Philippine Government has initiatedvarious tax policies aimed at raising the level of tax revenues and reformingthe tax system. Reform measures began with the introduction of the exportstabilization tax in 1970 and an increase in the corporate income tax ratesin 1972. More recently, a revised tariff and customs code with a simplifiedand standardized tariff structure, higher tariff rates, and a more rationaltariff protection system was enacted. Other measures enacted included theintroduction of a permanent export duty system with differential, and gene-rally higher rates. and sharp increases in rates for excise taxes on Detro-leum products, liquor, tobacco, as well as for the stamp tax and the salestax on automoh-ilps A tax amnestv for previouisly undiscl1oePd or iunderreportedincome and wealth was proclaimed in 1973. Several administrative reformsto imnrove tax rollpction and ndministration as well as to -omhbt 'orruinl-1on

were also implemented, resulting in drastic personnel changes in the entiretax and customs administration. Finally, major reforms have been undertakento strengthen the finances of local governments and to reduce their dependenceupon thle nationall governm.ent by increasingthefienyolcarvnucollections and improving the system of revenue sharing, both between thenational and 'local 'leve'ls andu ariong the vroslclgvrletuas

L.6 9 As a result oLf thiese reforU,L Fieasures and the general LincLease inL

economic activity (especially the temporary dramatic improvement in exportearnings), the tax revenue perfuormance improved signiLicantly afLer 1972.National government tax revenues rose 30 percent in FY73 and 50 percent inFY74, when the tax ratio reached 12.3 percent of GNP compared to 9-i0 percenta few years earlier. Despite the recession and falling export prices, theratio maintained its same high ievel in FY75.

2.70 wnile the tax rerorms nave boosted' nati'ona'l goverLUent tax revenues,

there has not been any significant improvement in the structure of the revenuesystem, especially in direct taxation. Tne share of direct taxes in total tax

revenues has not increased as a result of the tax amnesty, apart from possibly"one-shot" boosts. Tne complex and time consuming task of overhauling tnecorporate and personal income tax system still has to be undertaken. Hence,income distribution features or the tax reform measures nave so rar Deen limitedto increases in excise and import duty rates on luxury consumption items andthe taxation of windfall gains accruing to the exporters of primary pro-ducts. Moreover, as virtually the entire increment in tax revenues, apartfrom higher corporate income tax revenues, was the result ot the increasedrole of taxes on international trade, the tax system has become highlyvulnerable to the fluctuations of the international terms of trade.

2.71 The share of revenues in GNP will have to continue to rise if theGovernment's development goals are to be achieved. While more improvementsin tax enforcement and collections on the basis of the present tax lawswould certainly produce some further rise in revenue accruals, this in-crease would probably not suffice to provide all the required funds. Itis likely, therefore, that major tax legislation will be needed in the latterhalf of the 1970s. Moreover, apart from the more medium-term need to gene-rate sufficient revenues for financing the budget, the Government may, inthe longer term, want to correct the tax system's current inequities.

2.72 The main thrust of the future tax reform measures should be inthe direction of (i) a reduction in the current heavy dependence of taxrevenues on international trade and a widening of their domestic base, and(ii) an improvement of the tax system's social equity by a sharp rise indirect taxation and higher indirect taxation of domestic goods and servicesconsumed by the upper income groups of the population. In addition, theintroduction of a national tax on land and on rural property warrants care-ful consideration. If a series of reforms alona the above lines were im-plemented, it should be possible to raise the ratio of national governmenttaxes to GNP to about 14.5 percent by FY80 and to 16.5 percent by FY85. Iflocal government tax revenues and social security contributions are added,the total tax ratio to GNP could reach 16.6 percent by FY80 and almost 20percent by FY85. Such an increase will require very determined efforts onthe part of the Government to formulate concrete legislation and to takeaction to enforce existing tax laws fully. In the short run, the Governmentis confronted with recessionary conditions which make immediate tax rateincreases difficult. However, policy decisions on tax measures will haveto be made relativelv snnn in nrdpr ton nrntiorp rPei1ut-s in t-hp next few years,since more comprehensive reforms (for instance, those regarding income taxes)uisiuall ly takera 1n Ig f-io f-n 1 aclol t-a and imple ment- affect-ively.1

D_-4-n - TJ-,n.c

2.73 U4 storically, thV,e Di,ilippines4has not been a country with - high1L*I ) ILL. a L L _L L.LJ L. L L LI£ LL.LL jJJ.IIa 10 11L L. U1~I L .J1L LL y .L 0 I.L1

rate of inflation maintained over long periods of time. Between 1965 andIn…~~~~~~~~~~~~~~~1 -… -_ - - _ _~-- 4 3-… -1970 tiLe average aninual percentage inicreasUe Jin L1th UUU1ULt price inx w

about 2 percent. In the early 1970s, however, there was a sharp accelerationof this rate, with the index rising 15 percent in 1970 and 22 percent in 1971.

- 36 -

The highest increase was recorded in 1974, tollowing the international oilprice increase and the surge in world commodity prices, when consumer pricesrose 40 percent. The upward trend appears to have ended in 1975, with anaverage quarterly increase of about 1 percent per annum in the first threequarters of the year, possibly adding up to about 8 percent for the year.The changes in wholesale prices, which reflect international price changesmore closely than the consumer price index, showed similar movements, exceptthat the percentage increase in 1974 (54 percent) was considerably higher.Wholesale prices also appear to have stabilized in 1975.

2.74 Within the various components of the consumer price index, thelargest relative increase occurred in 1974 in the "fuel, light and water"category, which rose largely because of the increase in the price of importedfuel. However, there were also large percentage increases in the prices forfood (43 percent) and clothing (44 percent), both being areas where domesticproduction is important. The "home goods" component of the wholesale priceindex rose by 18 percent in 1973 and 52 percent in 1974, demonstrating thatthere were domestic inflationary pressures at work in the 1973-74 period.Again, there appears to have been an end to such rapid price increases in1975, since the average quarterly increase for "home goods" in the firstthree quarters of 1975 was about 1 percent.

2.75 It is clear that domestic inflationary pressures were at work in1973-75, as was the impact of the declining terms of trade. The money supplyrose by 21 percent in 1973, 25 percent in 1974, and an estimated 4 percentin the first three quarters of 1975. These changes were associated withincreases in total domestic credit of 15 percent in 1972, 16 percent in 1973and 40 percent in 1974. The source of this pressure was external in thatwhile the Philippines suffered marked price increases for key imported goods,the economy also benefited from higher nrirps for exports. The higher valuesfor exports required an expansion of credit for their financing. The in-creased domestic incomes raised the liquidity of the banking system and thuisgave a secondary push to domestic prices. 1/ By the end of 1975 the signi-flcance of these factors was on the decline and the prospects for a moremoderate rate of price increases are good, provided the authorities maintainprudent monetary and fiscal -li4 ,es and thereare no additional lar-e externalinflationary shocks.

1/ Tne increased domestic liquidity was a major factor in the growth or theshort-term money market, the rise in deposit substitutes, and the result-ing distortions between short and long-term interest rates.

- 37 -

Table 2.4 Percentage Changes in Prices and Monetary Magnitudes

1972 1973 1974 1975

Total domestic credit 15 16 40 18 /aMoney 26 21 25 4/aNet foreign asepts -1S i10 49 -48 IRConsumer price index 8 12 40 8 /b

/a January - September 1975./b Prel4mirnary

Source: Central Bank of the Philippines.

.76i Troughout the nflat4onary period of the 1- 7 ,L I ±LL.J1

6SJ L I .LC I L tC .. t -LaL-.

ities intervened to control, as far as possible, two important elements:wages andu thleL priLe of rice. TI'e bas4c objective of the Govrr ------price policy has been to promote the growth of employment and investmentthrough, amor.g other things, wage restraint. uILJwever, Lin recent years iLn-

flationary pressures have been such that restraint in money wages would haveentailed real hardship on wage earners if tLe prLces oL essentLia cons-uiier

goods were determined solely by market forces. Legislation establishing aPrice Control Council and authorizing controls on prices of a wide range olgoods was passed in 1970 following the floating of the peso. This legislationwas renewed in 1971, and in i973 was extended by a presidential decree.

2.77 A resolution of NEDA has restricted the variety of goods subject toprice control to "basic commodities that are consumed by low-income groups."At the present time, the commodities under price control are: rice, corn,wheat flour, some basic meat cuts, sugar, condensed milk, cooking oil,ordinary fabrics, some drugs, lumber and plywood, galvanized iron sheetsand infant dietetics. These controls on the prices of consumption goods havenecessitated other controls on some input prices to avoid discouraging theproduction of fertilizer and animal feed. In principle, the prices set bythe Price Control Commission reflect the cost of production plus specifiedmarkups for the manufacturer, the wholesaler, and the retailer (10 percent,5 percent, and 10 percent, respectively). In general, the price controlsoperate through legal penalties rather than through subsidies, although in thecases of rice and fertilizer, the Government does incur subsidy costs. Pricecontrols, however, have not been able to prevent dramatic increases in thecost of living.

2.78 The most recent major piece of wage legislation was enacted in 1970.That legislation established a Wage Commission and prescribed minimum wagesas follows: P 8 a day for employees of nonagricultural enterprises and thenational government; P 6 a day for employees of small service and retailenterprises; P 5 a day for local government employees; and P 4.75 a day foragricultural workers. The Wage Commission, whose members represent Government,business, and labor (with Government predominating), studies wages in various

- 38 -

industrii- and the cost of living in different regions of the country. Inindustries in which labor and management have failed to reach agreement onwages through collective bargaining and in which the Wage Commission findsthat the national minimum wage is insufficient to maintain health and effi-ciency, the Commission may recommend that the Secretary of Labor issue a wageorder requiring that industry's wages to be higher than the national minimum.To date, four such wage orders have been issued, with the following minimumdaily wages: the jeepney transportation industry in Metropolitan Manila,P 12; the copra industry, P 9.20; the coconut oil products industry, P 9.25;and the sugar industry, P 6.8 for various agricultural tasks and P 11 for itsprocessing. In 1974, Presidential Decree 525 instituted a cost-of-livingallowance of P 50 a month for national government employees and requiredmedium and large-scale private firms were required to initiate an allowance ofP 30 a month. In December 1975, further wage and salary increases wereinstituted. Public sector salaries were raised from 5 percent to 25 percentand private firms were required to give one month's pay as a bonus eachyear, beginning with 1975, effectively raising wages by about 8.0 percent.These measures, however, have restored only a part of the real income lostto inflation by wage earners since 1969.

2.79 The effective minimum legal wage is, therefore, now about P 11a day (or P 264 a month and P 3,170 a year) for the industrial worker andthe national government employee. A survey on the levels of living madeby the Wage Commission estimates that in January 1975, the daily cost offood and other basic requirements in Manila was P 29.9 a day for a familyof five. This suggests that there would have to be at least three bread-winners in the household, if each of them received the minimum wage, inorder for the household to meet the Wage Commission's basic requirements.The fact that only 33 percent of the population are employed suggests thatthis would be extremely unlikely.

2.80 An important question bearing on the relevance of the statutoryminimum wage for promoting or protecting the incomes of wage earners is theniTmbpr of wage earners recelving the minimum wage. A lengthv siirvpv hv the

Wage Commission in 1971-73 of 2,699 firms found that 7 percent of the wageearners were paid less than P 8 daily; 53 percent received betTeen D 8.00and P 8.99; 17 percent received between P 9.00 and P 9.99; and 23 percentreceived P in.on or m.ore Simil-rly, 1abor f-orc surv.eys conducted by the

Bureau of Census and Statistics (BCS) found that in 1973 the average weeklyearnings of craftsmen, production-process wrorkers, ar,d related workers was

P 48, while the weekly earnings of manual workers and laborers amounlted tor 3 8 Ao - i-.- a work- I- week ofJ five anA on=hlf uay -s, Lhese -ar - - L L at-

late into daily wages of P 8.7 and P 6.9, respectively. Clearly, the majorityU P [iliLipplt:i waa ,C c a rict : 1 r ee 1v t: L t L La n tIUL Lidil Lll [LUiIUUIU Wdate dlUa pr o U-

portion earns less.

- 39 -

2.81 Future prospects for price stabiity are also dependent upon ba'=I.L £UUL UPrL LL pLJL OLaL.L.L.LLy~~~J~LpLL~I

ance of payments developments, fiscal policy, and prudent monetary management.TLhe shifts ln thle structure OL ofeConic actLivity Udetailed in tLle LUoIlowiL1

chapters, particularly the increase in public investment and the rise inGovernment expenditures, couia nave infiaLionary consequences. noweve, adsset forth here, they represent a coordinated program that will permit invest-ments to be carried out with adequate financing and without adding to inflation.The balance of payments projections include the external financing requirements.Given a reasonably favorable external environment, it shouid be possibie tohold price changes to within a 7 percent annual increase in the years 1975-78.It is more difficult to project price changes beyond that period, although itis clear that price stability will depend very much on the achievement ofpolicy objectives in the area of exports and employment.

A Decade of Change

2.82 This report focuses on the forthcoming decade, 1975-85, and it isimportant to summarize what might be achieved in that period. Many of theprojects and policies now underway will only be fully effective in the early1980s; some others now being considered will materialize in the same timespan. What is proposed would result in a restructuring of the economy topermit the maintenance of a relatively modest rate of economic growth (e.g.,about 4 percent per capita GNP growth, which will not be much higher thanhas been achieved in the recent past). The changes envisaged, however,recognize that it will not be possible to maintain that momentum of economicgrowth in the face of the continued high rate of population growth on thebasis of the policies followed in the past. It will be particularly neces-sary to strengthen the ability of the economy to earn foreign exchange andreach toward a more viable balance of payments position while, simultaneouslyand through the medium of the same policies, additional work opportunitieswill have to be provided for the growing labor force.

2.83 These policies have to be such that the dynamics of growth in theprivate sector - both in industry and agriculture - are not adversely af-fected; at the same time, however, the public sector has to be strenthened inorder to play a larger and more effective role than it has in the past. Suchan accomplishment will necessitate an increase in investment, both public andprivate, so that by 1985. investment as a DroDortion of GNP will be 25 percentinstead of the average 20 percent achieved in 1970-74. There will have to bea larger public share to reflect the increased investments in infrastructurerequired, and a more effective and productive pattern of investment in theprivate sector, particularly in agriculture and manufacturing.

2.84 The chanaes foreseen in the nihlin sertnr i,ndnnihtpdlv renresentthe maximum that could be achieved by 1985 and will be difficult to implement.Esspntillv what ill 'h rpniiirpd in a nt-rancthtnpd andl hbrnr.onoed niihlir

sector capability. In financial terms that will have to be based on anincrease in public revenues such that they will rise permanently to a higherpercentage of the national income. In addition, the tax system will needreform.s [to maa 4it less dAependen A po. internaLonal economic cond [i ons and

to reduce the present inequities of the tax structure. Higher public revenues

.ret necessary because of tile increased infrastructure investment that will beneeded to support both public and private needs. However, they will also bene.e5sarxL to maintain the public sector's ability to implement and manage-larger programs. In practice, this means large investments in human resourcesond in the upgrading of public services, and their deployment in such a way asto support regional development and the decentralization of economic activity.

2.85 The decentralization of economic growth opportunities is closelylinked withi possible changes that are foreseen in the private sector. Agri-culture will continue to be important and, because of the high rate of growthof population and the labor force, will increase in size during the decade.Its contribution to the food supply, exports, and employment opportunitieswill necessitate that the sector receive a significant share of policy atten-tion and public resources. A good deal can be achieved in this sector,however, if the present direction of policy is maintained, for it lays thebasis for new directions in rural development which will effectively red-istribute wealth (through land reform) and attack the problems of ruralpoverty.

2.86 Higher productivity in agriculture is also required to contributeto exports and economize on imports of foodstuffs. Agriculture has in thepast been the main source of export earnings; it will continue to play animportant role in the future, still accounting for 32 percent of exports in1985, but it can no longer provide sufficient earnings to cover the economy'simport needs. Hence, a fundamental change seen as necessary during the nextdecade should be the emergence of manufacturing exports as a significantcontributor to foreign exchange earnings. Included here, however, wouldalso be the higher processing of agricultural products previously exportedin more basic forms. The expansion of manufacturing exports may be the mostdifficult to achieve of the changes outlined in this report. Nevertheless,it is fundamental in several respects. In the first place, it would be theexternal manifestation of the most basic structural change required, whichis the industrialization of the economy. It is doubtful if that can becarried very far on thie basis of domestic markets alone. Second, indus-trialization, if properly pursued in a labor-using rather than a labor-saving form., will be the mAin area thrniouh which jobs will hp created=Third, the type of industrialization followed will have a close bearingon the attainment of other objectives, particularly the expansion of nonfarmemployment in rural areas, the decentralization of economic activity, and theott-nck on r 1ral .,nd urb-nn pnovrty.

2.87 It ios not p ssible Uto project wit any certainty w at the detaledA

impact of the developiuent strategy will be on the Philippine economy overt[e next LUecadUe. [IUWCVCL it is possible LU indicate the oders o c,agnl-

tude which would be consistent with the assumptions lying behind the proj-ections. The following table sets out the key figures estimateu for 1975and projected for 1985.

- 41 -

Table '2.5 Th e Phil4pp4ne Economy, 1975-85

1975 1985~

Popu'latiLon (mill-ior.s) 42. 55.

Population growth rate (percent) 2.8 2.4rI ( 14.0- - - - . f.4114... 1..9 10 A

Unemployment rate (percent) 4.6 4.6GDP (miilOinS OL UD dollars) 15.4 63.1GDP per capita (US dollars at 1975 prices) 363 550Exports of goods and nonfactor services

(millions of US dollars) 3.1 15.9imports of goods ana nonfactor services

(millions of US dollars) 4.2 16.7Total government revenues as a percentage of GNP 16.2 21.7Investment as a percentage of GNP 22.9 25.0Public investment as a percentage of GNP 3.0 6.0

Source: Statistical Appendix and Mission estimates.

2.88 The population will be 30 percent larger in 1985 than in 1975, butthe rate of growth will be lower during the decade as the impact of reducedfertility begins to be felt. Employment will be higher by about 35 percent,helping to provide job opportunities for new entrants to the labor force, butdoing little to reduce the incidence of unemployment. The GDP could increaseby a factor of 4 (at current prices), although real per capita GDP, afterallowing for price changes, would rise 1-1/2 times, from US$363 to US$550.If accompanied by the beginning of a more equitable distribution of incomesand wealth, this would be a creditable result.

2.89 The key to these changes lies in an improved balance of paymentsposition and an increase in investment. Exports could increase by a factorof 5, while imports are projected to grow 4 times, so that there will be arelative decline in inflows from abroad; by 1985 the current account deficitwould be less than 2 percent of GDP, compared to 6 percent in 1975. Theinvestment ratio will increase from 23 percent in 1975 (itself an increaseover the recent past) to 25 percent in 1985. Within that proportion, publicinvestment will have risen from 3 percent to almost 6 percent, reflectingthe marked increase in the importance of total government revenues; theyare projected to increase from 16 percent of GNP to almost 22 percent.

2.90 These selected indicators outline the possible quantitative impactof the development strategy discussed in this report. It represents a dis-tinct departure from the policies of the 1960s, and its obiectives appearmodest. Looking back from 1985 observers may not regard it as more than achange in direction. It certainly is that, but it is also an indispensablelaying of the foundations for the growth that the Philippine economy canachieve in the rest of this century and which it needs to achieve if itis to provide better opportunities for its growing population. It is thisgrowincg population whic-h is hot-h the ohipret of t-hp nolirici disricustse in t-his

report, in terms of increased welfare, and also the main obstacle to achieving

those objectives quickly. The high rate of population growth remains, for themoment, the largest single impediment to raising the standard of living of theaverage Filipino. While economic development will create the conditions underwhich human fertility will fall and the rate of population growth decline, thepresent high rate of growth makes it more difficult to bring about the estab-lishment of those conditions. Without its foundations, no building is secure,and the economy of the Philippines cannot be built to serve the interests ofthe people, unless the foundations for future growth as outlined in thisreport are properly attended to.

Table B.i. Expenditures; on Gross Natiornal Prodluct(In millions of pelsos at current prices)

Item 1960 1965 1968 1969 1970 1.971 19'72 9-'73 1974L

Private consumption expenditure L0,4444 17,514 2:2,626 24,369 28,729 36,3343 hIo, 642 48,699 71,580General governanent consumption

expenditure 1,087 2,'LO4 2,833 3,287 3,521 4,344 5,186 ,989 7,221

Fixed capital formation 1,999 4,342 6,091 6,333 7,599 9,258 10,197 12,670 21,307Increase in stocks 231 1X86 555 591 1,005 1,022 1,236 1,80( 3,389Exportsof goods and nonfactor

services 1,[408 3,Z858 l4,465 4,315 7,797 8,790 9,675 15,623 21,575Less: Imports of goodsc andl

nonfactor services 1,508 3,897 5,615 5,584 7,9593 9,130 1LO,114 13,716 25,872Gross domestic product 1L3,661 24,1407 30,995 33,311 4o,658 50,,627 56,822 71,065 99,200Net factor income from abroad -203 -123 -406 -299 -779 -- 588 -865 -450 553Statistical discrepancy -575 -2, 1491 -646 493 5813 --867 _95 -590 -809Gross national product 1L2,883 21,793 29,903 33,505 40, 462 49,172 55,8652 70,025 98,544

Source: NEDA,.National Accounts Staff, Statistica'l Office.

.. ,j 0 0 0 0 0 0 0 0 0 0-44Ww ,w ,~,

8 _; ;;; ;; ;

0. -

|4( 4D. D5 .ON.1q N oI

_ . 2222 2 2&N N-%N N4n<N N

e,'09 000 ooooo ooooo 0oo oo

8 2 n O n , 4 -t e , 4 .e4so xt'°

- 5. O4 f s4N@r 0^C

o C _ . _ _ S b

*8D4

i4 _0.9 OOON i0 00 00 C4_.1N 1 t

4> A

* 2 0- 0 .:r o0 00 .o09 400 4 wr -

ted

> ilt _w Zff O > oO O N _ o e w

| f000___9 IN f -00 0 00 09 O -49'O 0'

44R 1°°° .°°°. °o 0000

Table B.2. ExqpentILtures on tOwas National PdtCkict(In mil:lions of P.eloa at 1967 constant pr-ic.ui)

Item 1.960 196'5 15068 1969 1970 1.971 1972 15973 1974

Private consumption 15,057 19,319 22,146 23,178 :23,872 24,897 - 25,7j5 27,545 29,21kGeneral gcvernment con-

sumnption 1,911 2,436 2,6b8 9,902 2,683 2,905 3,135 3,356 3,658Fisxed capital formation 3,000 4,643 5, 933 5,942 5,622 5,921 6,031 6,690 8,217Increase in stock 308 537 543 557 775 723 785 986 1,252Fxports Of gooIds anLd nonfactor

services 2,518 4-,340 4,221 4,018 4,548. 4,591 5,945 6,155 4,673Less: Imports of goods end

non.faCo+Ar services 3,255 4,072 5,ti43 5,479 5,0141 4,832 4,79 & 5,995 7,218Gross domestic product 19,539 27,203 29,848 31,118 32,459 34,205 36,837 38,737 359,796Net factor income from abroad -331 -127 -1411 -296 -4850 -.305 -383 -:200 86Statiatical discrepancy -418 -:2,72 3 -1,C46 -786 -29B7 -364 -1,5018 -L22 773Gross national proluct 18,790 24,353 263191 30,036 31,682 33,536 34,915 38,1415 4cl,655

Source: NEDA,:National Accounts Staff, Statistical Office.

Table B.3. lnatrial Origin of Net Doneatic Proclzct At Factor Co,rt(In millions of pesos at current prices)

Sector 19560 19?65 1968 1969 1970 1971 1972 1973 1974

Agriculture, fishery and Jroresitry 3,579 5,970 8,592 10,091 1L,95:L 14,624 16,531 :200,0i 28,47Mining and quarrytng 128 232 419 530 84-7 5128 1,051 1,6593 2,154Manuf'acturing 2,141 3,40o 4,692 5,073 6,476 7,808 8,979 12,20iO 19,56,Construction 395 758 B15 930 813 5927 1,262 1,41-1 1,891Transportation, cowfmunication,storag% and utilittes 56( 781 1,004 1,070 1,25 5 1,443 1,651 1, 955 2,574commerce 1,865 2,914 3,842 4,075 14, 889 5,663 6,823 8,2e2 11,124Snervi ass 2,647 4,571 6,I%E 6,645 7,49? 8,52 5 9,731 -1I,12k 13,229Nlnt domestic prociact 11,315 18,626 25,470 28,414 33,728 0,1.08 46,028 56,7713 79,013Fbest of the world -203 -123 -4%)6 -299 -779 -588 -865 -450 553Nlet national produLct 114212 18,503 25,064 28,115 32,949( 39,520 45,163 56,263 79,566

Sane: WflA, Natimnal Aceowts Staff, Statistica:l Ofrice.,

Table BJi4. Indastrial Origin of' Nel; Donmestic Product at Factor Cost(In millions of' peEsos at 1967 constant prices)

Sector 1960 1965 ]L968 19693 1970 1971 1972 1973 1.974

Agriculture, fishery and forestry 5,638 6,954 7,893 8,375 8,549 8,556 8,642 9,306 9.626Mining and quarryiag 256 2!81 408 468 5.59 653 686 730 734Manufacturing 2,945 3,672 4,570 4,81:L 5,1108 5,497 5,828 6,527 6,755Construction 536 854 757 8263 6.57 678 884 925 1,064TranspDrtation, communrications, 680 847 972 1L,015 1,082 1,148 1,210 1,298 1,384

storage and utilitiesConmnerce 2,496 3,193 3,791 3,935 4,149 4,357 4,643 4,972 5,197Services 4,135 5,158 5;,760 5,955 6,196 6,424 6,732 7,145 7,653Neit domestic product 1.6,686 20,959 24,151 25,385 26,300 27,313 28,625 30,903 32,413Rest of: the world -331 -127 -- 411 -296 -480 -305 -383 -200 86Nelt nationa1 product 1.6,355 20,832 23,740 25,089 .25,820 27,008 28,242 30,703 32,499

Source: NEDA, National Accountts Staff, Statistical Office.

Table B.5. Gross Domestic Incomes and Resource Gap(In millions of US dollars at constant 1971 prices)

Item 1960 1965 1970 1971 1972 1973 197h

Gross domestic product 6,513 6,957 5,577 5,353 5,529 5,722 5,768Gains from terrzn of

trade 31 13 134 -60 -270 18 5,874r,yrn.qq ^e1sTlAMe. intnm-e 6 - C,1l 6970 5j711 5-293 ~ 525 [ 5,C~7l,n R,74

Imports.oof goods andnonfaet.nr seveitesq 831 1 O)h l,2RA 1 24t2 1,205 1,381 1 92

Exports of goods arda/nnnfantor liervice 7s 71,9 1,11 1 -26q 1-220 1 jil62 1,702 1,353

Resource gap 82 -71 17 22 43 -321 139

e / T _§i,fl-i ,.gsnOn LLc

t.JuUce i I11.fl, NatIJionlJ JLiAccunsI StaffG±4, )*uaUtistica.l Off .ice zdLI rLLaa.LUJ estLimAates

STATISTICAL APPENDIX

Table Title

Population and Employment

A.1. Total PopulationA.2. Population and Demographic RntesA.3. Population Projections and Implicit Growth Rates

to the Year 2000A.4. Labor Force, Employment, and Unemployment

(Tn thousands)

A.5. Employment by Sector

National Income Accounts

B.l. Expenditure on Gross National Productk L U1L XLiL U. uL x..L 1L jJLJfi .s°J

B.2. Expenditures on Gross National Product(In millions of pesos a-L. 19J67 L constant prices

B.3. Industrial Origin of Net Domestic Product AtrFactor Cost (In m.illions oL pesos at current prices)

B.4. Industrial Origin of Net Domestic Product AtrLaLuc t uuL oCst I i L mlLLons X Li p "_ - 0 L 1 7U '

constant prices)B.5. Gross Dorestic Incomes and Runsource Gap

(In millions of US dollars at constant 1974 prices)

Balance of Payments and External Trade

C.1. Balance of Payments: Goods and Services Account(In millions of US dollars)

C.2. Balance of Payments: Consolidated Account(In millions of US dollars)

C.3. Foreign Exchange Reserves of the Central Bank andCommercial Banks

C.4. Exports by Major Commodity Groups (F.o.b. value inmillions of US dollars at current prices).

C.5. Volume and Unit Value of Principal ExportsC.6. Quantum, Price and Value Indexes, and Net Terms of

Trade (1965 = 100.0)C.7, Imports by Commodity Group

(F.o.b., in millions of US dollars)

Table Title

External Debt

D.I. External Public Debt Outstanding as of December 31, 1974(In thousands of US dollars)

D.2. External Medium and Long-Term Debt TransactionsClassified by Type of Borrower (In millions of USdinll2s

Public Finance

El1. National and Local Government Tax Revenue(In millions of pesos at current prices)

E.2, Expenditures of the National Government(In millions of pesos at current prices)

E3. Consolidated Statoment of T.nocl onvernment Reveniiu

and Expenditures (In millions of pesos at current prices)E.4. Infrastrurture Expenditure

(In millions of pesos at current prices)

Money and Banking

F.1. The Monetary System at Year's End, 1965-74(In mllllonn of pesos)

F.2. TotaW Loans and Investment Outstanding by Institution(ITn ..illlons of pesos)

F.3. Credits Outstanding of Commercial and Savings Banks toL-Le Prlvate Sector bLJ y TInusLry (In mllior.os of pesos'

F.4. Total Assets of the Financial System(In rmillions of pesos)

Prlices and Wages

G.l. Consumer Price IndexG.2. Manila Wholesale Price IndexG.3. Wage Indexes

Table A.1. Total Population, 1877-107h

Annual-+ a e M4 =a r V,eC.r..

Year Census Population a/ Population b/ Growth Rate

1877 5,567,6851887 5,984,7271896 6,261,3391903 7,6355426 2.91918 10,31h,310 1.91936 16,000,303 2.21948 19,234h,182 1.91960 27,087,685 27,372,420 3.11961 28,174,7531962 29,001,6561963 29,858,4981964 30,749,6821965 31.673,6931966 32,633,0871967 33.629.5091968 31,664,6831969 35.740,)4341970 36,684,468 36,851,954 3.01971 37 919,0961972 39,oho,4391973 ho,0218,8191974 41,432,623

a/ Data to 1896 excludes non-Christian population.

b/ The 1960-69 estimates are interpolated from census populations. The1970-72 estimates are from T.. BRaal. G u e- and P-Yiunkin;"New PopulationnProjections by Age and Sex for the Philippines and Each Province, 1970-2000t, i Br-eau of the Gensusq nnd Stntiqti,s (RBS), PrnIqtiAn Research

Division (Manila, n.d.). -

Source: BCS, Yearbook of Philiapine 'Statistics, 1966, and Mbnthly Bulletin ofsUUI.UL'a v l- o I o ac^w - / .

Table A.2. Population and DeTrographic Rates, 1960-1985

E'opulationPopulation Birth Rate Death Rate Growth Rate Tbtal Life a/Depenciency,

Year (In millions) (Fer thousand) (Per thousand) (In percent) Fertility Rate Expectancy Rat-Lo

'196) 27.1 n.a. n.a. _.0 n.a. n.a. .91

1965 31.4 142 12 3.0 6.3 n.a. .94

1970 3607 141 11 3.0 6.0 57.1 .9L,

1971 42.5 38 10 2'.8 5.4 60.0 .86

1980 48.5 :35 9 2.6 4.7 62.0 .78

1985i 55.3 32 8 2 .4 L4.1 63.6 .74

Note: Assumptions underlying estimates for 1975 projections for 1L980 and 1985 are discussed irn Technical Note I ofChapter 7.

a! Jlverage cf life expectanc:ies for males and[ females.

Source: National Census and Statistics Office, (NCSC), A e and SeX POpulLtiorL Projections for thePhilippineEs by Province: 1970-200 (Manila, 197b9.

Table A.3. Population Projections and Implicit Growth Ratesto the Year 2000

Population Proifieition Implicit Growth Rates(In millions) (In Percent)

Med:Lium MediumnLow Low MediumYear Projection Projection Projection Projection Projection Projection

1970 36. 36.9 36.9

2.9 2.8 2.71975 ~42. 42;1-.4 4.

2.9 2.7 2.59J i. 49. 4LJ*)

2.9 2.6 2.3

2.8 2.4 2.1

2..6 2.2 1.8'I gnrl 7) n Lnn ~

j 1995 73.97.4 VL.72.4 2.0 1.6

a _ ~ ~ o- ., e! ,no

Source: Medium and low projections are from NCSO, Age and Sex Population Projectionsfor the Philippines by Province . Medium-low projection is the average ofthese two.

Ta,ble A.4. Labor Force, hploymnent,and Unenployment, 1956-1974( In thou.isands)

Parti cipatgor) UnemploymentWor]king-age Elateb _ Rate'Year Population-/ (In percent), Labor Force Employed Unenployed (In percent)

1L956 16,206 56.8 9,205 8,285 921 10.01L957 16,719 56.6 9, 463 81,791 672 7.11-958 17,247 56.1 9,6716 8,979 697 7.21L959 17.971 55.1 9,803 8, 225 578 5.91960 18,354 54.9 1o0,0,6 9,414] 635 6Q31 961 18,934 55.5 10,508 9,1335 673 6.41962 19,532 56.o l0,9t38 10,227 7711 6.51963 20,149 56.4 11,364 10,8341 5;23 4.6196h 20.786 55.1 11,4453 10, 720 733 6.41965 21,443 55.0 11,7904 11,C)63 731 6621966 22,121 54.3 12,012 11,171 841 7.01967 22,820 53.1 12,117 11,184 933 7.71968 23I,541 51.1 12,029 11,079 9.50 7.91969 24,285 49.2 11,948 11,147 801 6.71970 25,o57 49.4 12,378 11,437 941 7.61971 25,901 49.2 12,743 12,068 675 5.31972 26,782 49.8 13,337 12,617 720 5.41973 27,700 49.4 13,683 13,CI26 657 4.81974 26,656 49.4 14,15:6 13,576 5830 4.1

a/ Ten years of' age or olderB/ Labor force participation rate, defined as the proportion of the working aige population

-holding or seeking employment.Sburce: IMission estimates

Table C.1. Balance of Payments: Goods and Services Account(In millions of UTS d-o-ars)

Item 1960 1965 1968 1969 1970 1971 1972 1973 1974

Receintp

Merchandise (f..o.b.) 560 769 858 855 1,062 1,130 1,079 1,768 2,620Non monetary gold 14 15 19 20 21 19 29 103 74Freight and insurance 4 14 17 18 29 20 14 20 24Other transportation ... ... 8 6 8 24 21 30 47Travel 3 21 48 49 95 66 122 74 58Investment income 6 19 15 7 10 13 65 17iGovernment (n.i.e.) 22 68 126 89 68 83 116 200 126

r11l,adxy seVlVitces 11 42 96. 5 3 6 41 LL42 44Other 11 26 30 30 37 46 75 158 82

Other ser-e,ices -34 17 76 Q0 L8 56 51 250 408

Total 6143 1,092 14 1,123 1,3141 1,1413 1,455 2,510 3,528

Payments

Merchandise (f.o.b.) 604 808 1,150 1,132 1,090 1,186 1,230 1,597 3,143Freight and insurance 56 66 104 96 107 102 109 167 324Other transportation .. 6 1 22 21 19 13 11 17Travel 14 53 68 60 27 28 24 15 17Investment income 81 50 112 85 140 115 148 178 226

On direct investment 73 17 65 35 25 24 33 60 80Other interest 8 33 47 50 115 91 115 118 146

Government (n.i.e.) 7 8 16 15 16 24 32 47 62Other services 26 63 100 103 88 64 76 221 219

Total 788 1,054 1,551 1,512 1,489 1,538 1,632 2,236 4,008

Goods and Bervices accounts,u-1 u -f 4-; 9 . ~ ~ ~ '~ r la ,'r 1i

ma.lusAAeflCit -145 38 -38 -38 -148 -125 _17 _274 -480

Source : InternationaI Monetary ud Balance of Payments Yearbooks, as revised by theCentral Bank of the Philippines

Table C.2. Balance of Payments: Consolidated Account(Tn millions of ITS dollars)

Item 1960 1965 1968 1969 1970 1971 1972 1973 1974

Trade account (net) -29 -24 -274 -257 -7 -37 -122 274 -449

Exports 575 784 876 875 1,083 1,149 1,108 1,871 2,6904Imports 60)4 8o8 1,150 1,132 1,090 1,186 1,230 1,579 3,143

Services (net) -11i 06 -iiO -132 -i15 -- 32

iransiers (net) 1L4U 99 14 155 119 13)4 1U8 c-4 27

"'Urrent account -4. 137 -250 -24 O2n 9 11 5

Direct investm,er.t (net) O9 =l 3 29 - =2 54 5

Medi.lw and lon3-ter.loans (net) 36 50 222 150 134 36 140 82 59

Short-tern capital (net) -1 -117 178 67 76 92 56 75 19

?onomonetory capital (net) 64 -77 397 223 181 124 174 211 312

Errors and omissions(net) -33 -75 -196 -125 -147 -144 -107 -66 -8

Allocation of special.drawing rights ... ... ... ... 18 17 16 ... ...

Overall balance 27 -15 -49 -136 23 6 95 665 110

Source: Central Bank of the Philippines.

TaLble C.3. Foreigrn Exchinge Reserves ofthe Central Bank and Conmercial Banks, 1960-74

(At end cf period)

Grcss Reserves Foreign Exchange ]Liabilities Net ReservresCentrila Conmnercii G <entral Comnerc37 cent,raI omnne I[nternationalBank /a Banks Total Bank /b Banks Total BaLnk Banks Total Reserves/c

1960 120.0 76.o 196.0 5.C) 4.o 9.0 135.0 72.0 187.5 15'2.01961 44,.1 63.7 107.8 6i.o 4. 6 6-5.5 16.9 59.2 42.3 103.319,62 75,.0 76.3 151.3 43.() 10.' 53.5 32.0 65.8 97.8 lUO.81563 109,.5 88.3 1971.8 10.7 50.3 61.0 38.8 38.0 136.3 147.51964 /d 123.3 74.3 197.6 29.8 159.:1 188.9 93.5 8h.8 8.7 38.519565 7L 188,.5 91.7 280.2 0o96.5 188.6 2958.1 7t9.0 96.9 17.9 Q1.61966 - 166.1 114.2 280.3 128.1 135.i4 263.5 38.0 21.3 16.7 144.819,67 179,.8 139.6 319.4 234.i6 105.14 34L0.0 -5'4.8 34.2 2o0.6 21h.0L5968 161,.4 145.7 307.1 120.L 119.1 2319.6 l1.3 26.2 67.5 187.615'69 120,.7 129.0 2459 .7 196.4L 131.2 327.6 -75.7 -2.3 -78.0 il8.41S70 251,0 125.3 376.3 259. 6 163.0 4h22.6 .8.6 -37.7 -46.3 213.31971 375,.5 148.5 52L.0 174.]L 279.8 453.9 201.4 -131.3 70.1 2h44.21972 548..8 185.9 734.7 lh4.h LL52.8 597.2 404.4 -266.9 137.5 281.91573 1,037.1 378.6 l,415 .7 83.2 539.7 622. 9 9,53.9 -161.1 792.8 87 6.015974 1,502,.5 475.4 1,977.9 231.2 812.5 1,043.7 1,271.3 -337.1 9`4.2 1, i65.4

a/ IncludLes IMF gold tranche position and excludes foreign lbalances of the Money Order Fund and the Fiscal Agency FUlnd.b/ Consists of short-term loans from US conmnercial banks, the Export-Import Bank, and the Federal Reserve Bank: of New York.c/ As defined by the Philippine authorities, i e. gross reserves of the Central Bank plus; net reserves of commercial

banks.dV Revised as of November 22, 1966, to include deferred payments and liabilities previously unreported by commercial banks.

These revisions supersede those previously rriade on end of 1964 data.

Source: Central Bank of the Philippines.

Thbie C.4. Exporta by Major Comoodity Groups(F.o.b. value in millions of US dollars at current prices)

Commodity Group 1960 1965 1968 1969 1970 1971 1972 1973 1974

Coconut products 179 270 236 163 209 254 228 372 609Copra 139 170 113 87Y -0 TIl 110 166 -110Coconut oil 16 68 77 51 96 103 84 151 381Desiccated coconut 19 20 25 16 19 21 18 32 60Copra meal or cake 5 12 11 9 14 16 16 23 28

S3gar and products 1h3 107 151 158 196 220 218 295 766Cenrli-uigal and reIfzied ±J') i _)L U4 ±4L& 1±UU e I I I Cml

Molasses 5 10 7 7 8 8 6 19 28Cther 5 5 .. 2 ... .. 1 1

Forest nroducts 102 1Q5 262 259 2,Q5 26)4 235 JJ 333Logs 20 7 77 T TE 35 7nLumber 7 8 9 11 13 11 10 35 30Plywood 6 18 21 19 20 24 34 58 27Cther 4 14 24 14 25 14 27 47 60

Mineral lroducts 61 77 114 160 224 223 239 422 519Copper concentrates 30 Z7 8 133 1 185 I79 :7 397Iron ore 9 7 2 2 3 2 1 1Iron concentrates ... 2 10 9 10 11 8 17 12Chromite ore 17 11 3 5 9 6 5 9 13Gold ... ... 7 27 103 74Other 5 10 10 11 17 12 7 17 27

Fruits and vegetables 10 15 22 20 34 4i 52 58 91Pineapplel nrrilint.q 9 I 7 75? T; I" 7T 7 -,s

Bananas ... ... 1 5 15 24 28 45other 2 3 2 1 7 6 7 7 11

Abaca and nrorlucts 145 26 13 16 17 15 1A 23 3f

Tobacco and products 7 16 16 17 15 15 18 27 30

Mineral fuels and l"bricants ... 6 15 13 17 24 19 16 17

Chemicals 2 2 4 8 5 6 6 10 15

Textiles and clothinp 3 6 14 6 5 8 11 26 20

Miscellaneous manufacturers 8 7 20 33 41 52 90 176 256

Re-exports 1 2 1 3 5 8 h. 2 3

Total 560 769 858 856 1062 1130 1136 1871 2694

Source: Central Bank of the Philippines.

Table C.5. Volumei and Unit; Value of Principal ExDorts

Cstegory .1960 1965 1968 1969 1970 1971 1.972 197 3 1974

Volume (in thousands of' metric tons)

Copra 804 883 640 5059 445 692 5126 734 522Coconut; oil 60 2.36 256 202 339 398 46 2 427 416Desiccated coco0nut 59 ;68 62 54 67 73 76 78 614Copra meal or cake 81 182 1'3, 177 231 288 352 263 27LSugar, centrifuagal 1,o90 I , 4 964 980 1,228 1,345 1,210 1,474 1,542Ab;aca, urnanufactured LO 89 57 62 55 l49 50 54 43Logs b/ 1,455 2,063 3,517 3,586 3,926 3,578 3,021 3,251 1,99:3Liunber b/ 60 50 62 78 93 67 77 181 120Copper concentrates 227 279 412 470 632 815 824 764 86lIron and ore annd concentrates 1,008 838 234 199, 363 186 1.63 136 121Chromite ore 746 592 174 275' 442 275 238 476T 534Pineapple, canned 45 44 111 105l 100 101 l.08 9I 125Pineapple, Juice c/ 12 17 10 12 14 12 11 1i 13

Umit value (in US dollars per metric ton)

Copra 173 192 192 172 180 165 119 226 268Coconut oil. 267 289 302 25ci 283 259 181 354 916Desiccated coconut 322 302 397 298 284 288 231 1416 938Copra rneal or cake 62 65 59 51 61 56 46 87 103Sugar, centrifuVal :122 130 113 152 153 159 172 1136 471B.lbaca, uxmanufactured 416 271 197 232! 273 265 26 3 3162 461Logs d/ 58 52 59 60 59 60 54 92 108Lumnber d/ 1.17 143 139 143. 10 164 1 194 250Copper concentrates '130 167 216 283 293 227 232 0So 461Iron ore 9 8 8 9 8 8 8 9 10Chromite ors 23 :19 1l l8 20 22 23 19 24Pineapple, canned :165 197 170 174 210 198 181 2L7 244Pineapple, juice e/ ,500 432 355 4059 312 337 783 1,085

,/ PrelizinaryIn millions of board 1'eet

c/ In millions cxf litersPer thousand board feetPer thousand liters

Somrce Central Bank of the PbilippiJs.

Tabl] C.6. 14uantum, :9rice and Value Indexes, and Niet Terms of Tradf(1965 = 100.0)

4'uantuwa Index Price Ind.x Value Index let TermsYear Imports -xports Thiports -Yports Imports i!kports of Trade

W6C½ 80 B4 7L . 88.4 101.2 72.8 73.0 1114.5

84.5 69.8 89.7 93.1 75.8 65.0 103.8

8o.c 76.5 91.4 94.1 73.1 72.1 103.0

1963 78.6 9h.1 97.5 99.1 76.7 94.2 101.6.

19 54 97.3 97.4 98.3 98 1 95.6 95.8 100.0

1965 100l 0 10O.C 100.0 100.0 100.0 100.0 100.0

1966 106,4 1o6.o 101.6 100,9 108.1 107.2 99.3

1967 126.7 102.3 103.9 102.7 131.6 105.1 98,8

1^Qu8 138 o 3 ~~~~~1030 -5 8 10 O t 4 i 104 k4

1968 138,3 103.8 103.3 107.9 140-2 11.02 10347

1?70 1I. 114''.5 IlO13 1108. 103 ,7

1971 12_ P, 1 31,2 119.1 112.1 148.6 147.1 94.1

1972 124.6 143.7 128.C 100=0 151.9 143v7 78.1

1973 1'el 163.3 1.9.1 14,9.0 198.g0 243.3 99.9

1Q74 146,3 124.8 260e2 276.9 380.7 3418.0 107.2January -June n.a, n.a. 4.4 0 263,8 n.a. noa 10801July -

December n,a. noa, 275.4 294.0 n,a. n.aO 106.81975

January- nOa. n.a. 284. 5 241.8 n.a. -..a 85,0June

J Unit value of imports are based on c.i.f. value,wnilc those for exports are basedon foo.k . value.

Source: Central Bank of the ?-hilippines.

Table Q.7. IinpOrtB by Cc0nodity Group

(P.o.b.,in millions of US dollaErs)

SIlT Commodity Group 1960 1965 1968 1969 1970 1971 1972 1973 1974Class

0 Food and Food Preparation 85 15 133 125 104 146 175 202 31002 Dairy Products 26 '7 37 33 39 h E 7F03 Fish and fish preparations 22 14 23 18 17 21 20 20 32

041 'wheat 8 24 27 28 26 27 34 49 3901j2 ?Pce 2 61 ... ... ... 28 314 45 79

Others 29 30 48 42 28 31 41 43 86

I Beverages and Tobacco 1 2 9 11 9 6 9 10 17

2 Crude Materials. Inedible 33 36 68 59 6Q 67 70 90 116263 Cotton 17 1E f W 792 199 TO 266 Synthetic and artificial fibres ... 5 18 22 21 29 27 29 53

OtUhers 16 17 22 18 20 18 24 31 58

3 Mineral Fuels and Lubricants 60 77 106 107 119 141 149 188 653312 Petroleum crude 21 59 92 91 M03 I 17 j3 " 73

Others 39 18 14 13 16 14 15 22 80

4 Animal and Vegetable Oils and Fats 3 4 5 5 6 6 4 7 12

5 Che~..icals 55 73 109 114 126 144 148 218 49151 Chemical compounds YE 20 j3 7 3T7 T 77 2165L Medicinal and pharmaceutical chemicals 10 7 15 16 17 18 16 2i 36

Others 31 46 60 63 72 86 8k 122 239

6 Manufactures 1 I?1I O 'l s, -c ,nr n-n. -, I-64 Paper and paper products 17 z 7 O ))U65 Textile yarn, fabrics, and made-up

articles 31 17 44 34 24 23 25 47 69681 Iron and steel 47 61 84 90 114 65 87 115 228

69 Metal products 14 18 33 34 22 26 23 48 60Others 22 33 45 4s 47 47 44 62 116

7 Mtachinery, ~nd Trrc-.'- n,, n-,c 1- ' ---7 p. _rhnneros sn,^ Tronsport ¢{>ulp, ... nt .qn 7 qt i ' u 44-' - 444 4:L d 4697971 Nonelectrical 'machinery 239 239 2 2E 2 4272 Electrical machinery 21 .48 61 60 59 66 25, 29 10673 Transport equipment 110 87 144 125 106 122 124 102 265

8 Miscellaneous Manufactures 17 21 32 31 27 31 3)4 1 61

9 Miscellaneous 3 14 13 7 5 6 9 62 129

Total Imports (rounded) 604 808 1,150 1,132 1,090 1,186 1,230 1,597 3,143

Source: Centril Bank of the Philippines.

Table D.1. Fxternpl Public Debt Outstanding as of December 31, 197h(In thousands of US dollars)

Type of creditor/country Disbursed Undisbursed Total

SuDpliers 29,777 53,393 83,170

Belgium 2,132 ... 2,13cFrance 460 ,,. 460Germany (Federal Republic of) 8,174 1,630 9,804India .. 3,070 ,07rItaly 3,358 1,403 4,761Japan 11,362 40,360 51,722United Kingdom 1,240 6;930 8,170United States 3,051 ... 3,051

Private Banks 279,052 115,275 394,327

Australia *- 6,574 6,574Bahamas 16,145 ''' 16,145Belgiwm 950 5,924 6,674France ... 48,256 48,256Germany (Federal Republic of) 4,142 ... 4,142Italy '-- 46,194 46,194Japan 34,313 ... 34,313Netherlands 4.198 ... 4,198United Kingdom 22,488 7,o46 29,534United States 198,816 1,281 198,097

Publicly rssued Bonds 7,323 ... 7,3`3

United States 7,323 ... 7,323

Privatel> .3rced Bonds 16,979 262 17,241

Kuwait 16,979 262 17,24

Other Private Financial Institutions 11,267 12,652 23,915

Hong Kong ... 11,000 11,000UTnited States 11,267 1,652 12,919

Loans from. International 214.386 562j 238 776I624OrganizBnkati7Aons

Asian Develonment Bank 4l1,9o5 198,527 240,492World Bank 164,107 339,805 503,916Initernational Development 8,314 23,902 32j21.6

AssociationLoans from Governments 472,482 220,946 643,4L8

Rel,iium 1,539 3,303 16k42Canada 14,89h 5,102 12,990China, Republic of 6,538 .. 6,536.Denmar it102Denrmnya (Federalrkopublic ' 4,862 5,758 10362_Germany (Federal Republic of )8,111 13,308 21,$4Japan 192,759 70,585 263,344Spain 1,465 8,535 12,000Thailand 25,170 O. 25,17CUnited States 217,14 1:b,355 331,499

Total External Fublic Debt 1,031,266 964,766 1,996,032

Note: Excludes uncommitted parts of frame agreements (Japan: $17,252,000)and private debt guaranteed by the Development Bank of the Philinpinesand the Philippine National Bank/National Investment and DevelopmentCorn,, amounting to approximately $582.3 million as of December 31, 1974.

Source: External Debt Division of the World Bank, based on data supplied bythe Central Bank of the Philippines.

Table D.2. External Medium and Long-Term Debt TraneactionsDuring 1965-1974 Classified by Type of Borrower -

(Io, millior,s rof US dollars)

New Loans Debt Service Debt outstanding at end of period AdjustmentsYear Committed Disbursed Amortization Interest Total Committed Disbursed

Pub.ic

1965 n.a. 135.4 35.9 8.4 44.3 n.a. 285.51966 n.a 41.9 50.4 14.7 73.1 353.3 269.01967 104.0 92.1 80.6 13.6 94.2 376.7 280.51968 213.2 219.2 67.0 17.4 84.4 522.9 432.51969 124.3 90.1 42.9 15.8 58.7 604.3 479.71970 149,3 173.7 80.0 26.6 106.6 838.6 738.4 164.81971 295.9 146.9 117.1 39.4 156.5 1008.1 768.2 -9.31972 455.4 263.7 124.7 37.4 162.1 1334.0 907.2 -4.81973 369.1 90.8 198.2 60.6 258.8 1552.0 963.9 +27.11974 738.5 181.6 186.0 58.0 244.0 2130.6 1174.1 +80.7

Private

1965 n=a 40.8 54.6 n.a. n.a. n.a 189.51966 n.a. 65.5 46.1 n.a n.a- 293.0 208.91967 362.1 285.4 49.8 n.a n.a. 605.3 444.51968 425.3 326.6 73.3 n.a n.a. 957.3 697.81969 439.2 400.3 138.9 n.a n.a 1257.6 959.21970 231.0 275.7 185.8 n.a n.a 1302.8 1049.11971 281.2 163.5 198.7 33.3 232.0 1351.1 979.7 -34.21972 129.5 180.2 154.5 45.6 200.1 1303.9 983.2 -22.21973 128.1 n.a 199.7 55.6 255.3 1298.6 1041.0 +66.31974 306.2 194.5 178.1 53.6 231.7 1455.6 1213.1 +74.4

Total

1965 n.a, 176.2 90.5 n.a n.a n.a 475.01966 n.ae 107.4 104.5 n.a n.a 646.3 477.91967 466.1 377.5 130.4 n.a n.a 982.0 725.01968 638.5 545.6 140.3 n.a n.a 1480.2 1130.31969 563.5 490.4 181.8 n.a n.a 1861.9 1438.91970 380.5 449.4 265.8 n.a n.a 2141.4 1787.5 164.81971 577.1 310.4 315.8 72.7 -388.5 2359.2 1747.9 -43.51972 504.9 443.9 279.2 83.0 362.2 2637.9 1890.4 -27.01973 477.2 n.a 397.9 116.2 514.1 2850.6 2024.9 +93.41974 1044.7 376.1 364.1 111.6 475.7 3586.2 2393.1 +155.1

a/ Excludes revolving credits and credits with maturities under one year.b/ Includes transactions with IMF under the standby agreement.

Source: External Debt Management Office, Central Bank of the Philippines

Tab-le E... *'ational and Local CGovernmnent T'x Revenues(I:n millicris of pesBos at currnt prires)

Revenue Source FY65 FY68 FY69 .FY70 F-1712 F.C72 F'73 Ff74 Fr75 -

N-tional Goaernient Taxes 1,900 <% S53 45 3, 4i2 4,750 5,213 7937 lO,847 13, 365

IncorrLe and Wealth 494 68 8 006 1,3312 1.465 2,517 3,057 3,466Corporate iioamne! tax 2814 445 597 679 873 908 1,396 2,080 2,310Personal incorne tax 198 220( 20L4 267 350 443 562 641 B58Others 12 1.7 51 0 89 114 84 77 77Tax amnesty __ __ -- -- -- -- i75 259 221

International Trade 616 886 1 oo6 1 118 1 941 2 1039 2 537 1,8W 6,505Import duties 7?5 t7 `1 * f t.; tm 27R 3#729

Mcport duties -- -- -- 108 577 1475 457 1,065 1,650Sales tax on imports 2315 34 399 398 503 580 645 1,003 1,126

I)o,*stic Gocods and SerSi'es 66 87 4 951 1 049 0179 !±261 1390 2 L273 2,801ccise tax 77 -M7 T ,r- -General sales taLx and others 252 355 399 l887 7 2 597 655 1,070 1,172

Other taxes 144 211 2,28_ 269 318 348 4193 677 5414

Local Grovernment Taxes 2LQ- 324 334 403 389 424 530 560 719

Total lax receipts 2,0o6 2 ,872 31379 3p845 5,139 5,637 7,567 11.407 14o,08

Share inGNE' (in, percent) 9.Q 10.1. 10.7 10.h 1.1.3 10.5 12.1 13.1 13.3

NlationalJ !.overrnment 9.1 9.3 9.6 9.3 10.4 9.7 11.5 12.5 12.6L,ocaJ. goviernment ,80 1.1 1.1 0.9 0.a 0.6 0.7 0.7

a,/ Prelbiinary acttual figures. Components of subtotals estimsted in part.

Source: Bureau of Internal IRevenue, Bureau of Customs, AudiLtor-.Geneoral on Local Government arnd L)epartient of niaaice.

Table E.2. Expenditures of the National Government

(In millions nf pesos at current prices)

EXpeniditure FY65 FY68 FY69 FY70 FY71 FY72 FY73 FY74 FY75

Current Expenditures

General administ-ration 564 754 856 1,068 1,214 1,424 1.7S2 2,410 3,533ueiierat gUV~~~~~~LLtLUCkIL 13~~~~~~ 264 292 3~~'95 42 541 580 80

Justice and police 110 161 197 223 263 378 III 140 198

National defense (incl. transfers) 223 329 367 450 530 584 1,130 1,690 2,533

Social Services 738 985 1,127 1,323 1,485 1,700 1,902 2,401 2,9715

Education 598 819 939 1OM6 1;205 1,360 1,451 1,855 2,272

Health 113 135 167 204 219 260 329 457 570

Labor and welfare 26 31 21 53 61 80 122 89 133

Economic Services 356 487 596 614 662 751 1,503 1,875 2,219

Agriculture and naturai resources 118 138 186 184 184 238 857 55- -U

Transport and communications 124 259 282 241 330 360 443 737 825

Commerce and industry 27 29 68 41 53 62 60 232 116

Other economic development 37 61 61 149 95 91 143 348 372

Subsidies and other transferpayments (incl. defense) 66 71 191 100 39 168 225 657 L,975

Debt Service 119 177 2B6 244 358 327 489 572 918

Interest payments 55 92 103 149 2i3 228 295 345-

Capital transfers a/ 64 85 183 95 145 99 194 227 340

Tot'3] Current Exnenditnres 1,843 2,474 3056 3,328 3,758 4,371 5,901 7,915 11,6i O

Capital Expenditures

GIenerall aC LL9nJstration 1 AJ 9. 3C 24 17 31) 77 4General government 11 20 11 14 0 8 7 6 41

Just-ce nA knli,' 1 2 7 7 2 6 5 - .-

National defense 2 16 16 8 11 18 81 93 93

Social Services 11 51 65 90 54 67 i401 246 423

Education 6 43 50 66 39 44 105 115 260

Health 4 7 15 22 7 22 29 192 15Z

Labor and welfare 1 1 0 2 8 1 6 9 11

Economic Services 209 376 457 612 600 1,119 2,060 5,281 5,119

Agriculture and natural resources 15 68 99 57 106 292 429 2,025 1,461

TranisporL and comaunications 179 262 271 445 312 432 850 1,352 2,350

Commerce and industry 2 6 9 17 63 23 19 264 195

Other economic development 12 40 78 93 119 372 762 1,540 1,113

Total Can0ital ExDenditures 233 469 555 726 671 1,217 2,288 5,626 5,676

Total Fxnenditures 2_06 2,943 3 ,611 4,054 4,429 5,588 8 189 13±41 27,296

a/ Loan repayments and sinking fund contributions.

Source: Budget Commission. Data are derived from budgetary documents where receipts and expenditures are

recorded on an accrual and obligational basis, respectively.

Tabile E.3. Cansolidated Statement. of Local Government Revenues aund Expenditures(In mi]lions of pesos at curreint prices)

I'tem FY65 FY68 FY69 FY70 FY71 FY72 FY73 FY74- FY75

Total local government 581 741 8459 999 ],14-14 12- 3 - L 465 1,676 814

Internal relrenue 229 266 346 384 488 60'7 628 569 565IReal, property tax 89 120 112 182 147 163 205 330 337ManicipajI 1:Lcenses 71 95' 10', 1031 l16 125 157 201 382Fees anci charges 81 105 lC1 116 12'7 136j 1685 220)National aid 47 68 75; 87 6B 110 110 140) 530All others 64 83 101. 1217 198 152. 197 216)

E?enditure 8Genetral adninistrat:Lon 250 340 377' 41'7 489 604 685 682 745Economic development 102 142 1533 180 19;2 24:1 232 306 343Social improvement 75 112 110 144 191 163 192 220 226Debt, serviCe 7 11. 15; 1 117 15 23 26 30Otheir (including atatutory

obligations) 107 151. 162 178 19:2 235 229 431 469

Current outlays 465 652 701. 808 937 1L,098 IL,216 :1,471 1,532Capital outlays 76 lo4 116 125 144 16,5 145 194 281

Total local tovernment 541 756 817 933 ].,L 1026.L 261 1 1 813

Sarpllus/'deficit 40 -15 32' 66 63 30 104 1:1 1

7a reliminary actualb/ Estimate

Source: Data for FY65-73 from reports of the Commission on Audit of Local Goverzments; estimates forFY74 and FY75 from the Department of Finance.

T&bie ZLb. Lnrrastrmcture isopediture(In millions of pegos at curregnt prices)

Source Ff67. Ff68 FY69 FY70 FT7l Ff72. Ff3 FMl Ff7

Dnmeetic Sources

Tranisport 193.6 Z&41 2804 120.? 260.0 aU_4 W 621 $4g4Elightays 170.9 217.5 220.5 Z52.U T Mrt. 314. )W0.2 _54&61 L*CJJ.44

Airports 7.3 10.2 362.1 33.3 16.6 141.0 56.5 21.1 28.3

Pert *rkm 15.14 27.0 22.3 18.7 35.7 15.9 4.1.14 12.2 98.7h4t1.n7 ... ... ... 6.9 ... 13.1 27.6 36.7 36.5

Teleccn±mcations 8.5 7- 9. 8.8 0.5 8.2 14- 0.8 0.3

itaer H.ourues 760 '1. alo i il-,. I1 IlJ o1 : pni, tI I S .6s

Irripation n r ft 57 7f t f 1Water sucpply end sewerage 5.1 143.2 61.8 140.9 33.9 18.3 13.1 149.9 23.1Flood control snd drainage 0.8 2.9 21.2 6.5 8.3 5.6 60.7 lay.7 261.1

paver and flectrification 68 502 2 7 8&2k± ZQ. a.i 75.Z IQ± Th2

%bral elctric 0.3 8.5 114.9 37.1s 60.1 64.3

Social Infrastructure 3224. 5. 096' 606 94

Nst'! bldg.. en.d hospitalz 5. o 9.00 1.2 22.2 MlI 233 25.9 12.1 2tA

Jftscellanemos a 6.0 10.0 7 9 5 5 29.1 25.8 20.0 129.5

TOTAL 36. J. A714j 52.6 aL__0 6CC 1,1303121. ,W.

Traciemrt- 6.1 p 1.1 20.7 544 8.8 21.5 7952ligisays a.u Mu. 5%I37 978 1 9.3 2J7 -0Airports o.6 0.14 0.3 3.8 2.8 3.7 9.8Fort works 3.5 1.9... .. .. .. 0.2 2.14 6.9Railways .. . . . . . . .

Teleceinmnications 1.8 2.6 2±2 92& ~¶.a+.r=- 5...eees 3.0 7e0 7.6 3.5 7.9 5.6 6.o 11.3 16.5

Irrigation - 7~ fl '67 I" r5 9Z rWater supply sod sewersge 3.0 5.0 5.6 3.3 0.2 . ....... 0.1

Flood control and drainage .. .. .... . . . . ... ... 3.0 2.8

Fewer end flectr-ification 2± , 261 34 5± .. .9 11.8 18.9

Power i4 275 73 38 57 7 3 -fbraal electric ... 6.7 11.1

Social Infrastructure . 2.1 -64 2.2 2.2 3.0 6.oSchools . T .1I 13.69 T72 2.2 3. U3?et'S bi-dgsz-- horal e.rvtsle -- -- .

M.acellansous 2/

TOTAL 114.1 27.2 27.14 39.14 21.0 20.1 21.7 414.6

65.3;

Total (Foreignk' and Domestic Soures)

Tmansport 21. 6 2533. -1 4 746 821.h1 64.2

Air-ports 9.7 -±1 33.3 148.5 33.14 65.8 56.5 87.3 283Port works 29.14 314.6 22 3 18.7 3.5.7 15.9 142.7 88.14 1146.3

- . . .- ~~~~ ~~~~~~6.9 -. 13.1 2/.6 36.7 36.5

Telecommnications, 15. 7 17.8 218 .56 8.2 114.6 -0.8 .3

Water Reseasyes 9- . _~196 20 213 W. &

Water aupply and sewerage 63.1 63.2 84.2 514.1 35.1 18.3 23.1 149.9 23.8

Flood control end drainage o.8 2.9 11.2 6.5 8.3 5.6 60.7 138.0 280.1.

Power end SeLctr-i1ustran,, r, c4 ,,c Cu oi. 715 Bit. IRO-1 119.7

Power 9" ' 3.7 tt ~ 3 )3 8.Riral electric .. .. 0.3 8.5 114.9 37.14 105.14 iLC.9

Social Infrastructulre _22 1_9_ 20_ 61. 176 60p6Schls .41 3:937. 7

Mat1 i bld.... and hoaneptele 5Cl '1 fl 13 2 22.2 11.14 23.3 29.9 12.1 2.8

Miscellaneous /6 0 10.0 7 9 145.2 .50.1 29.1 .25.8 20.0 129.5

TOTLAL uuciu kZ2j3.,.... -~ *r Ain ~ 2,-2

9/ Includes expeniditures on shore protectiohar preliminary cngimsering studlies, export-

processing zonse at Mloriveles, snd mlacellaneous public works.

h/ Converted to pesos at the following exchange rates to US$.; F167-70, P14.039T71, 36.0; 9172-73, P6.7; F27L, 96.76; PM7, 16.9.

Sources: Ff67-?), based on cash releases as reported by Infrastructure Operations Center,

"-Implementation of the Infrastructure Prograns," for relevant years. P170(domestic sources), revissi estimates proowided byNEIJA. P171*, actual cashdiabursemant satiated by NEDA. 7175, World Bank estimates of actual cash

dis bursement based on estimates of first three quarters prooded by NEDk;4tt is aSssumed that, the first thraa q-ater were underestimated by 5 p-ercentbecause of lote reporting and that the fourth quarter equals the avenige ofthe first three quar~ters.

Table F.1. The Monetary System at Year' s !sa1d, 1965-74(In m1lLions cf pesos)

_ Iten 1565 1968 1969 1970 1971 1972 1973 1974

Total Domestic Credit 6,284 9,773 1-1,396 12,64 14 01S5 16,175 18,779 26Lc69

Net claims on national government 525 1,163 1,967 1,799 1,7.95 1,754 1,223 -84

Claims on other public sector 1,075 1,602 1,973 2,081 1,912 1,819 1,352 1,974

Claimns on private sector 4,684 7j,008 7,5456 8,764 :10,3,58 12,602 16,204 24.,1759

Net Soreign Assets -162 -.399 -897 -450 -3.54 -408 3,966 5S222

W&netary Resources 5,136 7,995 8,959 10,140 1L1,7 2O 13,243 16,837 1SS766)

Money 2,688 3,463 4,279 4,660 5,399 6,797 8,152 10,220Quasi- T)ney 2, "8 4,532 4,680 5,480 6,321 6,446 8,685 59,546,

Other Iterns (net liabilities) 986 1,379 1,540 2,054 1,991 2,524 5,908 12,232

Source: Central Bank of the Philippines.

Table P.2 * Total LOaSrs and Investment Oatstanding by Institution

Item 1965 1968 19R69 19'70 1971 1972 1973 19774

Amouints (in millions of' pesos)

Cownercial banks 5,54 7.7 8,530.8 9,4463.7 10,963.0 12,1497.6 14,983.1 21,595.9 31,709.0Development'banks 1,288.9 2,025.7 2,1416.7 2,935.3 3,567.6 4,389.9 4,845.() 5,3299.tairal banks 23L4.6 402.8 4,63.1 5147.7 663.2 808.4 1,103.3 1,7148.3Savings banks 1141.2 31014 382.7 564.0 678.1 692.3 819.3 965.5PriLvate- nonbanik

finanLcial institutions 15.6 1,182.0 197.8 233.1 319.8 427.2 6,10.2 a 676.9Govermnent nonbank

financial instituticns 1,023.5 1,800.3 2,075.1 2,360.3 2,761.4 3,722.5 h4,831.2 a/ 5,637.2

Total 8,2'51.5 1,252,o L14,999.1 1, 60B.14 20,487.7 2,502.3 33,8014,9 L460605

Composition (in percent)

Commercial banks 67.3 64.14 653.1 62.3 61.0 59.7 67.' 68.8Development bEnks 15.6 15.3 16.1 16.7 17.4 17.5 114.9 12.6Rural banks 2.8 3.0 3.1 3.1 3.2 3.2 3.1, 3.8Savings banks 1.7 2,3 2.6 3.2 3.3 2.8 2.5, 2.1Pr:iLvatie nonbarik

financial institutions 0.2 1.14 1.3 1.3 1.6 1.7 o.6 1.5Government nonlbank

financial institutions 12.14 13.6 L3.8 13.4 13.5 1L4.9 11.14 ]L2,2

Total l)O.0 1001.0 100.0 100.0 100.0 100.0 100.( 10_00

Note: Figures for' commercial banlcs anid savings banks are adjusted to include: investments.

Source: Central Bank of the P'hiUppines.

Table F.3. Credits Outstanding of Commercial and Savings Banks to the Private Sector by Industry -a

_ - - - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~b/Sector 1965 1968 1969 1970 1971 1972 1973 1974

Amount (in millions of pesos)

Agriculture, foresitry and fishery 1,035.7 1,478.1 1;617.0 1,720.7 1,784.6 1,77'7.3 2,247.6 2,708.7

Mining and quarrying 33.0 37.1 40.0 45.7 92. 7 194.5 235.5 460.4Manufacturingd/ 1,268.4 1,518.9 1,500.6 1,820.0 2.196.] 3,323.5 5,111.8 7.052.8Construction ' 89.3 114.6 1'20.4 135.7 148.6 210.7 353.3 345.5Transportation, storage and communication- 116.3 149.2 130.2 141.5 172.5 273.3 251.8 241.6Electricity, gas and water 10.2 21.3 14.4 31.3 38.'3 70.7 99.7 141.3Trade 1,656.4 1,940.0 2,063.6 2,490.5 3,061.1 3,5813.5 5,823.1 6,952.3Banking and other financial institutions 192.0 183.9 275.6 587.0 422.9 774.9 660.5 708.0Reil estate 201.4 471.1 581.4 624.3 902.2 847.9 987.6 1,023.7Services-/ 82.4 182.7 181.4 249.9 302.1 398.7 392.8 508.3Consumption 114.9 225.0 295.5 313.1 759.1 463.7 203.3 _712.5

TOI'AL 4,800.0 6,321.9 6,820.1 8,159.7 9,880.2 11,915.7 16,867.0 20,855.1

Cornposition (in percent)

Agriculture, foresitry and fisher=/ 21.6 23.4 23.7 21.1 18.1 14.9 13.3 13.0Mining and quarrying 0.7 0.6 0.6 0.6 0.9 1.6 1.4 2.2Manufacturing 26.4 24.0 22.0 22.!3 22.2 27.9 30.3 33.8Construction / 1.9 1.8 1.8 1.7 1.5 1.8 2.1 1.7Transportation, storage and communication- / 2.4 2.4 1.9 1.7 1.1 Z.3 1.5 1.2Electricity, gas and water 0.2 0.3 0.2 0.4 0.4 0.6 0.6 0.7Trade 34.5 30.7 30.3 30.5 31.0) 30.0 34.5 33.3Banking and other financial institutions 4.0 7.4 8.5 7.6 9.1 7.2 3.9 3.4Real estat? 4.2 7.4 8.5 7.6 9.1L 7.2 5.9 4.9Services 1.7 2.9 2.7 3.1 3.3 3.3 2.3 2.4Consumption 2.4 3.6 4.3 3.8 7.7 3.9 4.2 3.4

TOIAL 100.0 100.0 100.0 100.0 100.( 100.0 100.0 100.0

a/ No breakdown of outstanding credit of the developrnent banks is available by indusitry. Commercial banks' data from 1962-1967 include credits tosemi-government en,tities but do not distinguish them.

b/ As of June 30, 1974c/ Commercial bank component for 1965-1967 excludes Eishery and forest ser-vicesd/ Data for 1965-1967 represent "contract construction".e/ In,clusive of operSLtion of wharves,, drydocks, warehouses,,, water suapply system and othersf/ Commercial bjnk ccmponent for 1965-1967 includes fishery and forest services.

Source: Central Bank of' the Phililppinea

Table F.4. Total AsSets of the Financial System(In millions of pesos)

1965 1968 1969 1970 1971 1972 1973 1974

Central Bank b,096.6 4,516.5 5,111.3 6,003.2 6.912.6 9.hlIL.3 lh.7h1.7 215273a6

Banking System 8,677.6 14,358.9 16,216.5 18,883.4 21,812.3 26,967.6 38,337.2 54457.9

Commercial Banks 6,731.0 l0o9lo.6 12,049.7 14,066.1 16,054.0 19,997.8 29,759.7 42, 6 6 3.2

Private banks 4,228.6 7,222.0 7,971.0 9,340.2 11,776.4 15,309.3 22,360.8 30,114.3Goverriment banks 2,442.4 3.688.6 4,078.7 4,725.9 4,277.6 4,688.5 7,398.9 12,548.9

Thrift Banks 359.2 739.5 848.3 1,032.3 1,211.3 1,253.5 1,438.2 1,743.6Sav:Lgs banks9 287.1 58333 7 --. 9' o -

SavinUs bks8. 51 94-3.7 95°u. 1.,087.i 1,236.6Private development banks 72.1 130.1 144.0 161.0 184.1 199.8 236.9 296.3Stock savings and loan

associations 26.1 36.9 59.1 J3.5 102.9 ll4.2 210.7

Regional Unit Banks 279.0 466.7 562.9 655.0 783.6 982.3 1-82-.6 7,110.7(Riural banks)

Other Ranks ,3 .4 20.1 2,755.6 3,130.0 3 41 4*''',7. I -el 7,9i-0.i

Development Bank ofthe Philippines 1,308.4 2,231.5 2,738.5 3,106.8 3,796.3 4,607.8 5,o86.4 6,758.0

Land Bank ... 8.6 17.1 23.2 66.1 126.2 670.3 1,182.4

Nonbank: FinancialIntermediaries 4,156.7 6,319.5 7,522.2 8,976.1 8,019.8 11,120.4 13,286.9 19,072.2

Insurance Companies 3,173.7 4,501.8 5,089.0 5,743.8 6 ,5 2 4. t 7,635.6 8,000.1 9,094. 8

Government a,f' 2,229.3 3,1u0.3 3,503.0 3,b79.9 4,346.3 5,078.3 5,356.5 6,537.4Private 944-4 1,395.5 1,586.u 1,863.9 2,178.1 2,557.3 2,643.6 2,557.4

Investment Institutions 762.2 1,297.6 1,611.0 2,347.4 1,291.5 2,479.8 3,218.2 6,835.0

Finance compa-iies 01. ,tn , , rd., rr -Finance compD-ies 625.2 960.1 1~~~~~~~~,041.0 1,39Y4.2 n.a. 984.3 1,434.1 2,3o6.1Investment companies

(Ritual funds) .. 5.3 5.4 n.s. n.a. 7.)i n.a.Others 137.0 337.5 564.7 910.8 1,291.5 1,495.5 1,776.7 4,528.9

Trust Operations 124.8 326.4 383.6 51h1.5 n., -29 -7 1099.1 19°51.5

Other Financialintermediaries g6. 193.7 h3.6 370. 203.9 475.3 269.5 1.190.9

Mutual building and loanassociations 19.2 23.5 25.3 24.8 23.7 24.2 24. 4 24.7

Credit unions 39.6 42.8 42.5 50.7 38.6 56.5 n.a. n.aSecurity dealers andbrokers 3.1 53.2 274.9 163.1 n.a. 159.2 680.5 882.1

Nonbank savings and loanassociations n.a. 32.0 36.41 45.7 49.2 55.3 61.1 71.2Agricultural creditadministration 34.1 42.2 59.5 86.1 92.4 88.0 112.2 112A

Pawnbrokers n.a. n.a. n.a. n.a. n.a. 92.1 91.3 100.8

na Tncludes Gove.,.-ent Service Insurance Syste, (GSIS) and Social Security System (Sss).

Source: Central Bank of the Philippines

Table 0. *. ;,onsumer 1Prce Index

I:tem 15965 1968 1969 1970 1971 1972 1973 1974

Consumer Price Index for the Philipp4nes

A-LL items 100.0 113.0 114.5 131.5 160.2 173-14 194.5 271.9Food 100.0 115.5 116.8 134.o 173.2 189. L 213.7 305-5Clothing 100.0 11l.8 118.7 1i0.9 165.6 189.0 227.6 328.2Rent and repairs 100.0 108.4 109.7 116.0 121.7 126.9 133.5 146.2Fuel, light, and water 100.0 103.1 104.3 1;27.7 152.8 156.5 173.2 312.8Miscellaneous lOC.0 109.9 111.7 129.3 143.1 150.9 164.2 214.2

Consumer Price Index for Manila

All items 100.0 114.6 116.9 133.7 153.2 168.9 187.5 251.9Food 100.0 119.1 121.0 139.5 167.5 190.0 215;.4 299.1Clothing 100.0 103.5 1C)9.8 142.1 168.5 185.13 218.4 318.2Rent and repairs 100.0 11l.3 116.9 127.5 137.0 146.1 155.5 169.6Fuel, light, and water 100.0 10.1 103.9 128.7 144.7 168.9 180.0 356.9Miscellaneous 100.0 l10.4 113.5 128.1 40o.9 148.3 162.2 211.5

Annuall Percentage CMnge for the Philippines

Al1 items 3.2 2.2 1.3 14.8 21.8 8.2 12.2 39.8Food 5.3 1.6 1.1 14 7 29.3 9.1 13.0 43.0Clothing 5.0 3.5 2.5 18-7 17.5 14.1 20.4 44.2Rent and repairs 1.5 3.7 1.2 5.7 4.9 4.;2 5.2 9.5Fuel, light, and water 2.7 0.5 1.2 22.4 19.7 2.1 10.7 80.6Miscellaneous 2.4 :3.5 1.6 15.8 10.7 5.4 8.8 30.5

Anmnal Percentage Change for Manila

All items 2.6 2-3 2.0 14.4 14.6 10.2 11.0 34.3Food 1.8 0.1 1.6 1L5.3 20.1 13.L 13.h 38.9Clothing 2.6 2.6 1.2 29.4 18.6 10.3 17.5 45.7Rent and repairs (housing) 3.3 6.2 2.3 9.1 7.5 6.6 6.4 9.1Fuel, light, and water 10.0 1.1 -0.2 23.9 12.b 16.7 6.6 98.3Miscellaneous 2.7 1h.2 2.8 12.9 10.0 5.6 9.0 30.4

Source: Central Bank of the Philippines