The Philippine industrial sector : policies, programs and performance

Unable to adjust adequately to external shocks, the Philippines experienced the most Severe economic and financial crisis in its postwar history in 1983. The country's economy was particularly vulnerable because the pattern of development which had -been pursued in the past was characterized by a distorted incentive structure, inefficient investments and heavy dependence on foreign borrowings. After managing to grow by I.i percent in 1983, the economy contracted by 7.0 percent in 1984 and by 4.1 percent in 1985. Industrial and manufacturing growth rates collapsed during the period. Domestic investments were the hardest hit, their growth plummetting by as much as 43.1 percent in 1984 and 21.7 percent in 1985. Open unemployment swelled to 25.0 percent in Metro Manila and 12.5 percent nationwide. The inflation rate accelerated to an average of 50.3 percent in 1984 before it somewhat cooled down to 23.1 percent in 1985, Shortly after the new government under President Corazon C. Aquino took over in 1986, it instituted a wide-ranging set of socio-economic and political reforms. The economic reforms were primarily aimed at increasing efficiency in the economy through the elimination of distortions in the incentive structure, the revitalization of private sector initiative and greater reliance on market forces. The ma3or policy reforms in the area of trade and industry which have been instituted by the Aquino. government include: (i) trade policy reform, which continued a_d expanded the import liberalization progra_ started in the early 1980s; and (2) investment incentives reform, which involved changes in the country's investment laws as well as the streamlining of the process of investment incentives availment. Other measures such as privatization, tax reform and financial sector reform are expected to have a significant impact on the development of the Philippine industrial sector. The purpose of this paper is to evaluate the ongoing program of industrial restructuring and development in the Philippines. The main developments in the economy in the 1970s and 1980s will be briefly reviewed to locate the place of industry in the overall economy. The performance of industry as well as changes in industrial structure will also be discussed to serve as the point of departure for the subsequent assessment of trade and industrial policy reforms and programs. Within the _ndustrial sector, the main focus will be on the manufacturing sector. The paper is structured as follows: Section II provides an overview of the main developments in the economy in the 1970s and the 19_0s, and reviews the performance of the manufacturing sector duringthe period. Section III assesses the government's progress in the implementation of major policies and programs of industrial restructuring and development, with emphasis on the period after 1985. The policies and programs to be covered are the following: macroeconomic policies; trade reform; export promotion program; program for the regional dispersal of industries; program for technology upgrading and development; privatization; and financial sector reform.