on the Philippine Economy
To prepare for the 2000th anniversary of our Lord’s Birth, we the Bishops of the Philippines issued last year (1997) a pastoral exhortation on Philippine Politics. The letter was meant to help renew politics, the practice of which has so degenerated as to become a main cause of our many problems as a people and as a nation.
This year, 1998, we wish to reflect on our economic problems. We are aware of the different contrasting economic analyses of experts. Some draw a generally positive picture, while others do not. We wish to reflect on the same realities from an alternative angle.
As Bishops our task is to use the light of our Christian faith and the social teachings of the Church in reflecting upon the economic realities and to see them, as much as is possible, from the viewpoint of the poor. Our close contact with them confirms our conviction that they are the ones who are suffering most from the economic developments of today. Our viewpoint then will be moral rather than economic, pastoral rather than theoretical.
This reflection in the light of Christian faith is seriously needed. The economic problem is a human problem. It is also, therefore, an ethical problem affecting the moral and religious lives of people. Economics has to be governed by personal and social morality, if it is to work for the common good.
With the fall of the value of the peso a year ago, a cloud of anxiety has descended upon our land – a cloud made darker by a lack of serious debate on issues that characterized the recent elections and the grim social and economic uncertainties that our newly elected officials face. Nevertheless the inception of a new administration, coupled with the centenary of Philippine independence, should give us hope for a new beginning.
This hope is strengthened by the anticipation of the Great Jubilee of the Son of God’s entrance into our history, a Jubilee that recalls the Hebrew practice of Jubilee by which every fifty years slaves were set free and ancestral land returned to its hereditary owners (Lev. 25:8-17).
Thus the current economic crisis offers an opportunity for rethinking, abandoning our self-assurance, and returning to fundamentals – especially fundamentals of the moral order. Too often in the past when the nation and the economy have been in crisis, the whole effort has been purely of a political and economic nature – to get the economy “back on track”. It may be time to ask whether the tracks themselves have been poorly laid – and lead in the wrong direction.
PART I: THE ECONOMIC SITUATION
The Asian Economic Crisis
We begin our reflection on the Asian economic crisis, the broad horizon against which we view our country’s economics. The economic turmoil that swept East Asia and Southeast Asia in 1997-98 has raised many questions about Asian economies and particularly about our own. Not the least of these is the question of morality. We begin with an analysis provided by reputable economic experts.
In the beginning, some specialists explained that the crisis of 1997-98 revolved around the financial sector alone. However, it has become apparent that the credit crunch is affecting all firms, whether indebted or not. Moreover, behind the financial crisis, precipitated by the weakening of the Thai currency in July 1997 and leading to attacks on other currencies of the region, lie unhealthy banking systems that could not manage massive inflows of capital from abroad as the economies liberalized.
Some wealthy individuals and corporations went on spending and borrowing sprees, spending on homes and consumer durable products, and bidding up land values in particular to unrealistic levels. As the crisis spread to Malaysia and Indonesia, with signs of serious problems in Japan and South Korea, many investors became concerned about the possible failure of major banks and other financial institutions. They lost their nerve and withdrew their investments in dollars. The value of local currencies collapsed and the serving of foreign debts and importing raw materials suddenly became prohibitively expensive. Today in Japan economic recession has definitely set in, with increased possibilities of even greater negative impact on the rest of Asia.
What is very disturbing is the knowledge that signs of economic slowdown were already evident all over East Asia since 1996. In retrospect, the occurrence of the crisis is not surprising and the impact of the crisis is disproportionately against the poor. That is a major moral aspect of the economic crisis. There is a human cost to the crisis which will be borne by the many even if the purely “financial” aspects are resolved, such as cases of unemployment, loss of incomes and diminished provisions of public services.
The government has to consider seriously the criticisms of many reputable economists who say that its approach to the problem is exacerbating the human cost. Tight money policy, they say, causes high interest rates and leads to lower employment rates. High lending rates, supported by the Central Bank’s non-interventionist stance, will aggravate indebtedness causing firms to close shop and increase unemployment. Tight fiscal surplus targets cut back on social services. The much vaunted “exit” from the IMF is cosmetic, particularly during a crisis crippling all of East Asia. However, from one angle it is a blessing in disguise that the Philippines is not as exposed to massive development assistance and cutthroat capital investments as Korea, Malaysia and Indonesia.
But in all these, the poor and the marginalized are the last to be attended to. Our economy does not seem to have a human face. Let us reflect a bit more on this as we learn further about the pluses and minuses of our economy.
Reviewing the Philippine Economy 1
A Period of Moderate and Weak Growth
From 1992 to 1996 the energy crisis was resolved and much needed infrastructure was put in place. Economic growth was sustained and moderate between 1993 and 1996, averaging 4.2 percent in GNP annually. Exports grew in dollar terms by an average of 15.4 percent annually in the period 1992-96. Inflation was under 10 percent and coming down. The investment rate rose over the same period and was improving. Per capita income passed $1,000 and the increase in durable sales suggested a growing middle class. Thus it seems that government policy had succeeded in promoting business activity and that this was reflected in a moderate reduction in the percentage of the population living below the poverty line, roughly from 39 to 35 percent by 1996.
Yet there were weaknesses even then in “fundamentals and policies.” The GNP 4.2 percent average growth rate was well below the average for developing countries (6.3 percent) during the same period and more so for Asian developing countries (8.6 percent). This growth was not sufficient to permit people to recover their average incomes of 1981, the highest for the last two decades. Exports were becoming more concentrated in sectors that incorporate only limited domestic value added (raw materials and skills) and were being outpaced by the rising tide of imports. Saving, at 20.5 percent of GNP, was the lowest among the ASEAN member nations where the average was 30 percent or more. The manufacturing sector failed to take off. Its share in GDP had fallen from an average of 40 percent in 1980-85 to 35.7 percent in 1996 and its share of employment was down from 10.9 percent in 1980 to 10.2 percent in 1995. Moreover the short term foreign debts of the private sector had risen dramatically, amounting in June 1997 to 45 percent of total foreign liabilities. Finally, liberalized entry of foreign owned funds into our banking system made them vulnerable to capital flight. There has been no reported hard and fast data on capital flight. But we can reasonably presume that what has happened in other troubled Asian countries has also happened in the Philippines, aggravating the economic crisis even more.
A 1998 U.S. State Department Report recognizes the disparity between the objectives of the government’s economic programs and its real effect on people’s lives. The report states: The Government is implementing a far-reaching economic program, Philippines 2000,’ to convert its agrarian-based economy into an industrial,market-driven one and attract investment. The Government has succeeded in liberalizing the investment, trade, and foreign exchange regimes. Garments and electronics make up more than half of the merchandise export receipts and are significantly complemented by overseas workers remittances totaling over $4 billion in 1997. Gross domestic product grew at approximately 5 percent. While the government has accelerated market reforms, poverty and inequitable income distribution remain, and the Government’s ‘social reform agenda’ has made little progress. About 36 percent of the population of 70 million have difficulty meeting basic nutritional and other needs, while the richest 20 percent of families received incomes over 10 times that of the lowest 20 percent. Annual per capita national income was estimated at $1,142 for the first nine months of 1997″ (U.S. State Department, Report on Human Rights for the Philippines, 1997, January 30, 1998, p. 2).
Meanwhile Government spending on the Human Priority Concerns such as basic education, basic health care and low-cost water supply averaged 10 percent of the National Budget in 1987-94, which is only half the level recommended by the United Nations Development Program (Philippine Human Development Report, 1997, pp. 45-46). Moreover, government social spending in general was both low by international standards and poorly targeted. An example would be the emphasis on college-level education while neglecting basic education. Another would be the subsidies for the price of rice, which are wasteful and do not target those most in need. Even the 20 provinces chosen for the Social Reform Agenda are not the most needy (see World Bank, A Strategy to Fight Poverty: Philippines, pp. 45-46, 57).
At the same time, there has been “development aggression”` in the form of continuing destruction of our environment. Our forests are virtually gone. And now, international firms are concentrating on our mineral resources. Despite the lessons of Boac and Calancan Bay in Marinduque, the Mining Act of 1995 facilitates this aggression and is an added threat to the ancestral domain and cultures of indigenous peoples. The new Fisheries Act revises the Local Government Code by limiting even more the area available to small fisherfolk and expanding the area for big scale fishing. Such policies reinforce a widening belief that our national patrimony and sovereignty are being sold out to foreign interests. Further, we have yet to assess the full impact of the destructive El Niño phenomenon.
External Debt, OFW Remittances, and Corruption
There is no doubt that one factor aggravating the financial crisis is our foreign debt. Our foreign debt in March 1997 stood at $42.6 billion – and rising2. The private sector accounted for the increase in borrowing, encouraged by the liberalization of rules in borrowing from abroad and the policy – misguided, some noted economists tell us – of fixing the nominal exchange rate. The debt service burden of U.S. $1.4 billion during the second quarter of 1997 increased by 67 percent in peso terms because of the peso devaluation. The whole idea of exiting from the IMF becomes an illusion and brings mixed blessings because of the need for emergency financing, especially during an economic crisis. Such a need ties the government’s hand vis-à-vis monetary and fiscal policies.
Over the last few years, the country’s balance of payments registered a surplus but the surplus in current account has been largely due to OFW (Overseas Filipino Workers) remittances, dollar loans and speculative investments. Indeed ironic is the fact that OFW remittances, the fruit of the lack of employment opportunities in the country, would relatively provide the government with a rosy picture of the economic situation. But this is actually a symptom of a deeper economic weakness. Government has failed to provide jobs domestically and has failed to raise domestic savings, hence the foreign borrowing and the dependence on OFW remittances. The vagaries of OFW remittances, especially in the light of actual and possible loss of such revenue in the face of the Asian economic crisis, should not in any case serve as part of any permanent solution.
We must also speak about the clearly moral problem of corruption. Some 11 years ago, we wrote a statement on this specific issue. We called corruption by its real name and entitled the statement: “Thou Shalt Not Steal.”
Corruption is endemic. Corruption has weakened the path to economic growth. Let us take just one example of corruption. Vast amounts went to “pork barrel funding” of projects. Senators, congressmen and congresswomen chose projects often at the expense of national priorities and over-all planning. Records show that 55-56 percent of the Countryside Development Fund in 1993 and 1994 went to “economic services” such as roads and other infrastructure projects that are notoriously subject to kickbacks. Only 17-27% went to social services that directly benefit the poor.
Every year mass media comes out with a listing of government offices most prone to corruption. The list does not seem to change year in and year out. Billions of pesos every year are lost through corruption. This is especially so when the terrible vice of gambling is considered. In its various forms, gambling fleeces the poor of hard earned money, erodes ethical values and corrupts government officials.
Compounding the problem of corruption is the flagrant violation by legislators of the norms of conflict of interest and their membership on committees that deal with their own personal or family business interests. Distorted economic legislation thus weakens the whole system.
Pope John Paul II himself has spoken about the evil of corruption. It undermines social and political development. It infiltrates many sectors of society and ignores the rules of justice and truth. “Courage is needed to denounce it. To eliminate it, together with the resolute determination of Authorities, the generous support of all citizens is needed, sustained by a firm moral conscience…. The fraudulent use of public monies penalizes above all the poor, who are the first to be deprived of the basic services essential for personal development” (World Day of Peace Message, January 1, 1998, no. 5).
Liberalization and Deregulation
Critics of government have often played up serious objections to APEC (Asia-Pacific Economic Cooperation), GATT (General Agreement on Tariffs and Trade) and the WTO (World Trade Organization). As Bishops, we are not unaware of the ideological premises of the different sides of the debate and we tread carefully. We do not take sides on the basis of ideology. We make our critique in the light of our faith.
Clearly the government has aggressively promoted neo-liberal capitalism in order that Philippine products could compete at a “world class level.” Cautiously we acknowledge the economic gains of liberalization. But seeing the disparities that it brings about we must seriously question the haste with which it has been embraced as dogma and implemented as policy. The Philippines as a developing country has very little leverage against powerful economies and economic institutions such as the IMF (International Monetary Fund), WB (World Bank), and WTO. The inability of the country to play as an equal on a highly unequal economic field underscores the immediate and unfair advantage that developed countries possess, especially in the agricultural field. The imbalance of exports and imports downplay the chances of leveling the field of play.
We, therefore, ask the inevitable question: have not the hasty drive towards industrialization and the liberalized entry of foreign developers and investments into the country, compounded by the liberal infusion of vast amounts of borrowed foreign funds into our developing economy exacerbated, rather than eased, the economic situation? We ask this because some economists believe that the root of the present economic crisis goes back to 1992 when capital liberalization by the government encouraged foreign borrowing as speculative inflows. They state that Government did not distinguish types of investments nor did it select the areas of liberalization that provided development opportunities while protecting the rights of the poor or providing social safety nets. The policy has resulted in an even more shabby treatment of the poor.
Liberalization, deregulation, and privatization are instruments of the phenomenon of globalization. Obviously it is yet in the process of unfolding. We see many beneficial effects in the social, economic, and cultural fields. And yet we already see likewise the very dire consequences on a developing and battered country like ours. It is true that globalization widens “international flows of trade, finance and information in a single integrated market.” Its requirement is “to liberalize national and global markets in the belief that the free flows of trade, finance and information will produce the best outcome for growth and human welfare.” Globalization “is presented with an air of inevitability and overwhelming conviction. Not since the heyday of free trade in the 19th century has economic theory elicited such widespread certainty” (United Nations Development Program, Human Development Report, 1997 [UNDP HDR], p. 82).
The United Nations Development Program reported that the rules of international trade are biased against poor countries. They do not level the economic playing field. “The Uruguay Round hardly changed the picture. Developing countries, with three quarters of the world’s people, will get only a quarter to a third of the income gains generated – hardly an equitable distribution – and most of that will go to a few powerful exporters in Asia and Latin America” (UNDP HDR, p. 85). The free flow of cheap labor has also become a product of globalization. The dire consequences of globalization impelled Pope John Paul II to call for “globalization in solidarity, a globalization without marginalization. This is a clear duty in justice…” (World Day of Peace Message, ibid. no. 3).
Widening free flows of exchange and negotiations and the free forces of the market system do not automatically result in equality of distribution or quality of growth. While inequality may not be inherent in globalization, still poor and developing countries and poor people too often find their interests neglected in such overarching systems. As one example: “Since investment flows are usually tied up with transfers of technology, this means huge regions of the world being left out of the technological advance” (Ibid. p. 84).
Ordinary people marvel at one truly dramatic dimension of globalization, namely, the information revolution. Unfortunately, information does not automatically translate into equality of opportunity and choices. The information highway is simply beyond the reach of the poor. Nagging questions of social inequality remain.
A Question of Development Models?
Economic recovery will be slow and more painful than is yet popularly perceived. Not only is this a currency and banking crisis or a property bubble that must be weathered. More profoundly, the present economic situation, replicated in many other parts of Asia, has raised serious questions about the viability of development models. Already in 1995 questions were raised in Malaysia about a so-called “Asian” development model that has as core elements high economic growth sustained indefinitely, managed and/or guided by omnipresent government officials, financed by foreign debt and implemented by cheap labor. Moreover, Westerners denounced “Asian” values that they associate today with crony capitalism, widespread corruption, banking irregularities, and lack of transparency.
On the other hand, the dominant “Western” model emphasizes free trade and encourages competition, especially under the umbrella of globalization. The idea is to produce higher and better quality returns than one’s competitors, to be open to foreign investments, protect property rights, liberalize regulations, privatize government business corporations and have minimal government intervention. Unfortunately, those countries that had rushed to embrace this model have suffered most in the crisis.
Yet it is clear that the best examples of the Asian model, Hong Kong and Singapore, topped the world in the 1997 Index of Economic Freedom by the Heritage Foundation and Wall Street. There is indeed an “East Asian miracle” which got the “basics” right. These include low inflation, high levels of domestic saving, heavy investment in education and openness to foreign technology. Experts tell us that East Asian economies have been mixing the formula of Asian values and market capitalism and have been reaping considerable success.
Still, many economists claim that development models be they Western or Asian, with their variants and combinations, tend to produce the same inequality of income, growth disproportionately against the poor, persistence of poverty and increased possibilities of social conflict. “Trickle down economics”, another name for “growth economics” inevitably creates inequality of income and wealth. We have yet to see a version of what some economists call “trickle up economics” where the fruits of economic growth are universally and equally shared. In the final analysis present development models are based on a vision of society that remains materialistic if not consumerist.
PART II: TOWARD DEVELOPMENT WITH A HUMAN FACE – THE SOCIAL TEACHINGS OF THE CHURCH
Can there be economic development with a human face? One that takes the plight of the poor as a primary consideration, ensures that the benefits are shared equitably by all, and removes the economic gaps and imbalances of society, so that social justice may be genuinely achieved?
As Bishops we cannot provide a blueprint as an answer to this overriding question. Nor can we provide technical solutions to the many complex problems of the economy. Those are not our tasks. Our task is to provide the moral principles that should be used as a framework of reflection on economic issues. These moral principles consist of the social teachings of the Church. Emerging from the Sacred Scriptures, from the religious traditions of the Church, and from the interplay of moral theological reflection and social situations, the social teachings of the Church provide “principles of reflection, criteria of judgment, and directives for action” in the social order [Paul VI, Octogesima Adveniens (1971); John Paul II, Sollicitudo Rei Socialis, 8 (1987)]. They guide us towards moral conduct.
We, therefore, wish to present and apply the main elements that guide moral reflection on the economic situation.
The Centrality of the Human Person and Human Solidarity
The subject as well as the aim of development is the human person, an individual as well as a social being, characterized by freedom, responsibility, and human rights. The human person is “the subject of rights which no one may violate – no individual, group, class, nation or state” (Centesimus Annus [CA], no. 44). Born into a family and innately related to society, the person is in need: of personal development, of many “common goods” (peace and order, the rule of law, educational and cultural resources, an efficient economy, a clean environment, etc.). Neither the individual nor the family can unaided provide such goods for themselves. Society and community are supportive, subsidiary entities for the individual and the family, not the arenas for struggle of all against all.
What are some of the concrete implications of this moral principle regarding the centrality of the human person in economic development? In our present situation, the principle would certainly be one moral basis to denounce the threat to persons and to whole communities posed by mining explorations, dams, hydroelectric and geothermal plants, and other development projects. These are admittedly meant for the good of the people but so many cases from the experience of poor peoples inform us that only lip service is given to environmental protection and security of lands and domiciles. Invariably, the right of people to participate, or at least to be consulted, in decisions that affect their homes and their land – in sum, their lives – is ignored.
On the other hand, solidarity is the key social virtue, based on human dignity and the interdependence among individuals and social groups, including nations. It is a positive answer to the question posed by Cain in the Book of Genesis, “Am I my brother’s keeper?” Through solidarity, it is possible to recognize one’s neighbor not only as “a human being with his or her own rights and a fundamental equality with everyone else.” One’s neighbor “becomes the living image of God the Father, redeemed by the blood of Jesus Christ, and placed under the permanent action of the Holy Spirit” (Sollicitudo Rei Socialis [SRS], no. 40). Solidarity “is not a feeling of vague compassion or shallow distress at the misfortunes of so many people, both near and far. On the contrary, it is a firm and persevering determination to commit oneself to the common good; that is to say to the good of all and of each individual, because we are all really responsible for all ” (SRS, no. 38). Pope John Paul applies the virtue of solidarity to the relationships between individuals, between communities, and between nations. He also applies it to the responsibility of the more powerful to assist the weaker.
We extend this responsible solidarity to gender awareness. The lack of gender awareness in development policies and in political processes means that men and women must live in an unequal world. Society does not necessarily nor spontaneously provide equal opportunities for men and women to make choices. The challenge is to foster gender equality and shared partnership between women and men as agents and beneficiaries of development (Philippine Human Development Report 1997). Commitment to the common good means women and men are equally responsible for their development and solidarity applies to relationships between men and women. It is our contention that the development process will dramatically change for the better when women and men are equally represented and responsible for the common good of society.
What are some concrete implications of this principle on our present situation?
Because of the principle of solidarity any economic development that would widen rather than reduce the gap between rich and poor would have to be denounced.
We would have to reject any form of economic “imperialism” and “neo-colonialism” by which rich and powerful countries (democratic, socialist, or totalitarian) or transnational corporations can dominate or exploit the economies of developing countries and leave them in abject dependency.
The principle would call various sectors of society to respond in united solidarity action to any social, political, cultural, or economic evil.
Women ought to participate more and be given equal roles in the economic and political processes.
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Pastoral Exhortation on the Philippine Economy