The economic crisis that has been affecting the global economy for the last two and a half years started in East Asia. We’ve heard story after story about the problems in Thailand, South Korea, Indonesia, Malaysia, China, and even Japan—but we’ve heard almost nothing about the situation in the Philippines. Is there something that the U.S. government, the International Monetary Fund (IMF), and the World Bank don’t want us to know about the situation there?
The IMF has acted as the mean cop for the global financial system for a long time, but its role in this crisis has brought it new notoriety. In every case in which it has gotten involved, its prescription has been the same: reduce or end any restrictions on global flow of capital; don’t defend the domestic currency by purchasing it with foreign reserves—let it fall until it stabilizes in the market; and raise interest rates as high as necessary to keep capital in or attract capital to invest. (These prescriptions benefit multinational corporations and foreign investors, who are largely—but not exclusively—based in the United States.) And do not worry about the social consequences of adopting such an economic program.
In every case, the result has been the same: each economy that has followed IMF prescriptions has seen widespread social dislocation. Hundreds of thousands of jobs have been lost, and standards of living have plunged drastically, even for those who still have jobs. The cost of internationally traded goods and services has increased, due to local currency devaluation against the U.S. dollar (the denomination in which most goods are traded on global markets). Poverty and malnutrition have increased, as have the number of related deaths. However, foreign investors have been able to purchase goods and services, raw materials, and even entire corporations more cheaply since the onset of the crisis than before.
The crisis has spread beyond East Asia. It has hit Russia hard—and a bunch of hedge funds in the so-called developed countries—and its latest major victim has been Brazil. The shock to Brazil has already spread to Argentina. And while it appears that many of the worst economic effects have attenuated in the last few months, the global economy is still being rocked.
The global crisis has also hit the U.S. economy in some sectors, although the impact has been masked overall by strong stock markets, low inflation, and low unemployment rates. Tourism in Hawaii, on which the state is largely dependent, has been devastated; agriculture (particularly corn) and agricultural machinery manufacturing have been hit hard in the Midwest; and so much steel has been dumped in the United States that the United Steel Workers have joined the steel companies in demanding import protection. In addition, the U.S. balance of trade—which measures the difference between exports of goods and services and imports of goods and services—was -118.1 billion dollars between January and June 1999; this exceeds all of 1997 (-104.7 billion dollars—itself a record at the time), and will certainly exceed the 164.3 billion dollar deficit of 1998.
Yet, as bad as all of this has been—the United States and Western Europe have largely been sheltered because of the way their officials have set up the global system—the countries that have garnered the most attention have a considerable amount of industrial development. What about the economies that don’t have this industrial development, but are trying to industrialize on the basis of their cheap labor? What has the crisis meant to them?
I want to address the situation of these countries, but instead of perhaps another litany of the horror of the crisis—by the summer of 1998, Business Week was already referring to the situation on the ground in Asia as a “depression”—I want to focus on the general solution as proposed by the IMF. To do this, it is necessary to look at the situation in the Philippines.
The Philippines is, in some ways, a special case: while its economic development program has been based on neoliberal principles promoted by the IMF and the World Bank, it did not begin as a response to the recent crisis; the Philippines has been carrying out a neoliberal development program since 1962. An examination of these experiences, therefore, should give some idea of the quality of “advice” being given to economically less-developed countries by the global watchdogs. And while I don’t excuse the Philippine elite for their role in this, I want to focus on what a neoliberal program has meant to a country that has been following its prescriptions for the past thirty-seven years.
Like any country that had been colonized, the Philippine social order was organized to benefit people in the colonizing country and not Filipinos. An extractive agricultural economy (sugar, tobacco, hemp, coconuts) and a political system dominated by members of the various regional elites were the product of 381 years of Spanish, and then U.S., colonization.
When the Philippines was granted “independence” by the United States in 1946, it had been devastated by the Second World War; the United States used this to set up a neocolonial relationship with the now-ruling elites. Economic relief was made dependent on political and economic concessions to U.S. investors, establishment of U.S. military bases across the country, and a currency whose value in relationship to the U.S. dollar could not be changed without the explicit permission of the U.S. President. These impositions, in addition to the extractive economy and corrupt political system, were all “grants” to the newly freed nation.
An economic crisis in the late 1940s, when luxury imports by the elites threatened to bankrupt the country (in addition to a peasant revolt in Central Luzon and a newly emerging radical labor movement), forced the ruling elites to try a new economic program, with U.S. permission. Unwilling to implement a genuine land reform program, the elites tried industrializing as a way of restoring the economy, pacifying the peasants and workers, and maintaining their land-based power. Although I don’t want to ignore the repression directed against peasants and workers (or the direct involvement of the CIA), I’m going to limit my focus here to the economic policies implemented.
To implement their new industrialization program, the Philippine government initiated foreign exchange and import controls. The controls provided multiple economic benefits to the state: they limited both general imports (such as consumer goods for the rich) and repatriation of capital outside the country, and allowed the state to select imports to assist the industrialization process and to protect industry established in the country. This import substitution industrialization (ISI) program was a serious effort to industrialize.
While this program did not benefit the majority of the population at the time, it was a success as an industrialization program by 1960. A moderate industrial base had been established: the country had food, wood, pharmaceutical, cement, flour, textile, paint, pulp, paper, glass, chemical, fertilizer, telecommunications, appliance, electronic, plastic, refined fuel, intermediate steel, shipbuilding, motor vehicle, machine parts, engineering, and other industries. From 3 percent in 1949, almost 18 percent of the total national income was derived from manufacturing in 1960. And it was largely built by Filipinos: from 1949 to 1961, Filipinos had invested fourteen hundred million pesos in new activities, as compared to 425 million by the Chinese (mostly Chinese-Filipinos) and only thirty-one million by U.S. investors. The Philippines was then considered to be the next Japan of Asia.
But this industrial progress came at a cost: the state maintained the peso at the incredibly overvalued rate of two pesos to the U.S. dollar (established by the U.S. government before “independence,”) and this made it increasingly difficult for agricultural exporters to find markets for their products, though it aided the industrialization program. (To make it easier to follow below, one dollar would buy 2 pesos, or U.S. one dollar: P2). Since the agricultural elites were funding much of the industrialization program, they were in the driver’s seat when they pressed the state to agree to end controls and effectively devalue the peso. Ultimately, in 1959, an agreement was made that the foreign exchange and export controls would be ended in 1964, and it was these controls that had kept the peso so strong. This five-year interval was intended to make the transition less painful than an immediate termination of controls.catti_alba@yahoo.com
