In 1986 Corazon Aquino focused her presidential campaign on the misdeeds of Marcos and his cronies. The economic correctives that she proposed emphasized a central role for private enterprise and the moral imperative of reaching out to the poor and meeting their needs. Reducing unemployment, encÍÍÍÍouraging small-scale enterprise, and developing the neglected rural areas were the themes.

Aquino entered the presidency with a mandate to undertake a new direction in economic policy. Her initial cabinet contained individuals from across the political spectrum. Over time, however, the cabinet became increasingly homogeneous, particularly with respect to economic perspective, reflecting the strong influence of the powerful business community and international creditors. The businesspeople and technocrats who directed the Central Bank and headed the departments of finance and trade and industry became the decisive voices in economic decision making. Foreign policy also reflected this power relationship, focusing on attracting more foreign loans, aid, trade, investment, and tourists (see Foreign Affairs , ch. 4).

It soon became clear that the plight of the people had been subordinated largely to the requirements of private enterprise and the world economy. As the president noted in her state-of- the-nation address in June 1989, the poor had not benefited from the economic recovery that had taken place since 1986. The gap between the rich and poor had widened, and the proportion of malnourished preschool children had grown.

The most pressing problem in the Philippine international political economy at the time Aquino took office was the country's US$28 billion external debt. It was also one of the most vexatious issues in her administration. Economists within the economic planning agency, the National Economic and Development Authority (NEDA), argued that economic recovery would be difficult, if not impossible, to achieve in a relatively short period if the country did not reduce the size of the resource outflows associated with its external debt. Large debt-service payments and moderate growth (on the order of 6.5 percent per year) were thought to be incompatible. A two-year moratorium on debt servicing and selective repudiation of loans where fraud or corruption could be shown were recommended. Business-oriented groups and their representatives in the president's cabinet vehemently objected to taking unilateral action on the debt, arguing that it was essential that the Philippines not break with its major creditors in the international community. Ultimately, the president rejected repudiation the Philippines would honor all its debts.

Domestically, land reform was a highly contentious issue, involving economics as well as equity. NEDA economists argued that broad-based spending increases were necessary to get the economy going again more purchasing power had to be put in the hands of the masses. Achieving this objective required a redistribution of wealth downward, primarily through land reform. Given 100Aquino'no's campaign promises, there were high expectatiÍÍÍÍons that a meaningful program would be implemented. Prior to the opening session of the first Congress under the country's 1987 constitution, the president had the power and the opportunity to proclaim a substantive land reform program (see Constitutional Framework , ch. 4). Waiting until the last moment before making an announcement, she chose to provide only a broad framework. Specifics were left to the new Congress, which she knew was heavily represented by landowning interests. The result--a foregone conclusion--was the enactment of a weak, loophole-ridden piece of legislation (see Unsolved Political Problems , ch. 4).

The most immediate task for Aquino's economic advisers was to get the economy moving, and a turn around was achieved in 1986. Economic growth was low (1.9 percent), but it was positive. For the next two years, growth was more respectable--5.9 and 6.7 percent, respectively. In 1986 and 1987, consumption led the growth process, but then investment began to increase. In 1985 industrial capacity utilization had been as low as 40 percent, but by mid-1988 industries were working at near full capacity. Investment in durable goods grew almost 30 percent in both 1988 and 1989, reflecting the buoyant atmosphere. The international community was supportive. Like domestic investment, foreign investment did not respond immediately after Aquino took office, but in 1987 it began to pick up. The economy also was helped by foreign aid. The 1989 and 1991 meetings of the aid plan called the Multilateral Aid Initiative, also known as the Philippine Assistance Plan, a multinational initiative to provide assistance to the Philippines, pledged a total of US$6.7 billion.

Economic successes, however, generated their own problems. The trade deficit rose rapidly, as both consumers and investors attempted to regain what had been lost in the depressed atmosphere of the 1983-85 period. Although debt-service payments on external debt were declining as a proportion of the country's exports, they remained above 25 percent. And the government budget deficit ballooned, hitting 5.2 percent of GNP in 1990.

The 1988 GNP grew 6.7 percent, slightly more than the government plan target. Growth fell off to 5.7 percent in 1989, then plummeted in 1990 to just over 3 percent. Many factors contributed to the 1990 decline. The country was subjected to a prolonged drought, which resulted in the increased need to import rice. In July a major earthquake hit Northern Luzon, causing extensive destruction, and in November a typhoon did considerable damage in the Visayas. There were other, more human, troubles also. The country was attempting to regain a semblance of order in the aftermath of the December 1989 coup attempt. Brownouts became a daily occurrence, as the government struggled to overcome the deficient power-generating capacity in the Luzon grid, a deficiency that in the worst period was below peak demand by more than 300 megawatts and resulted in outages of four hours and more (see Energy , this ch.). Residents of Manila suffered both from a lack of public transportation and clogged and overcrowded roadways garbage removal was woefully inadequate and, in general, the city's infrastructure was in decline. Industrial growth fell from 6.9 percent in 1989 to 1.9 percent in 1990 growth investment in 1990 in both fixed capital and durable equipment declined by half when compared with the previous year. Government construction, which grew at 10 percent in 1989, declined by 1 percent in 1990.

The Aquino administration appeared to be unable to work with the Congress to enact an economic package to overcome the country's economic difficulties. In July, as the government deficit soared Secretary of Finance Jesus Estanislao introduced a package of new tax measures. Then in October, stalemated wit ae6 h Congress, Aquino agreed to seek a reduction in the budget gap without new taxes. The agreement met with resistance from the Congress for being an onorous imposition on an economy in crisis, growth would be stifled and the poor would be impacted negatively. The willingness of the Congress to pass the tax package called for in the IMF agreement was in doubt. In 1990 Congress placed a 9 percent levy on all imports to provide revenues until an agreement could be reached with the administration on a tax package. In February 1991, however, it was learned that in its agreement with the IMF for new standby credits, the government had promised that it would indeed implement new taxes.

Accusations were widespread in Manila's press about the 1990-91 impasse. On the one hand, it was claimed that Aquino and her advisers had no economic plan on the other hand, the Congress was said to be unwilling to work with the president. Traditional political patterns appeared to be reasserting themselves, and the technocrats had little ultimate influence. One study of the first Congress elected under the 1987 constitution showed that only 31 out of 200 members of the House of Representatives, were not previously elected officials or directly related to the leader of a traditional political clan. Business interests directly influenced the president to overrule already established policies, as in the 1990 program to simplify the tariff structure. Business and politics have always been deeply interwoven in the Philippines crony capitalism was not a deviant model, but rather the logical extreme of a traditional pattern. As the Philippines entered the 1990s, the crucial question for the economy was whether the elite would limit its political activities to jockeying for economic advantage or would forge its economic and political interests in a fashion that would create a dynamic economy.

Data as of June 1991