The past few election cycles in the Philippines have seen a resurgence in popularity of rhetoric hailing the regime of Ferdinand Marcos Sr. as the ‘golden years of the Philippine economy’. While this exaltation of the Marcos Sr economic legacy is perhaps most apparent on social media platforms in a torrent of disinformation, there are also economists (albeit in the minority) who still hold a generally positive view of the regime’s economic legacy, including in terms of his trade reforms (for example see generally the work of economist and Marcos era technocrat Gerardo P. Sicat, 2011).

Supporters of this view often point to the GDP growth during specific years of the regime. The ‘best economic performance’ years of the regime were in 1973 to 1981, where debt-driven spending led to an average of 3.48% growth in GDP per capita. The reality though was that even though this was already the best economic growth during the Marcos era it was still lagging behind our Southeast Asian neighbours and this peak was followed by a period of economic collapse from 1982 to 1985 (De Dios, Gochoco-Bautista, Punongbayan, 2021).  

Trade and industrial policy in the early years

During his first term as elected president, Marcos Sr. maintained a largely protectionist trade policy as with the previous administration. The president reintroduced import controls on several manufactured goods that were also domestically manufactured, showing that during his first term trade reform was not in the president’s agenda – this was largely as a result of pushback from the domestic manufacturing sectors that would be most affected by decontrol of imports (Lallana, 1994).

The trade and industrial policies adopted by the previous administration in the 1950s and the policies that followed during the first term of Marcos Sr. in the 1960s both created an incentive system that encouraged the growth of capital-intensive industries rather than labour-intensive manufacturing that would have better utilised the Philippine’s labour surplus. During the 1950s ‘import control period’, it was due to the conferment of private benefits to the importation of machinery and equipment; while during the 1960s ‘import decontrol period’, the low tariff rates on imported capital equipment had the same effect (Bautista, Power, et. al., 1979). This was coupled with an unrealistically low interest policy on industrial loans which effectively discriminated against industrial labour use (Bautista, Power, et. al., 1979).

Also during the 1960s, the president pursued a highly expansionary monetary and fiscal policy motivated by a large increase in debt-driven government spending, which resulted in large deficits on trade balance, the current account, and a fall in foreign exchange reserves which put pressure on the peso exchange rate (De Dios, Gochoco-Bautista, Punongbayan, 2021). 

The battle of the technocrats and the nationalist business elite

The 1970s saw an increased pursuit of trade liberalization championed by Marcos’ technocrats led by Cesar E.A. Virata (some of whom had undergone training with the World Bank and the International Monetary Fund). During the pre-martial law years, nationalist politico-business elites in Congress and the Marcos technocrats butted heads on the passing of the 1967 Investments Incentives Act. The nationalist business elites in Congress insisted on more protections for their industries and this prevented the Virata-led Marcos technocrats from pursuing the General Agreement on Tariffs and Trade (GATT) during its Kennedy Round (Encarnacion Tadem, 2014). In the pre-martial law period, despite general support from Marcos Sr., the technocrat-dominated Program Implementation Agency (PIA) had to contend with the nationalist politico-business elite and the traditionally-nationalistic National Economic Council (NEC) (Encarnacion Tadem, 2014).

Following the declaration of martial law in 1972 and the subsequent abolition of Congress in 1973, the Marcos technocrats no longer had to bother with consent-building and negotiations in Congress. While Virata himself did not deem martial law necessary, he nonetheless believed that martial law was advantageous for not subjecting their technocrat economic policies to debates in Congress (Encarnacion Tadem, 2014). Though on its face Marcos and his technocrats may have appeared to achieve victory over the oligarchy of the nationalist business elite, the reality was that the authoritarian regime merely replaced it with a new oligarchy of Marcos and his cronies who came to dominate many of our economic sectors (De Dios and Hutchcroft in Balisacan and Hill, 2003).

The failed promise of the Marcos export-oriented industrialisation policy

On its face, it seemed that the Marcos Sr. had adopted the export-oriented industrialisation policy advocated for by his technocrats. This new export-oriented strategy brought with it the promise of opening up global markets to Philippine trade and of weakening the power of land-based elites that stood in the way of the modernization of the Philippine economy (Bello, 2023).

Pre-martial law, we saw the passing of the 1967 Investments Incentives Act which created the Board of Investments (BOI) and promoted instruments of industrial planning through fiscal incentives like a tax credit on import taxes that would enable exporters to acquire imported inputs at global prices, a tax credit that provided a modest subsidy for the use of local materials, and tax deductions for export-related marketing and shipping expenses (Shepherd and Alburo, 1985). Also pre-martial law, the legislature passed the 1970 Export Incentives Act that provided fiscal incentives to operators in new industries (De Dios, Gochoco-Bautista, Punongbayan, 2021) including subsidies through tax deductions based on the amount of use of direct domestic labour and local raw materials.

After his declaration of martial law, President Marcos Sr. promulgated Presidential Decree (P.D.) 34 which created a tariff code that was supposed to be a rationalization of the tariff structure to reducing many columns to only 6 rates ranging from 10% to 100%. It very well could have been and indeed it was being presented as a step towards tariff reform (with the highest tariff rates above 100% removed and in some instances going as low as 0%). There was on the other hand a much less publicized conscious realignment of tariff rates with the Central Bank commodity classification for controlling imports to make protective instruments more consistent (Shepherd and Alburo, 1985). The president also decreed P.D. 66 which created the export processing zone authority for the purpose of establishing the Bataan export processing zone and other similar export processing zones.  

However, despite the highly visible efforts towards supposed tariff rationalisation and trade liberalization, in the end it failed to achieve its policy objectives. The tariff rationalization program did not actually change the basic protective structure of the Philippine tariff system. The results of tariff-based effective protection studies shows that from 1965 to 1974 there was no significant difference in the high effective protection levels of consumption goods  (Medalla, Tecson, Bautista, Power, et al., 1996)

Besides, between 1974 to 1980 many of the ad hoc tariff exemptions were reintroduced anyway and as a result the ratio of duty exemptions to actual duties paid on all imports rose from 9% in 1973 to at least 22% from 1976 to 1980 (Shepherd and Alburo, 1985). Despite the highly-publicized desire to create robust export-oriented industries, domestic industries that were significant exporters were penalised relative to their foreign competitors, as indicated by their negative effective protection rates (ERPs); and domestic industries that did not export to any significant extent were heavily protected and had the highest ERPs (Bautista, Power, et. al., 1979).

Additionally, the protectionist effects were only further bolstered by more restrictive non-tariff barriers (Lallana, 1994). Although tariffs were being lowered, new non-tariff import restrictions (many administered by the Central Bank) were introduced; and as such, the protectionist bent of policy was preserved by import regulations that offset the effects of tariff rationalisation (De Dios, Gochoco-Bautista, Punongbayan, 2021).  

Despite claims by Marcos Sr and his technocrats of dismantling the oligarchy of the nationalist business elite, any gains in manufactured exports did little but to create another revenue stream for favoured family conglomerates to pursue (De Dios and Hutchcroft in Balisacan and Hill, 2003). Likewise, the championed non-traditional exports were not only dominated by family conglomerate cronies, they were also so highly import-dependent that their existence did not create a clear new constituency demanding an end to the longstanding overvaluation of the peso (De Dios and Hutchcroft in Balisacan and Hill, 2003).

Although by 1980 the support initiatives from the World Bank and the IMF attempted to address both tariffs (tariff rationalisation) and import restrictions (trade liberalisation), any modest success from these was short-lived since by 1982, the surfacing of the debt crisis resulted in increased balance of payments difficulties that made the re-imposition of many import controls necessary (De Dios, Gochoco-Bautista, Punongbayan, 2021).  The foreign loans that fuelled the debt-driven growth of the 1970s and were abused by Marcos Sr and his cronies had now come to roost, bringing with them the economic disaster of the early 1980s (De Dios and Hutchcroft in Balisacan and Hill, 2003).

For all of the adulation by the supporters of President Marcos Sr. of his trade liberalisation policies, it was only during the term of President Cory Aquino (who ousted Marcos through the EDSA revolution) that efforts toward trade liberalisation were carried out in earnest (De Dios, Gochoco-Bautista, Punongbayan, 2021).

As we can conclude from the aforementioned analyses, while indeed there were efforts towards export-oriented trade liberalisation during the regime of President Marcos Sr, these did little to actually achieve tariff rationalisation or trade liberalisation and it likewise did not achieve the objectives of the export-oriented industrialisation policy advocated for by his technocrats.