Poverty In The Philippines Economics Essay

“Before WWII, Philippines was considered as one of the richest countries (next to Japan) in Southeast Asia” (Short). Now, the Philippines is threatened to be trapped in poverty. With the economic expansion of China and other countries in Asia, Philippines has failed to keep up with them and is now considered a third world country. Philippines has lost its once great wealth due to unemployment issues and unchecked population growth, among other reasons. The poverty in the Philippines has caused the nation to slow its economic expansion. If the Philippines does not manage to inflate its economy, it will be stuck in an economic trap.

“The Philippine economy starts to decline because of the declining problem in Philippine export, trouble in borrowing money, and domestic financial scandal” (Central Intelligence Agency). The economy started to have some difficulties in the early 1980s. The international markets for the exports became weak, which led to weak industrial sectors and trade. Their debts were soon palpable, and they were not able to pay it off “due to the high-cost of borrowing and the difficulty of earning a foreign exchange” (Balisacan and Hill 3). The economy also started to decline because of financial scandal with the government. During the term of President Ferdinand E. Marcos, the government started to use an excess of the government’s money and the companies owned by those who were close to the President started to bail out because of financial problems. In 1983, Senator Benigno Aquino, Marcos’s rival, was shot, hurtling the nation into a political as well as an economical crisis. The economy had not yet started to improve from its decline when the President fled in February 1986 (Bureau of Public Affairs). The Philippine’s economic downfall started during the 1980s. “Real gross national product (GNP) grew at an annual rate of only 1.8 percent, less than the 2.5 percent rate population increase” (Central Intelligence Agency). With the embezzlement of President Ferdinand Marcos and the declining problem in Philippine export, the economy didn’t look like it was going to improve any time soon. In 1988, about 470,000 Filipinos left their homeland to live as immigrants in foreign countries. They worked as merchant seamen or in contract jobs. But 1989 the unemployment rate of 8.3 percent (12.3 in urban areas) skyrocketed to 11.4 percent and in 1978 half of the population lived below the poverty line.

“Years of economic mismanagement and political vitality during the Marcos regime contributed to economic stagnation and resulted in macroeconomic instability” (Bureau of Public Affairs). During the Marcos regime, thousands of money was embezzled from the government. It was said that when U.S customs went through the Marcos’ suitcases, there were 24 suitcases filled with gold bricks and jewelry. After the Aquino assassination, anti-Marcos demonstrations scared off tourists and foreign banks stopped granting loans to the Philippine government. When Corazon Aquino became president in 1986 the economy had as sudden revival, reaching 6.7 percent in 1988. But in 1990, due to several natural disasters the economy declined to 3 percent. Although the government has tried to pull the nation out of poverty time and time again, the economy just can’t keep up with the population growth. More and more families were turning up below the poverty line. “Because of the unequal division of Philippine budget a lot of roads are not fixed. A lot of regions in the Philippines don’t have electricity and telecommunications. Without these sources it’s hard for the Filipinos to communicate” (Aldaba 55).

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“A lot of big companies and other politicians don’t pay a right amount for their income tax” (Central Intelligence Agency). This is one of the main problems of the Philippines’ Fiscal Policy. Due to a lack of human, financial, and physical resources the government has had to borrow thousands of money to survive. Without the proper management of the country’s money, the national government debt is piling. The debt interest payments have increased from 19.5% in 1998 to 27.4% in 2003. During the Marcos rule, national government activity increased between 15 and 17 percent of GNP due to increased capital expenditures and growing debt-service payments. In 1985, only 38 percent of registered firms actually filed for a tax return. Without the proper revenue collection the fiscal policy will not work properly. The fiscal policy, to say the least, is not the most excellent.

“The central bank of the Philippines was established in June 1948, and began operation the following January. It was charged with maintaining monetary stability; preserving the value and convertibility of the peso; and fostering monetary, credit and exchange conditions conducive to the economic growth of the country. The government introduced a number of monetary measures to enhance the banking industry’s ability to provide adequate amounts of long term finance” (Central Intelligence Agency). The bank set interest rates on bank deposits and loans. But when they were adjusted for inflation then came out negative. Efforts were made to broaden the capital base of banks through encouraging mergers and consolidations. A new class of banks was created to enhance competition and efficiency of the banking industry and to increase the flow of long-term saving. But by January 1983 all interest rate ceilings were eradicated and rediscounting rates were reduced. Even though it seemed that things were going good at first, it wasn’t that excellent on the long run. The ratio of the country’s money supply fell to just above 0.2 in the late 1980s when it was 0.3 during 1983. The bank has played a big part with helping the country’s economy.

“When Aquino assumed the presidency in 1986, 31 billion pesos more than 25% of the government’s budget was allocated to the public sector enterprises (government-owned or government-controlled corporations) in the form of equity infusions, subsidies and loans” (Central Intelligence Agency). With 296 public sector enterprises and 399 other non-performing assets moved to the government, the Aquino administration created the Asset Privatization Trust of 1986. With this trust they can dispose of government-owned and government-controlled properties. By 1991, the trust has sold 230 assets with net proceeds of 14.3 billion pesos. Another 74 public-sector enterprises that the government had created with direct government investment were put up for sale. 57 were sold for a total of about 6 billion pesos. The government had said that 30 percent of the original public sector enterprises can be preserved and expected to abolish another 20 percent (Central Intelligence Agency). The unemployment rate in the Philippines has increased tremendously over time. In 2003, the official unemployment rate was 11.4% of the labor force. 35.5% of family heads were employed in the agricultural sector and almost half of them were classified as poor. The average income of the poor in the agricultural sector is about 84.5% of the poverty line. Even though most of the poor are actually employed, they are stuck in jobs that pay low wages. The low wages has affected the families’ ability to attain a reasonable amount of money to support themselves. There is also underemployment. Underemployment refers to workers who have a particular skill, but they are in a low-wage job that does not require those abilities. Or workers who could work a full-time job, but can only find part-time jobs. In 2002, the underemployment rate was 15.3%. “Too many people and less job opportunities makes it hard for the people to meet their daily needs” (Schelzig 95-97).

The Philippines’ failure to manage the population growth has affected the economy immensely. The population of the Philippines’ has been growing at a rate of 2.36% per year. This means that more than 5,000 people are born every day in a country where the poor has increased by 4 million since 1985. The population is predicted to be 111 million by 2015. Population growth would be acceptable if the country has the right resources to deal with the growth. But in a country where the poverty is high to begin with and the budget is stretched, population growth becomes a major issue. The larger the family, the more likely it is that it will be poor. In 2000, 57.3% of all families that have 9 or more family members are below the poverty line as opposed to the 18.6% of a family that has 3 family members. Children in bigger families will be more likely to perform less well in school, have poorer health, lower survival probabilities and are less developed physically (Aldaba 86). If the Philippines would like to improve its economy, it should work on its population growth.

It is said that poverty causes conflict, and conflict causes poverty. “Uneven development processes lead to inequality, exclusion and poverty. This contributes to growing grievances, especially when poverty coincides with ethnic, religious, language or regional boundaries (as in the case of Mindanao)” (Schelzig 50-51). The first empirical study that links conflict and poverty in Mindanao divided the 25 provinces into 13 conflict areas and 12 non-conflict areas. They included a number of variables relating to human capital and access to services like access to potable water and sanitary toilets, elementary cohort survival rate, among other things. It was found that access to potable water is 14% and sanitary toilets 20%; children in conflict areas are 10% less likely to finish elementary school. Also, functional literacy is worse in conflict areas. This was because violent conflict is only one of the shocks that affect Mindanao’s resources and that all provinces share the same common risks in agriculture, which makes up to 50% of the regional economy. This proves that the conflicts in the Philippines affects their ability to improve their social standing which includes functional literacy.

“Philippines ranks as fourth in the global climate risk index, which indentifies countries affected by extreme weather events in specific time periods” (Balisacan and Hill 49). Recently, the Philippines was devastated by a number of storms that killed many lives and destroyed infrastructure. The El Nino drought left a negative impact on all of Mindanao. The drought brought on a delayed rainy season, weak monsoon activity and weak tropical cyclone activity. There was a dwindling water supply in most households. The lack of rain affected water reservoirs. There was also a number of Forest/Bush fires. A total of 9,400 hectares of second growth burned in 1997-98 including 70 pockets of the Palawan province, home to endangered species. The cost damage was estimated to be 150 million pesos. The El Nino drought affected up to 68 percent of the country. Although the El Nino drought dissipated in July-August 1998 its effects were still felt through mid-September in forms of delayed tropical cyclone activity and minute rain fall.

The agricultural sector in the Philippines has been growing erratically since the 1980s, with the overall annual productivity growth averaging only 1.1% per year from 1993 to 2002. “In rural areas, soil erosion, coastal and marine system degradation, deforestation and biodiversity are causing a decline in agricultural productivity” (Teves). There has been very little expansion in the area under cultivation. The Philippines is rich in natural resources, but the Forest reserves have been extensively exploited to the point of serious depletion. Access to land is crucial for rural poverty reduction. Without an adequate environment, a country in that depends heavily on its agricultural sector might be stuck in poverty. “Because of the unstable economy of the Philippines it’s really hard for investors to invest in the Philippine government” (Balisacan and Hill 67-80). They would not know whether it is safe to invest, or whether it would be too much of a risk. The Philippines’ reputation of having a violent economy scares the investors, limiting the country’s ability to invest. This can also affect the country’s ability to improve their economy. Without investors that is one step away from improving their poverty rates.

“Parents who are poor may transmit poverty and disadvantage to their children during their earliest years of life” (Balisacan). In 2000, 54.9% of families that have 8 family members are reduced to poverty. Children who are in conflict areas are 10% less likely to finish elementary. When a family is stricken with poverty, the children are affected too. Malnourishment, illiteracy and poor hygiene are some of the many costs that children have to pay when their parents do not have the right resources to support them. As expected, poverty incidence is correlated with the educational attainment of the household head. Almost 50 percent of household heads who did not complete any formal schooling are poor while only 2 percent of college graduates have income below the poverty line. Almost 30 percent of those who did not complete high school are poor. In terms of distribution, around 67 percent of the poor household heads were elementary school graduates or lower (Aldaba 21-22). Children, who do not get the right education, will not be able to get high-paying jobs when they are adults and the cycle goes on.

The population growth of the Philippines has long thwarted their economic growth. The GNP per capita has lingered at around $1,000 for the past 20 years. The economy just can’t keep up with the immense population growth. The income poverty is also increasing. In 2000, 33.7% of families were stricken with poverty. With the increasing poverty problem in the Philippines, the government officials need to consider the causes and effects of this and try to find a way out of it. If not, the Philippines will be stuck in an economic trap.