COURSE TITLE : Investment Portfolio and Management

COURSE CODE : FIMA 30053

TOPIC : Economic History of the Philippines

ECONOMIC HISTORY OF THE PHILIPPINES

The Philippines was once a model of development and second only to Japan among east Asian
economies. In the 1960s, when South Korea was a land of peasant, the Philippines was one of
Asia's industrial powerhouses. It produced consumer goods, processed raw materials and had
assembly plants for automobiles, televisions and home appliances. Chemical plants produced
drugs. Scrap metal was imported and made into steel for ships and factories produced cement,
textiles and fertilizer.

Prior to 1970, Philippine exports consisted mainly of agricultural or mineral products in raw or
minimally processed form. In the 1970s, the country began to export manufactured commodities,
especially garments and electronic components, and the prices of some traditional exports
declined. By 1988 nontraditional exports comprised 75 percent of the total value of goods shipped
abroad.

In the 1970s and 80s, the Philippines declined while its neighbors grew and became one of the
poorest non-Communist governments in Southeast Asia. The gains made in the 1950s and 60s
were lost to corruption, cronyism, and mismanagement during the Marcos years and ineptitude of
the Aquino years Now the Philippines is sometimes referred to as "sick man of Asia" and a "Latin-
style banana republic in the South China Sea." Its per capita income is about one tenth of that of
Taiwan. Many of its most talented people work overseas.

According to The Economist: “What distinguishes Manila from other South-East Asian capitals is
the ubiquitous Jeepney, the loud rickety bus used by the city's poorer inhabitants. Once modified
American Jeeps, nowadays most Jeepneys are cobbled together from second-hand Japanese
lorries. They have become a metaphor for the Philippine economy: inefficient and easily
overtaken. In the 1970s the Philippines was richer than its neighbors. Yet while it chugged along
at growth rates of around 2 percent, other countries stepped on the gas: it was passed by
Singapore, Malaysia, Thailand and, more recently, by China. A former American colony, it could
have made more of its cultural affinities with the United States, including the widespread use of
English. The incompetent and crooked rule of Ferdinand Marcos from 1965 to 1986 bears some
of the blame for its failure to do so. A sluggish economy combined with a fast-growing population
has forced some 8m Filipinos—equivalent to almost a tenth of the resident population—to seek jobs
abroad.

Economic Development in the Philippines in the Early 20th Century

In the mid-nineteenth century, a Filipino landowning elite developed on the basis of the export of
abaca (Manila hemp), sugar, and other agricultural products. At the onset of the United States
power in the Philippines in 1898-99, this planter group was cultivated as part of the United States
military and political pacification program. The democratic process imposed on the Philippines
during the American colonial period remained under the control of this elite.
Access to political power required an economic basis, and in turn provided the means for
enhancing economic power. The landowning class was able to use its privileged position directly
to further its economic interests as well as to secure a flow of resources to garner political support
and ensure its position as the political elite. Otherwise, the state played a minimal role in the
economy, so that no powerful bureaucratic group arose that could pursue a development program
independent of the wishes of the landowning class. This situation remained basically unchanged
in the early 1990s.

At the time of independence in 1946, and in the aftermath of a destructive wartime occupation by
Japan, Philippine reliance on the United States was even more apparent. To gain access to
reconstruction assistance from the United States, the Philippines agreed to maintain its prewar
exchange rate with the United States dollar and not to restrict imports from the United States. For
a while the aid inflow from the United States offset the negative balance of trade, but by 1949, the
economy had entered a crisis. The Philippine government responded by instituting import and
foreign-exchange controls that lasted until the early 1960s.

Economic Development in the Philippines in the 1950s and 60s

Import restrictions stimulated the manufacturing sector. Manufacturing net domestic product
(NDP) at first grew rapidly, averaging 12 percent growth per annum in real terms during the first
half of the 1950s, contributing to an average 7.7 percent growth in the GNP, a higher rate than in
any subsequent five-year period. The Philippines had entered an import-substitution stage of
industrialization, largely as the unintended consequence of a policy response to balance-of-
payments pressures. In the second half of the 1950s, the growth rate of manufacturing fell by
about a third to an average of 7.7 percent, and real GNP growth was down to 4.9 percent. Import
demand outpaced exports, and the allocation of foreign exchange was subject to corruption.
Pressure mounted for a change of policy.

In 1962 the government devalued the peso and abolished import controls and exchange licensing.
The peso fell by half to P3.90 to the dollar. Traditional exports of agricultural and mineral products
increased; however, the growth rate of manufacturing declined even further. Substantial tariffs
had been put in place in the late 1950s, but they apparently provided insufficient protection.
Pressure from industrialists, combined with renewed balance of payments problems, resulted in
the re-imposition of exchange controls in 1968. Manufacturing recovered slightly, growing an
average of 6.1 percent per year in the second half of the decade. However, the sector was no
longer the engine of development that it had been in the early 1950s. Overall real GNP growth
was mediocre, averaging somewhat under 5 percent in the second half of decade; growth of
agriculture was more than a percentage point lower. The limited impact of manufacturing also
affected employment. The sector's share of the employed labor force, which had risen rapidly
during the 1950s to over 12 percent, plateaued. Import substitution had run its course. *

To stimulate industrialization, technocrats within the government worked to rationalize and

improve incentive structures, to move the country away from import substitution, and to reduce
tariffs. Movements to reduce tariffs, however, met stiff resistance from industrialists, and
government efforts to liberalize the economy and emphasize export-led industrialization were
largely unsuccessful.

Philippines Economy Under Marcos

The Philippines economy grew at a relatively high average annual rate of 6.4 percent during the
1970s, financed in large part by foreign-currency borrowing. External indebtedness grew from
$2.3 billion in 1970 to $24.4 billion in 1983, much of which was owed to transnational commercial
banks. In the 1980s the Philippine economy was hurt by political instability, authoritarianism,
increasing foreign debt, falling commodity prices, corporate mismanagement and vast
unemployment.

The Philippines found itself in an economic crisis in early 1970, in large part the consequence of
the profligate spending of government funds by President Marcos in his reelection bid. The
government, unable to meet payments on its US$2.3 billion international debt, worked out a
US$27.5 million standby credit arrangement with the International Monetary Fund (IMF) that
involved renegotiating the country's external debt and devaluing the Philippine currency to P6.40
to the United States dollar. The government, unwilling and unable to take the necessary steps to
deal with economic difficulties on its own, submitted to the external dictates of the IMF. It was a
pattern that would be repeated with increasing frequency in the next twenty years.

In the early 1980s, the economy began to run into difficulty because of the declining world market
for Philippine exports, trouble in borrowing on the international capital market, and a domestic
financial scandal. The problem was compounded by the excesses of President Ferdinand E.
Marcos's regime and the bailing out by government-owned financial institutions of firms owned by
those close to the president that encountered financial difficulties. In 1983 the country descended
into a political and economic crisis in the aftermath of the assassination of Marcos's chief rival,
former Senator Benigno Aquino, and circumstances had not improved when Marcos fled the
country in February 1986.

Impact of Martial Law on the Philippine Economy in the 1970s and 80s

In September 1972, Marcos declared martial law, claiming that the country was faced with
revolutions from both the left and the right. He gathered around him a group of businessmen, used
presidential decrees and letters of instruction to provide them with monopoly positions within the
economy, and began channeling resources to himself and his associates, instituting what came
to be called "crony capitalism." By the time Marcos fled the Philippines in February 1986,
monopolization and corruption had severely crippled the economy.

In the beginning, this tendency was not so obvious. Marcos's efforts to create a "New Society"
were supported widely by the business community, both Filipino and foreign, by Washington, and,
de facto, by the multilateral institutions. Foreign investment was encouraged: an export-
processing zone was opened; a range of additional investment incentives was created, and the
Philippines projected itself onto the world economy as a country of low wages and industrial
peace. The inflow of international capital increased dramatically.

A general rise in world raw material prices in the early 1970s helped boost the performance of the
economy; real GNP grew at an average of almost 7 percent per year in the five years after the
declaration of martial law, as compared with approximately 5 percent annually in the five
preceding years. Agriculture performed better that it did in the 1960s. New rice technologies
introduced in the late 1960s were widely adopted. Manufacturing was able to maintain the 6
percent growth rate it achieved in the late 1960s, a rate, however, that was below that of the
economy as a whole. Manufactured exports, on the other hand, did quite well, growing at a rate
twice that of the country's traditional agricultural exports. The public sector played a much larger
role in the 1970s, with the extent of government expenditures in GNP rising by 40 percent in the
decade after 1972. To finance the boom, the government extensively resorted to international
debt, hence the characterization of the economy of the Marcos era as "debt driven."

After martial law was declared Marcos's cronies amassed huge fortunes while the Philippines ran
up a huge national that brought the economy to edge of collapse. Real incomes declined by half
between 1956 and 1985 as the wealth of richest 10 percent rose from 27 percent to 37 percent.
In the latter half of the 1970s, heavy borrowing from transnational commercial banks, multilateral
organizations, and the United States and other countries masked problems that had begun to
appear on the economic horizon with the slowdown of the world economy. By 1976 the Philippines
was among the top 100 recipients of loans from the World Bank and was considered a "country
of concentration." Its balance of payments problem was solved and growth facilitated, at least
temporarily, but at the cost of having to service an external debt that rose from US$2.3 billion in
1970 to more than US$17.2 billion in 1980.

There were internal problems as well, particularly in respect of the increasingly visible
mismanagement of crony enterprises. A financial scandal in January 1981 in which a
businessman fled the country with debts of an estimated P700 million required massive amounts
of emergency loans from the Central Bank of the Philippines and other government- owned
financial institutions to some eighty firms. The growth rate of GNP fell dramatically, and from then
the economic ills of the Philippines proliferated. In 1980 there was an abrupt change in economic
policy, related to the changing world economy and deteriorating internal conditions, with the
Philippine government agreeing to reduce the average level and dispersion of tariff rates and to
eliminate most quantitative restrictions on trade, in exchange for a US$200 million structural
adjustment loan from the World Bank. Whatever the merits of the policy shift, the timing was
miserable. Exports did not increase substantially, while imports increased dramatically. The result
was growing debt-service payments; emergency loans were forthcoming, but the hemorrhaging
did not cease.

It was in this environment in August 1983 that President Marcos's foremost critic, former Senator
Benigno Aquino, returned from exile and was assassinated. The country was thrown into an
economic and political crisis that resulted eventually, in February 1986, in the ending of Marcos's
twenty-one-year rule and his flight from the Philippines. In the meantime, debt repayment had
ceased. Real GNP fell more than 11 percent before turning back up in 1986, and real GNP per
capita fell 17 percent from its high point in 1981. In 1990 per capita real GNP was still 7 percent
below the 1981 level.

Impact of U.S. Military Bases on the Philippines Economy

The economy of the Philippines in the Marcos years in many ways was propped by the Subic and
Clark American military bases, trade with the United States and income from overseas workers.
The World Bank played a major role in planning and running the Filipino economy under martial
law.

In early 1991, the Philippine government was in ongoing negotiations with the United States on
the future status of United States naval and air facilities at Subic Bay and Clark Air Base. What
would normally be an issue of foreign policy and national security became a major domestic
political issue and took on an economic dimension of considerable importance. At the domestic
level, the conflict was between those who argued that the continuing presence of the United States
bases was an infringement on Philippine sovereignty and a continuation of a neocolonial
relationship and those who, for a combination of internal security, foreign relations, and economic
reasons, saw the need for maintaining the presence of the bases. President Aquino, through 1990,
refused to publicly commit herself to a position; however, it was clear that her government was
working to reach accommodation with the United States. As negotiations progressed, the
economic issue became prominent.

There were three economic considerations from the point of view of the Philippine government.
First, the proportion of the Philippine budget allocated for its armed forces was the smallest in the
region, a fact linked to the presence of United States air and naval forces in the Philippines, as
well as direct military assistance. Second, in the latter half of the 1980s, the bases directly
employed between 42,000 and 68,000 Filipinos and contracted for goods and services from
Filipino businesses. During this period, yearly base purchases of goods and services in the
Philippine economy (when corrected for the estimated import content of the goods purchased)
was in the range of P6.0 billion to P8.3 billion.

A third and politically very important consideration, was the sum given to the Philippines by the
United States in connection with the presence of the bases, referred to as aid by United States
officials and as rent by the Filipinos. Base-related payments were first agreed to in 1979 when
United States President Jimmy Carter made a "best effort" pledge to secure US$500 million for
the Philippines from the United States Congress over a five-year period. In 1983 another five-
year commitment was made, this time for US$900 million. In October 1988, the Philippines'
Secretary of Foreign Affairs Raul Manglapus and United States' Secretary of State George
Schultz signed a two-year agreement for US$962 million, an amount double the previous
compensation but substantially less than the US$2.4 billion that the Philippines initially demanded.
In 1991 talks over the future of the bases and the size and terms of the aid or rent that would be
given in consideration for continued United States access to military facilities in the Philippines
was the most important unresolved issue. The decision of the Philippine administration to bring
Secretary of Finance Jesus Estanislao into the negotiations in March 1991 was a further indication
of the economic importance of the bases to the Philippine government.

Philippines Economy Under Cory Aquino

The Philippines economy floundered under Corazon Aquino. Power shortages and brownouts
were common. The American military bases were closed down. Economic growth revived in 1986
under Aquino, reaching 6.7 percent in 1988. But in 1988 the economy once again began to
encounter difficulties. The trade deficit and the government budget deficit were of particular
concern. In 1990 the economy continued to experience difficulties, a situation exacerbated by
several natural disasters, and growth declined to 3 percent.

The Philippine economy experienced considerable difficulty in the 1980s. Real gross national
product (GNP) grew at an annual average of only 1.8 percent, less than the 2.5 percent rate of
population increase. The US$668 GNP per capita income in 1990 was below the 1978 level, and
approximately 50 percent of the population lived below the poverty line. The 1988 unemployment
rate of 8.3 percent (12.3 percent in urban areas) peaked at 11.4 percent in early 1989, and the
underemployment rate, particularly acute for poor, less-educated, and elderly people, was
approximately twice that of unemployment. In 1988, about 470,000 Filipinos left the country to
work abroad in contract jobs or as merchant seamen.

In 1990 the Philippines had not yet recovered from the economic and political crisis of the first half
of the 1980s. At P18,419, or US$668, per capita GNP in 1990 remained, in real terms, below the
level of 1978. A major thrust of Aquino's 1986 People Power Revolution was to address the needs
of impoverished Filipinos. One of the four principles of her "Policy Agenda for People-Powered
Development," was promotion of social justice and poverty alleviation. Government programs
launched in 1986 and 1987 to generate employment met with some
success, reversing the decline of the first half of the decade, but these efforts did little to alleviate
the more chronic aspects of Philippine poverty.

After Aquino took office the most immediate task for here economic advisers was to get the
economy moving, and a turnaround 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. 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.

Economic Policy Under Cory Aquino

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, encouraging 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.

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
Aquino's campaign promises, there were high expectations 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. 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.

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 with 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 onerous 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.

Economy Under Ramos

President Fidel Ramos (1992-1998) was given high marks for handling the economy. By breaking
apart monopolies, liberalizing foreign investment laws and privatizing business and industries by
controlled powerful families, Ramos was crediting with transforming the Philippines from a country
with a history of poverty, corruption, rebellion, foreign ineptness and tax evasion into an economic
powerhouse that was not yet an Asian tiger but was sometimes referred to as Asian tiger cub.

Oliver Teves of Associated Press wrote: “For a brief period of the 1990s, the Philippines under
the presidency of Fidel Ramos registered high growth rates and was touted as the next Asian
"tiger" economy. But the ingrained poverty, corruption and crime rate, and the abiding threat of
another popular uprising conspire to scare away investors and drain the country of its best brains
and hardest workers.

The Philippine economy showed some improvement in early 1992, spurred by increases in
agricultural production and in consumer and government spending. Budget deficits were well
within IMF guidelines--P3.2 billion in the first two months. At the end of April, the treasury posted
a P5.5 billion surplus as a result of higher than programmed revenue receipts, mainly from the
sale of Philippine Airlines. The increased revenue permitted the early repeal of the 5 percent
import surcharge, stimulating both import spending and export growth. The money supply grew
more rapidly than desired, but was kept under control. Treasury bill rates fell to 17.3 percent in
March 1992 from 23 percent in November 1991, and inflation was down to 9.4 percent for the first
quarter of 1992, from 18.7 percent in 1991.

One of the greatest threats to the Philippine economy in 1992 was the power shortage. The fall in
the water level in Lake Lanao caused a 50 percent reduction in the power supply to Mindanao
in December 1991, and the resumption of full power was not expected until almost the end of
1992. The power shortage in Luzon continued to be chronic. Power cuts of four to five hours per
day have been common; in May they reached six hours on some days in Manila, the country's
industrial hub. To help to meet this chronic shortage, the government reactivated the contract with
Westinghouse Corporation to restart construction on a 620 megawatt nuclear power plant on the
Bataan Peninsula that had been abandoned in 1986. This plant however was not scheduled to go
on line until 1995. *

To get the Philippines economy going, Ramos and the Philippine Congress abolished tariffs and
preferential terms that enriched the rich families. He reformed the banking system and drove down
interest rates. He overhauled the electricity infrastructure so that energy shortages and brown
outs became a thing of the past.

The growth rate during the Ramos years was a robust 5 percent a year and inflation was in the
single digits, down from 25 percent in 1990. Under his leadership, fiber optic lines were installed,
property values soared, five star hotels and condominiums were built, the stock market showed
big gains, overseas workers began returning home and the former American military bases at
Subic and Clark became thriving trade and industrial centers.

Foreign investment increased. Companies like Acer (a Taiwanese company) and Intel moved into
the Philippines Much of the prosperity was linked to investments from Hong Kong by tycoons like
Gordon Wu, who shipped their money to Manila before the reunification with China. In the early
1990s, the Philippines was regarded as an economic rival of Thailand and Malaysia now it lags
far behind them.
Economy Under Estrada

There was a sense of optimism when Joseph Estrada was elected. Investors shared this sense
of hope and initially poured money into the Philippines but it didn’t take long for this optimism to
evaporate. Foreign investors were turned off by cronyism, scandals and favoritism towards
Philippines companies.

Estrada moved to tighten securities regulations, liberalize the trade of grains and privatize the
electricity industry. His effort to change laws limiting foreign ownership of businesses to 40 percent
was halted by his impeachment trial.

In the end Estrada proved to be a friend of big business. He revived the culture of corruption and
was plagued by charges of cronyism. This was on top of inconsistent monetary policy, slow
economic growth, and uncertainty brought about by terrorists and insurgencies. He said he was a
friend of the poor yet he failed to launch one meaningful anti-poverty program. Most of his efforts
consisted of parading around with movie stars that were reminiscent of what Imelda Marcos did.
There also was not much of an effort to pave roads, set up irrigations projects or build school or
collect taxes to pay for them.

As Estrada became embroiled in scandal, the peso, the stock markets and confidence in the
Philippines as a place to invest dropped as did his approval ratings dropped. Foreign companies
like Philips Electronics and Johnson & Johnson pulled out of the Philippines. After his ouster in
2001 he left behind a huge budget deficit and debt payments that were double what the country
sent on health, education and agriculture combined. The sick man of Asia was sicker than ever.

Economy Under Arroyo

Gloria Macapagal-Arroyo was welcomed with great fanfare when she became president in 2001.
The day she was sworn in, the stock market surged 30 percent and businessmen praised her
skills and abilities. Arroyo launched free market and anti-corruption policies that were welcomed
by both the local and international business communities. Again there was a sense of hope.

But again the sense optimism didn’t last long. Investment dried up as a result of global slowdowns
and security concerns. Direct foreign investment was only $319 million in 2001 compared to $1.8
billion in 1992.

Growth was 3.4 percent in 2001, 4.3 percent in 2002 and 4.5 percent in 2003. In 2004 the economy
was hurt by high oil prices. Still more growth was needed just to keep pace with 2.36 percent
population growth rate. Inflation was less than 6 percent but the deficit grew at an alarming rate
as the government spending increased and tax revenues fell. Raising revenues became one of
the main problems. In 2003, the deficit reached $3.6 billion and debt was estimated to be over
$100 billion. The government’s debt burden reached its peak in 2004 when it settled at 74 percent
of GDP.

Arroyo began her second term in 2004 with promises of “austerity and simplicity” and the
announcement of a reform package to fight corruption, attract foreign investment, and make the
Philippines less dependent on foreign energy. She promised to create 10 million jobs by 2010 and
announced that power rates would be doubled to avert an energy crisis. She also promised to
provide clean water and electricity to every village in the Philippines and build 3,000 schools. The
plan called for the seemingly impossible combination of increased spending, higher taxes and a
balanced budget in five years.
Arroyo’s economic drive quickly lost momentum. She was unable to overcome political opposition
to privatizing companies like the National Power Corporation, which lost $1.8 billion in 2003.
Instead an effort was made to make them efficient. By the end of her term much of her time was
spent responding to charges that she rigged the 2004 elections and he was husband was involved
in kickback scheme with a Chinese company involving millions of dollars.

Growth in 2003 and 2004 was around 5 percent due in part to rising demand for Philippines
electronic exports. Growth occurred despite continued hikes in oil and consumer prices on top of
typhoons and floods. Growth was 4.7 percent in 2005. That year exports amounted to 40 percent
of GDP. Many of the export items were electronics. Two-thirds of Philippine imports are used to
build exported computer parts, disks and other electronic products made by local units of
companies such as Texas Instruments Inc. and Toshiba Corp.

Philippines Economy Picks Up in the Mid-2000s

Arroyo was an economics professor after all and not everything that happened under her watch
was a failure. In fact, she had many good ideas and policy schemes but they were overshadowed
by her political troubles and bogged down in Congress. In 2007, before the global economic crisis
took hold, The Economist reported: Things are looking up. The economy has grown by at least 5
percent in each of the past three years, for the first time since the 1970s. In the first quarter of this
year, growth was 6.9 percent, year-on-year. Soaring remittances from Filipinos overseas help.
Last year they added up to $12.8 billion, equivalent to 11 percent of GDP. Exports—especially to
China and most particularly of microchips—are also booming.

“Better economic management also helps. Inflation is now 2.6 percent, down from 8.6 percent in
2004. Changes made in 2005 have increased tax revenues without hurting growth. Despite recent
wobbles, the government should still come close to balancing the budget next year, compared
with a deficit of over 5 percent of GDP in 2002. The country's banks, hurt badly in the 1997 Asian
financial crisis, have been slow to recover, but now they are starting to lend again. Foreign direct
investment is picking up from a low base. Texas Instruments recently chose the Philippines over
China for a $1 billion electronics factory, while Hanjin, a South Korean shipbuilder, will spend $1.7
billion on its Philippines yard. Foreign mining firms have started to develop huge untapped mineral
reserves.

“The Philippines has rapidly emerged as India's main rival in business-process outsourcing (BPO)
and now hosts the call-centers of many American firms. A recent study by the Asian Development
Bank reckoned that BPO could provide jobs for up to 11 percent of those joining the Philippines'
labor force between now and 2010.

All good news, but worries remain. However, welcome the growth in call-center jobs, it is
engineering and business graduates who are queueing to take them. A recent International Labor
Organization study noted that the country's average annual productivity growth between 2000 and
2005 was just 0.9 percent, compared with 10.3 percent in China and 4.9 percent in India,
suggesting that “many new job entrants are underemployed”.

“A chief problem, despite foreign interest, is a rate of investment that is at 20-year lows as a share
of GDP. Poor infrastructure, especially roads, hampers businesses of all sorts. Gil Beltran, a
senior finance-ministry official, says the government intends to increase annual infrastructure
spending from 2.8 percent of GDP to 5 percent. Successive administrations have had a poor
record of keeping such promises. The public finances still need a lot of fixing. Tax revenues as a
share of GDP are still below pre-1997 levels, while public debt is high, at around 75 percent of
GDP. The next big job, says Mr. Beltran, is to simplify the mess of illogical tax breaks that cost a
fortune in lost revenues. Efforts to drag big-business tax-dodgers to court have so far got nowhere.
A swinging tax rise on Jeepney owners looks like squeezing the poor to spare the rich.

Perhaps a virtuous cycle will develop. The government might boost revenues and spend them on
sensible works, so encouraging business, which would boost tax revenues further. It is easier to
imagine the Philippines slipping back into complacency, relaxing its efforts and letting this golden
opportunity pass by.

Philippine Economy Picks Up in the 2010s Under Benigno Aquino III

The Philippines economy picks up in the 2000s under Benigno Aquino III. The Philippine economy
expanded by 7.2 percent in 2013, 6.8 percent in 2012, 3.7 percent in 2011 and 7.6 percent in
2010. In 2012, gross domestic product surpassed the government’s forecast for growth of 5
percent to 6 percent. The Philippines had the second-highest growth rate in the world 2012, after
China, according to Reuters. Government expenditure in the Philippines jumped nearly 12 percent
in 2012, while private spending, which was bolstered by remittances from abroad, was up 6.1
percent, Reuters reported.

In 2012, Floyd Whaley wrote in the New York Times, “With $70 billion in reserves and lower
interest payments on its debt after recent credit rating upgrades, the Philippines pledged $1 billion
to the International Monetary Fund to help shore up the struggling economies of Europe. “This is
the same rescue fund that saved the Philippines when our country was in deep financial trouble
in the early ’80s,” said Representative Mel Senen Sarmiento, a congressman from Western
Samar.

“The Philippines has certainly had a steady flow of positive economic news recently. On July 4,
2012, Standard & Poor’s raised the country’s debt rating to just below investment grade, the
highest rating for the country since 2003 and equivalent to that of Indonesia. The Philippines is
the 44th-largest economy in the world today, according to HSBC estimates. But if current trends
hold, it can leap to the No. 16 spot by 2050. The Philippine stock market, one of the best
performers in the region, closed at a record high after the recent S.& P. rating upgrade, and the
country’s currency, the peso, reached a four-year high against the dollar at about the same time.

“The gross domestic product of the Philippines grew 6.4 percent in the first quarter, according to
the country’s central bank, outperforming all other growth rates in the region except China’s.
Economists expect similarly strong growth in the second quarter. “We have made a very bold
forecast for the Philippines, but I think justifiably so,” said Frederic Neumann, a senior economist
at HSBC in Hong Kong.

“Trinh D. Nguyen, an economist with HSBC in Hong Kong, said the Philippines had benefited from
an increase in government efficiency and revenue collection, as well as aggressive actions to
address corruption, like the impeachment of the chief justice of the Supreme Court and the arrest
of former President Gloria Macapagal Arroyo on suspicion of accepting kickbacks and of misusing
government lottery money. “It is not only short-term growth that draws investors to the Philippines,”
Ms. Nguyen said. “The fundamentals are there.”

“But there are also real weaknesses in the country. Recent flooding, which by some estimates
submerged 50 percent of Manila, illustrates a shortage of modern infrastructure that makes the
Philippines highly vulnerable to disasters. “The Philippines is hit with several deadly and
devastating natural disasters every year,” Ms. Nguyen said. But government officials have said
that the recent flooding might actually help economic growth, because reconstruction will require
an increase in public spending and the country will have to put into place programs to make it
more resistant to the effects of natural disasters.

“Another hurdle is the fact that the Philippines has traditionally underexploited its natural
resources. The government estimates that there are 21.5 billion tons of metal deposits in the
country, including large deposits of nickel, iron, copper and gold. But they have never been a
significant driver of economic growth because extraction has been mismanaged, Mr. Neumann
said. In the shorter term, there are concerns that the country’s newfound prosperity has not
sufficiently eradicated poverty.

President Benigno Aquino III and the Failure to Create Jobs

Floyd Whaley wrote in the New York Times, “President Benigno S. Aquino III ran on a platform of
clamping down on corruption, improving the business environment in the country and addressing
widespread poverty. In his first three years in office, Mr. Aquino removed high- level government
officials accused of corruption, cracked down on tax evaders and aggressively courted foreign
investment. Though his efforts to improve the economy have received accolades, he has had less
success in addressing the country’s persistent, widespread poverty.

“Mr. Aquino’s political opponents argued before recent legislative elections that his actions had
further enriched the wealthy and left the poor behind. The Philippines still has a strong service
sector. In 2011, it overtook India as a top provider of offshore call centers. But the country lacks
the manufacturing base that has lifted millions of people out of poverty in other Asian countries.
In countries like China, the rural poor increased their income by finding jobs in factories. That is
rarely an option in the Philippines, and few poor people from the countryside are qualified to work
in a call center.”

In early 2013, Amando Doronila wrote in the Philippine Daily Inquirer, “The Aquino administration
flooded the media with the report that the economy expanded 6.6 percent in 2012. The result
however was not good enough to have any significant social impact on alleviating poverty and
reducing the wide wealth chasm between the rich and the poor. Growth in the past two years of
the Aquino administration has not translated into creating enough jobs for the poor that will allow
them to break out of the poverty trap.

“The President, however, acknowledged that “the gap between the powerful and the powerless”
has become too huge. Too many people are being left behind and it has also become clear that
inequity is borne of corruption. “The few at the top have been allowed to run roughshod over the
many and have [manipulated] the system to benefit themselves, while the rest wallow in poverty,”
the President said. “The greatest challenge for any modern society, then, is how to stem the
corruption that has feasted on the very moral fabric of our society,” he added.

“Socioeconomic Planning Secretary Arsenio Balisacan said the “impressive” 6.5-percent growth
for 2012 should be sustained for several years to allow its effects to filter down to the grassroots
and benefit ordinary Filipinos. Asked about how long would it take for the broad section of the
population to benefit from the growth, Balisacan was evasive. “It should be happening, but don’t
expect a miracle [where poverty would be] wiped out or substantially reduced,” he said. The 6.5
percent growth figure reflected “only one year” performance of the economy. “If you note
experiences of countries around us, it takes several years of sustained … or rapid growth before
you can reduce poverty, say by one-half for the population,” Balisacan said.

“Benjamin Diokno, a professor at the University of the Philippines’ School of Economics, agreed
that 6.6 percent for 2012 was “a strong growth,” he expressed doubt that the growth rate would
be sustainable. Diokno pointed out that based on the October labor statistics, the recent growth
may be characterized as “labor-shedding growth. Close to 1 million jobs were lost.” Most Filipinos
still depend on agriculture and related sectors for a living, he said.”

Philippine Economy Grows 7.2 Percent in 2013

Beating government expectations, the Philippine economy expanded by 7.2 percent in 2013.
Combined with 2012 Philippines experiences its strongest two years of growth since the 1950s.
Karl Lester M. Yap and Cecilia Yap of Bloomberg wrote: “Gross domestic product rose 7.2 percent
in 2013, the Philippine Statistics Authority said, after gaining 6.8 percent in the previous year. That
was the fastest two-year pace since 1954-1955, data compiled by Bloomberg show. A recovery
in advanced economies may help President Benigno Aquino achieve his goal of bolstering growth
to as much as 8.5 percent by 2016 as he transforms the country into a manufacturing hub. Rising
exports have helped counter the impact of Super Typhoon Haiyan, and the central bank said today
it will act if needed to contain inflation expectations. “The Philippine economy clearly still has
strong momentum despite the typhoon,” said Edward Teather, an economist at UBS AG who
covers Southeast Asian markets from Singapore. “That sort of strength in the context of an
acceleration in developed nations increases the risk of overheating, something policy makers
should keep an eye on.”

“The Philippines won its first investment-grade scores from Moody’s Investors Service, Fitch
Ratings and Standard and Poor’s last year. Aquino’s pledge to curb corruption and spur faster
growth has seen foreign direct investment almost double to $2.8 billion in 2012 from 2008, World
Bank data show. Consumer spending rose 5.6 percent last quarter from a year earlier, according
to today’s report. Investment gained 5.7 percent, while manufacturing increased 12.3 percent.

Jovan Cerda wrote in philstar.com: “Socioeconomic Planning Secretary Arsenio Balisacan said
the economy grew better than the government's official target of 6 to 7 percent for 2013, but added
that it could have been higher had the country not been affected by various disasters. "Indeed,
growth could have been better, had we not been perturbed by various disasters that hit the country
such as the Bohol earthquake, the Zamboanga siege and typhoon Yolanda," he said.

“The Philippines remains as one of the best performing economies in the Asian region in the fourth
quarter of 2013, second only to China, which grew by 7.7 percent, Balisacan said. On the supply
side, the services and industry sectors continued to be the drivers of economic growth, expanding
by 7.1 percent and 9.5 percent in 2013, respectively. "The services sector contributed 3.6
percentage points of the real GDP growth in the fourth quarter of 2013. This was followed by the
industry sector with 2.8 percentage points and agriculture with 0.1 percentage point. Fourth-
quarter growth on the supply side was mainly propelled by manufacturing, trade, finance and real
estate," Balisacan said.

“Meanwhile, on the demand side, growth was boosted by household consumption, which
contributed 4.2 percentage points, and net exports, which contributed 1.6 percentage points.
Despite the better-than-expected growth, however, some sectors tamed overall growth for 2013,
Balisacan said. "Construction had the biggest setback in the fourth quarter. The subsector
contracted by 0.8 percent due to stricter rules imposed on real estate lending in compliance with
prudential regulations. The Board of Investments has also tightened mass housing incentives.
The rule requiring developers to allot 20 percent of their total housing investment for low-cost
mass housing units is now being closely monitored and enforced."

“Government spending also slowed down by 5.2 percent, dipping from the 9.5 percent growth
posted in the fourth quarter of 2012. The deceleration was due to lower disbursements in
personnel services and maintenance and other operating expenditures. For the full year, however,
government spending jumped by 8.6 percent. Imports also slowed down by 1.9 percent during the
last quarter of 2013 from the 8 percent posted in the same period in 2012.

“Aside from slowdowns in certain sectors, the combined impact of typhoons and other disasters
may have also reduced the full year real GDP growth by at least 0.1 percentage point, Balisacan
said. Looking forward, Balisacan said the agriculture and industry sectors are expected to be
vibrant this year, as the government promotes linkages between the two sectors to increase value
added as a key strategy identified in the Philippine Development Plan midterm update. Major
infrastructure projects, especially in the transport sector are also expected to boost growth this
year and beyond. [W]e are optimistic that the Philippine economy will remain
strong in 2014, especially that the outlook on the global economy is becoming more favorable and
as the domestic economy remains robust," he said.

Philippines Gets First-Ever Investment Grade Rating

In March 2013, the Philippines achieved its first-ever investment grade rating after international
debt watcher Fitch raised the country’s rating to BBB- from BB+. Daxim L. Lucas wrote in the
Philippine Daily Inquirer, “Fitch Ratings — the first of the three major international debt watchers
to upgrade the Philippines — also assigned a stable outlook for the country’s credit rating. Fitch
cited the country’s sovereign balance sheet as being comparable to those of ‘A’-rated nations,
while a “persistent current account surplus, underpinned by remittance inflows” has made the
country a “net creditor” from its previous deficit position. Fitch also noted the economy’s 6.6-
percent economic growth for 2012 and the expected strong growth for 2013, both of which are
“stronger and less volatile” that BBB-rated peers over the last five years. “Improvements in fiscal
management begun under President Arroyo have made general government debt dynamics more
resilient to shocks,” Fitch said.

In May 2013, Standard & Poor' increased the Philippines a long-term sovereign credit rating of
"BBB" from "BBB-", and upgraded its short-term rating to "A-2" from "A-3". “The outlook is stable.
"We raised the ratings because we now believe the ongoing reforms to address shortcomings in
structural, administrative, institutional, and governance areas will endure beyond the current
administration," Standard & Poor's credit analyst Agost Benard noted in an e-mailed statement to
reporters.

GMA News reported: “The debt watcher also noted the upgrade "reflects the country's strong
external liquidity and international investment position, combined with an effective monetary policy
framework relative to the country's income level," while maintaining low inflation and interest rates.
Malacañang said it was "gratified" by the latest credit rating upgrade from S&P. "And we are
hopeful that this will eventually translate into increased investments, and accelerated jobs
generation," Presidential Communications Operations Office head Herminio Coloma Jr. said. The
Aquino administration is "committed to strengthen public institutions, and build increased capacity
among citizens and communities, and thereby promote the attainment of inclusive growth. This is
the path that leads to sustained economic development and the raising of the Filipino people’s
quality of life," Coloma added.

“S&P gave the Philippines an investment grade rating on May 2, 2013. It was the second upgrade
from practically junk status since Fitch Ratings gave the Southeast Asian country its first ever
investment grade status in March 2013. In a statement Friday, Budget Secretary Florencio Abad
said S&P basically validated the progress in good governance reforms under the Aquino
administration. “For one, this credit upgrade recognizes the gains brought about by the public
financial management reforms we have instituted," Abad noted "We are on the right track in terms
of continuously improving our public spending efficiency, primarily in ramping up investments for
infrastructure projects, among other key priority and substantial programs and projects," he
added.

Philippine Economy in 2014

Karl Lester M. Yap and Cecilia Yap of Bloomberg wrote: “Aquino plans to increase spending to a
record this year while seeking more than $8 billion of investments in highways and airports to
improve infrastructure and create jobs. San Miguel Corp., Ayala Corp. (AC) and Megawide
Construction Corp. are among companies building schools, power plants and roads. The
government estimates reconstruction of the typhoon-affected areas will cost 361 billion pesos ($8
billion).

Disasters slowed the Philippine economic growth down to 5.7 percent in 1st quarter of 2014. Cliff
Venzon of Nikkei wrote: “Philippine economic growth slowed a year-on-year to 5.7 percent in the
first quarter of 2014, as natural disasters weighed on production, the government reported. This
makes the Philippines the third-fastest growing economy in Asia after China (7.4 percent) and
Malaysia (6.2 percent), National Economic and Development Authority Secretary Arsenio
Balisacan said in a briefing. The growth, the slowest since the fourth quarter of 2011, was also
below market and government expectations. Meanwhile, the January-March expansion was
driven by the services and industry sectors, which climbed 6.8 percent and 5.5 percent,
respectively, the Philippine Statistics Authority said. Balisacan said natural disasters that hit the
country late last year -- particularly typhoon Haiyan -- pulled economic growth down. "The effects
of the typhoon went beyond the Yolanda-affected areas through the supply chain," Balisacan said,
using the local name for Haiyan. "That affected investment plans of companies and
individuals...so private construction suffered in the first quarter," he added.

In November 2013, Haiyan killed around 6,300 people in the Philippines and destroyed $2 billion
worth of crops and infrastructure. In October, a 7.2-magnitude earthquake struck the province of
Bohol, also in central Philippines, causing widespread devastation. Balisacan said the effects of
Haiyan are "expected to diminish" while reconstruction efforts in typhoon affected areas should
also prop up the economy in the coming quarters. "We remain confident that we will meet the
growth target of 6.5-7.5 percent for 2014," he said, pointing out that the Philippines is still poised
to become Southeast Asia's fastest growing economy -- a position it held last year.

Reference: http://factsanddetails.com/southeast-asia/Philippines/sub5_6g/entry-3916.html

PHILIPPINE LAWS ON INVESTMENT

Omnibus Investments Code of 1987: Investment incentives

Omnibus Investments Code of 1987, also known as Executive Order No. 226, contains the current
investment policies of the Philippines. The government encourages foreign and domestic
investments.

Under the Book 1 of the EO 226, enterprises might register under the Board of Investments (BOI)
to avail of fiscal investment incentives such as exemption from income taxes, exemption from
custom duties and national internal revenue taxes on importation of supplies and spare parts.
Moreover, there are non-fiscal incentives such as the permission to employ foreign nationals in
supervisory and advisory positions as well as simplification of custom procedures for importation
of equipment and exportation of processed products. Of course, investment incentives have
restrictions and qualifications. These are the requirements to be qualified for investment
incentives:

Investing in PIONEER Areas and areas of investments listed in the Investment Priorities Plan
(IPP).

a. at least 50% of production is for exports, if Filipino-owned.

b. at least 70% of production is for exports, if majority foreign-owned enterprise (more than
40% foreign equity).

PIONEER AREAS IN INVESTMENT

An important legislation in Philippine investment is the classification of industries that the

government deems to be in need of more investments. The government sets the following
standards in order to boost these industries through the privileges aforementioned in the previous
section. PIONEER activities can go up to 100% foreign ownership, subject to constitutional and/or
statutory limitations. These foreign-owned enterprises should be in at least one of these
industries:

Innovation: Innovative industries that produce goods that are not in commercial sale in the
Philippines, or industries that use new and untried systems of production or transformation of any
raw material.

Social welfare: Agricultural, forestry and mining activities and/or services that are highly essential
to the attainment of national goals such as food self-sufficiency and other social benefits.

Environment: Environmentally relevant industries that utilize non-conventional fuels and sources
of energy in their production.

All these industries should involve the substantial use and processing of domestic raw materials,
wherever available.

SUBIC AND ECONOMIC ZONES

These are the Subic and Clark Economic Zones (RA 7227) And Special Economic Zones (RA
7916). During the Ramos administration, the government tried to encourage firms to invest by
converting military reservations in Clark and Subic to economic zones for developmental projects
in cooperation with private sector companies. In order to incentivize participation, RA 7227 makes
Subic a separate customs territory ensuring free flow or movement of goods and capital within,
into and exported out of the Subic Special Economic Zone, as well as provide incentives such as
tax and duty-free importations of raw materials, capital and equipment. Similarly, the government
empowered the Philippine Economic Zone Authority (PEZA) to determine regions and cities that
could be considered ECOZONES – these are areas that have a high potential to be developed
into agro-industrial, recreational, commercial and investment centers. The government provides
defense and security measures, transportation, telecommunications, and other facilities needed
to generate linkage with industries and employment opportunities. This aims to promote the flow
of local and foreign investors given transformations of areas into developed business centers.

Foreign Investments Act of 1991: Republic Act 7042 and Republic Act 8179
Foreign Investments Act (FIA) of 1991 stipulates that foreign ownership in industries can go up to
100%, except those specified in the Foreign Investment Negative List. Industries in the FINL
require at least 60% of Filipino ownership, which means that 60% of capital stock outstanding and
entitled votes is owned and held by citizens of the Philippines.

Related Issues on Philippine investments

The report on Global Competitiveness for 2010-2011[9] showed that the evident corruption in the
country followed by inefficient government bureaucracy posed to be the most problematic factors
hindering business growth or further investments in the country. This was further supported by
Asian Development Bank. According to ADB’s report, the regulatory system is cumbersome, is
costly to doing business, and acts as a strong deterrent to investment and productivity growth.
Customs and trade regulations are especially burdensome to firms. Customs’ clearing period is
longer in the Philippines than in the PRC and Indonesia.

This just shows the recurring need for better, simpler and more streamlined regulatory procedures
so as to reduce the burden on the side of the investors and business sectors, and thus, further
improve efficiency and attract more investors. Aside from the bureaucratic problems, the rampant
corruption going on almost every level of the government system poses as the most problematic
factor hindering growth in business and investments in the country. Despite several lifestyle
checking done to curb corruption, ADB stated that the government needs more than just systems
to curb corruption; it needs its people to have more political will and commitment to implement the
needed reforms and policies for the country.

Moreover, aside from the problems mentioned, the large amount of fiscal incentives provided by
the Philippine government to corporations are also seen to be a budding problem. According to a
study on fiscal incentives, these large incentives hinder the government from generating revenue
from annual taxes from these corporations. Findings also show that these incentives are very
costly yet its efficacy on inducing investment was seen to be limited. Some believe that reduction
in redundant incentives would yield the government more revenues.

Reference: https://en.wikipedia.org/wiki/Philippine_investment_climate