Development of Public Enterprise

• National Development Company (NDC)


  Semi-state corporation organized in 1919 with 51% government ownership, could enter any business to promote economic development
• NDC was virtually inactive in its early years, with only a few minor accomplishments
• Philippine National Bank (PNB)

  Government bank established in 1916 as a joint venture, later became wholly government-owned, given powers to issue currency and conduct foreign exchange
• PNB experienced remarkable growth during the colonial period, with its capitalization increasing 15-fold
• Reorganization of NDC in 1936

  1. Established corporations to undertake industrial activities like sugar refining, footwear, tobacco, food processing etc.

  2. Promoted establishment of munition plant, rayon factory, domestic paper industry
• Creation of other state corporations in 1930s

  1. National Rice and Corn Corporation

  2. National Cooperatives Administration

  3. National Trading Corporation
• Before WWII, a total of 24 state corporations were organized or in operation, almost twice the pre-Commonwealth period
• National Economic Council (NEC)

  Organized in 1936 to formulate economic program based on national independence, advise government on economic matters
• NEC's potential role did not materialize due to its brief existence, but its creation suggested growing frustration with laissez-faire and desire for government intervention
• Major export products in 1936

  • Sugar
  • Coconut products
  • Abaca
  • Tobacco
• Sugar, coconut, abaca and tobacco exports accounted for 84.5% of total exports in 1936, with 90.7% going to the US market
• Postwar revival and reorganization of state enterprises

  1. Rehabilitation Finance Corporation

  2. Government Service Insurance System (GSIS)

  3. Social Security System (SSS)

  4. National Shipyards and Steel Corporation

  5. Philippine Airlines

  6. Cebu Portland Cement Company

  7. Philippine National Lines
• By early 1950s, state was engaged in operating railroads, hotels, power, gas, water, coal, cement, fertilizers, textiles, steel, electric bulbs, airlines, shipping
• In mid-1950s, there were 43 state enterprises in operation, plus state equity in 4 private firms
• Reversal of state's growing role in 1950s

  1. Bell Mission recommendations to limit state's economic role

  2. Araneta-Ledesma group recommendations to reduce government corporations

  3. OEC report on corruption and inefficiency leading to liquidation of many state corporations
• With state providing credit and incentives, private commercial banks increased lending to manufacturing, from 14% in 1951 to 37% in 1962
• Following conversations in the Philippines, President Quirino and Mr. Foster in November 1950 signed an agreement whereby President Quirino undertook to secure from the Philippine Congress the following legislation:
• Legislation secured by President Quirino

  • Appropriate minimum wage legislation
  • Increased taxation legislation designed to balance the Philippine budget
  • A general Congressional resolution expressing approval of the over-all recommendations and objectives of the Bell Mission report
• With the state setting the pace in providing credit and other incentives to industry

  Private commercial banks responded by increasingly discriminating in favor of manufacturing
• Whereas in 1951 less than 14 percent of total loans and credits went to manufacturing and mining combined, by 1960 more than 30 percent went to manufacturing and in 1962 the percentage had gone up to almost 37 percent
• Instruments of selective import quotas and foreign exchange allocations

  Initially developed as a response to the balance of payments crisis of the late 1940s, these policy instruments were later employed to increasingly favor domestic over foreign capital
• An Import Control Board composed of representatives of the Central Bank, the business sector, and consumer' associations, was empowered by law to allocate import quotas progressively in favor of domestic capital
• To qualify as a domestic enterprise, at least 60 percent of a firms' equity must be owned by Filipino nationals
• In 1960, the Maria Cristina Fertilizer Plant, which had been operated by the National Power Corporation since the early 1960s, was sold to the same Marcelo interests who earlier acquired NDC's nail factory
• The controversial sale was pushed through partly because of pressures from the World Bank and partly due to successive losses incurred from the sale of fertilizer, at prices below production cost, primarily to the sugar interests headed by Montelibano
• In its annual report for 1960-1961, the 'OEC mentions the sale of a number of state enterprises to the private sector: three vessels owned by the NDC to the Liberation Steamship Co., a ramie textile plant, also NDC-owned, to Davao Ramie Textile; and two other mills to unnamed buyers from the private sector
• Recommended to be sold to the private sector were the profitable Manila Gas Corporation and the Philippine Electrical Manufacturing Company
• The state's holdings in the Philippine Airlines and a chain of hotels under the management of the Manila Hotel Corporation were also to be liquidated earlier
• In lieu of wholly-owned state enterprises were to be established joint ventures between the-state and private capital
• In its 1961- 62 annual report, the OEC listed only ten state enterprises in operation, although some of the state firms slated to be sold earlier had not yet been liquidated or disposed of
• The Marcos administration was notorious for worldbeating cronyism and corruption
• Under Marcos, the Philippines became the first country in Asia and second in the world after Turkey to be at the receiving end of the World Bank's structural adjustment loans (SAL)
• Local industries were stripped of protection and weakened. Import dependency heightened. Marcos aggressively facilitated foreign plunder of Philippine resources
• Real wages were cut between 1970 and 1975 and didn't increase until after 1986. Marcos institutionalized cheap labor export
• IMF-enforced fiscal austerity ensured foreign debt repayments. The peso devalued and prices hiked
• Roberto Benedicto


  Marcos's classmate and fraternity brother at the UP Law School, who served as Chairman of Marcos's party, Kilusang Bagong Lipunan, for Western Visayas, delivering a sizeable number of votes for the future dictator. Later, Benedicto was accorded power-of-attorney to deal with corporations on behalf of Marcos
• Marcos appointed Benedicto as chairman of the Philippine National Bank, which was the biggest state-owned bank at the time
• Benedicto used funds from the Philippine National Bank to finance other crony-owned businesses, including his own
• Benedicto took control of the Philippine Exchange Co. (Philex) which handled all the international trade of sugar for local hacienderos
• Through Philex, Benedicto bought cheaply from local producers and made enormous profits abroad