Gloria Macapagal-Arroyo

President of the Republic of the Philippines 2001 - 2010

Economic progress: The Foundation of True Harmony

The legitimacy and success of any regime are sustained either by force or by economic development. Without the latter, tensions between social and political factions and the depredations of extreme poverty can erode popular support for governing regimes, making the application of force necessary.

Because of the importance of economic development, the Philippines has been trying to raise economic growth sustainably above population growth over the last 30 years, with mixed success. The 1980s brought a profound political and debt crisis that led to a large contraction in per capita GDP. In the 1990s, per capita growth rates picked up, but remained lower than other developing nations. The Philippines' growth trends have been uneven, exacerbated by the country's vulnerability to external shocks, such as terms of trade shocks in the 1970s, global interest rate hikes in the early 1980s, and power crises in 1992-93.

After President Arroyo was suddenly thrust into office in 2001, the following years were marked by various controversies that clouded the legitimacy of her office. Her second term began in 2004 amid a variety of challenges to her authority: fiscal deficits, rising debt service, the oil crisis, and continued terrorist activities, among other obstacles to the achievement of long-term development goals. With each new issue raised, societal divisions deepened. Also divided was the powerful Catholic Church, with one segment claiming a moral decline in the political leadership, while the other warned against the repercussions of yet another mid-term change in leadership for a still-fragile economy.

Through all the bickering, charges and counter-charges, however, the government remained focused on its priority of enhancing the performance of the economy and pushing sustainable development. Government embarked on a comprehensive reform program, including an extensive restructuring agenda covering economic policy, infrastructure and institutions. Major economic reforms resulted in a more outwardly-oriented and liberalized economic system. Output per worker increased, driven by a significant improvement in total factor productivity growth. Amidst the challenges facing the President, economic resilience was fostered with disciplined policies and sound reforms.

Today the economy is regaining its momentum ahead of the spreading global recovery. Inflation is on a steady decline and inflation expectations are well-contained. The fiscal deficit reduction strategy remains on track, with palpable gains in revenue collection in the last two quarters. The stronger external payments position provides a cushion to transitory shocks and downside risks. The peso has strengthened to its highest level since 2002, and sovereign bond spreads have tightened. Positive market sentiment has helped boost capital inflows. The authorities have take advantage of these favorable conditions to build international reserves and improve debt structure.

These advances have brought forth benefits in the form of higher investment and growth. Growth and unemployment respond favorably to long-lasting fiscal adjustments; durable fiscal adjustments enhance the credibility of government policies and signal that the re-structuring efforts are sustainable, thereby boosting market confidence, increasing private investment and instilling overall private and public confidence.

As economic development thereby broadens and deepens, it builds a sound foundation for the preservation of personal liberty and community security. More generally, the interlink of economic, social, and political security presents a composite that serves as the foundation for personal and community freedoms. Security is an apt descriptor of communal satisfaction and individual contentment, which the authorities have a responsibility to ensure.

Comprehensive security in our nation has thus always emphasized not only military but also non-military issues and considerations. Individual, communal, and societal welfare are inseparable from political stability, economic success, and social harmony. Non-state and sub-state actors and other social forces can also be defining variables in the national expression of security. And underlying all of these is the reassuring theme of economic growth and development, providing the environment of material prosperity within which individuals and communities can flourish.


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