Marcos’ infra program caused the 1970-72 economic crisis

When it is implemented, the Duterte administration’s “Build, Build, Build” program will be the third massive infrastructure program in the postwar history of this country. The first was the Magsaysay administration’s infrastructure program, which was financed by bond issues authorized by Republic Act No. 1000; the program was cut short by the tragic death of President Ramon Magsaysay. The second infrastructure program was the Rice and Roads program implemented during the first term (1966-1969) of President Ferdinand E. Marcos.

My harking back to those two previous massive-infrastructure-spending exercises was triggered by the statement made recently by the Secretary of Budget and Management on the issue of the debt-to-GDP ratio, more specifically the impact of sharply increased public spending on the national budget deficit.

This is what Secretary Benjamin Diokno said: “Concerns that the Duterte administration’s fiscal strategy may lead to indebtedness are unsubstantiated, considering the current and expected debt-to-GDP ratio, the hefty gross international reserves and the low interest rate regime…. The government is planning to pursue an expansionary fiscal policy, increasing the budget deficit ceiling from 2 percent of the GDP to 3 percent annually …. Despite the planned increase in the deficit, the DBM (is confident that) the Philippines’ economic expansion will outpace debt …. (The gross international reserves) level remain stable through the rest of the Duterte administration.”

I admire the supreme confidence of Benjamin Diokno, who is a well-trained economist. “Concerns that the Duterte administration’s fiscal strategy may lead to indebtednedd are unsubstantiated,” “Despite the planned increase in the deficit, the Philippines’ economic expansion …. will outpace debt and “(The gross international reserves level) will remain stable during the rest of the Duterte administration” are very heady statements. They should be reassuring to the people of this country as they confront five more years of the administration of which Mr. Diokno is a part. Unfortunately, the Secretary appears to have forgotten the Philippine economy’s experience with the infrastructure programs of the Magsaysay and Marcos administrations.

The fact is that the RA 1000 spending of the Magsaysay administration had serious impacts on the budget deficit (and hence the public-debt stock) and on price stability. The level of public debt rose sharply – increasing the debt in relation to GDP – and inflation became more pronounced. The Garcia administration that came into office in March 1957found itself having to deal with the destabilizing effects of the RA 1000 infrastructure binge.

Being more recent, the Rice and Roads program of 1966-1969 should have been more familiar to the Secretary of Budget and Management. Obsession with the idea of being the first President to win re-election, Ferdinand Marcos decided at the very start of his first term that the best route to re-election was a program of massive spending on infrastructure, especially rice production and – to provide income opportunities to corrupt local officials – road building. The countryside hummed with increasing activity as the Rice and Roads program proceeded. Unfortunately, the public coffers were at the same time humming with the sound of dwindling balances. Immediately after the 1969 election votes were tallied the fiscal and monetary truths emerged: the government was bankrupt and had negative foreign-exchange balances.

The fact of the matter is that Mr. Marcos’ massive infrastructure program was largely responsible for the collapse of the economy in the last days of 1969, which resulted in the imposition on the Philippine government by the International Monetary Fund of a program with peso-depreciation and other tough provisions. The Philippine economy was to spend most of the first half of the 1970s recovering from Mr. Marcos’ disastrous spending spree.

I wish I could be as sanguine as Benjamin Diokno about the Philippine economy’s capacity to absorb the infrastructure program that he and his boss are about to embark on. But I cannot be. And I am not.

A final word for Secretary Diokno. Please don’t be a flippant about our country’s international reserves. Those reserves are our country’s nest-egg, intended to keep the Philippines from repeating the bad external-position episodes of the past and to maintain the peso respectability. They have been earned with the toil and pain of our Bagong Bayani; don’t fritter them away on Mr. Duterte’s grandiose ambitions.

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