Diosdado Macapagal, First State of the Nation Address, January 22, 1962

“Five-Year Integrated Socio-Economic Program for the Philippines”
Message to Congress
of
His Excellency Diosdado Macapagal
President of the Philippines
on
The State of the Nation

[January 22, 1962]

Mr.  Vice President,

Mr. President,

Mr. Speaker,

Monsignor Antiporda,

Ladies and gentlemen of the Congress;

I appear before you today, the elected representatives of the sovereign people, not as President of one party but as President of the entire Nation.

As such, I am charged with the constitutional duty, which I am resolved to carry out, of serving the interests of the members of all groups of our people and doing justice to every man.

It is in this spirit that I now come before you. For in administering the affairs of this nation, you and I share the common responsibility of providing the leadership, the guidance and the service that a democratic government owes to the people. You and I must provide for their enjoyment of those basic requisites for decent living and of those adequate opportunities for the attainment of material prosperity and spiritual fulfillment. Only thus will they be able to stand in dignity and freedom in the community of nations.

We assume our joint responsibilities at a time when the Nation is faced with many serious problems. The eyes of the world are focused on us, anxious to see how this new Government will face the difficulties confronting it. Our performance will be judged not only by our own people but also by the other nations of the world, not only by the present but also by posterity.

Because of the impelling and serious problems facing the country today, I should like to depart from the tradi­tional practice of my illustrious predecessors of delivering an all-embracing State of the Nation message. I shall not burden you now with all the details usually embodied in such a message, especially those related to the customary and routinary activities of the government. While it is recognized that such functions deserve equal and proper attention, I believe it would be more in keeping with the exigencies of the moment to submit, at the proper time and in the hour of need, such special messages to Congress on these matters as may be warranted by circumstances.

In the interest of priority of purpose, therefore, I beg leave to submit for the consideration of this Congress only the most paramount problems of the Nation which, in my considered opinion, require immediate and preferential attention.

STATEMENT OF OUR MISSION

In my inaugural address, I set forth the goals of our Administration in the coming years, as follows—

1. The solution of the problem of corruption;

2. The attainment of self-sufficiency in the staple food of our people, namely, rice and corn;

3. The creation of conditions that will provide more income to our people—income for those who have none and more income for those whose earnings are inadequate for their elemental needs;

4. The establishment of practices that will strengthen the moral fiber of our nation and reintroduce those values that would invigorate our democracy; and

5. The launching of a bold but well-formulated socio-economic program that shall place the country on the road to prosperity for all our people.

This five-fold mission may be carried out by resolving two major problems, namely—the need for moral regener­ation and the problem of economic growth.

Democracy on Trial

In the accomplishment of our mission, we have chosen the freedom of democracy as the context for the solution of our problems. Democracy is truly on trial along with us in our social and economic travails.

By our success or failure in leading the Nation from the abyss of want to the plateau of abundance, not only ourselves but also our way of life will be judged. If we falter, we shall fail democracy as well as our people and thus bolster communism’s boast that it is a superior political system. But if we succeed in laying a dynamic and per­manent base for justice and prosperity in this country, we shall vindicate not only ourselves but democracy itself.

MORAL REGENERATION

Therefore, I first invite your attention to the decadent state of our public morality. Our efforts to achieve the goal of economic and social fulfillment will be more effective and the results we obtain more permanent only if we can suffuse them with a pervasive moral regeneration.

At my inauguration, I stated that I would seek to strengthen the nation’s moral fiber through formal modes of reform, enforcement of the laws and the exercise of the tremendous persuasive power of the Presidency in setting the personal example of honesty, uprightness and simple living. The enforcement of the law is solely the responsibility of the Executive Department, but I invite all to join the Executive in wielding the potent power of moral example, and I particularly urge the Congress to assist in conceiving those reforms that will contribute to a moral renaissance of our people.

Let me, however, add that it is wasted effort to steep the young in virtue and morality only to let them realize as they grow up that their elders are neither moral nor virtuous. We -must, therefore, see to it that the prac­tices allowed by law in government and business, in the professions and labor unions, in field and factory—in every area of national endeavor—conform as much as possible with the moral and the ethical. Such practices can be sustained and upheld only if we can at the same time create a strong public opinion that will actively approve them and vigilantly condemn the contrary.

In our actions, we should not be guided only by what is legal. We must go beyond legality into the demands of morality. Our acts must not only be legal but must be moral as well.

THE PROBLEM OF ECONOMIC GROWTH

The second and far-reaching need of the Nation is the solution of the problems pertinent to our economic growth and development. It encompasses all our aspirations to attain self-sufficiency in food and a higher standard of living.

We must face the problem of economic growth with preferential emphasis. Proper economic development will raise the income of our people and the revenues of the government. It will thus produce the additional funds and facilities necessary for effectively discharging the other functions of government and for meeting the needs of our population. We must ever bear in mind the funda­mental fact that it is through the adequate advance of the national economy that a higher standard of living can be attained by our people. We must accelerate the coming of that day when this country shall be not merely the exploited domain of the privileged few but a land where the common man shall stand erect, the equal of his fellow men, able to protect his rights and possessions, and sharing in dignity and freedom in the task of building an ever greater Nation.

The Dimensions of Our Economic Deficiencies

Before assuming the responsibilities of the present, let us first determine the magnitude of our tasks. In this way we may measure the dimensions of the efforts we must exert in order to succeed.

That magnitude is evident in the rapid growth of our population, and in the corresponding increase in the demand for food, shelter, schools and jobs.

Philippine population is now growing at the annual rate of 3.2 per cent. This means approximately one million more people every year to feed, to house, to clothe and to employ. What are the implications of this rate of growth?

On consumption of essential foods.—By merely main­taining present consumption levels of essential foods—rice, bread, meat and dairy products—which are below nutri­tional standards, we have to increase rice production by 1.56 million cavans per year, meat by 14 million kilos and milk and dairy products by 11 million pounds.

On housing.—Our housing problem defies imagination. In 1960 there were 4,566,000 households in the country, By 1965, based on an estimated 130,000 more households formed each year, the total will increase to some five and one-third million. The rapid concentration of famines in urban centers and the inadequate housing facilities available at the present time emphasize the magnitude of the re­sources required to provide shelter, not to say civilized dwellings, for our people.

On education.—Expanding population means that gov­ernment services must correspondingly increase. There will be an average of 960 thousand children reaching school age every year. Subtracting the normal loss in graduates and dropouts, the total student population of the country will continue to increase at the rate of no less than 600 thousand each year.

On employment.—In 1960 the number of the labor force was 10.2 million. This number will likely increase at the average rate of 360 thousand every year for the next five years. If we are merely to prevent the unemployment rate from increasing, we must create job opportunities for this number of people each year. We must also absorb the backlog of the unemployed and provide fuller employ­ment to the underemployed.

These are only some of the hard facts of our social and economic needs. They are the urgent requirements of our growing population.

The Basis of Past Economic Growth

During the last fifteen years since independence, Philippine economic growth was characterized by many factors and circumstances, namely—

  • the adoption of exchange controls in December 1949;
  • tax exemption privileges enjoyed by new and neces­sary industries, which include all customs duties, compensating taxes, sales taxes and internal revenue taxes;
  • one billion pesos worth of bond issues for reconstruc­tion and development as authorized by R. A. No. 1000;
  • our traditional export industries—coconut products, sugar, mining and logging and lumber mills had just been restored to pre-war capacities;
  • the extremely strong and stable world market for copra, our principal export;
  • the almost total absence of manufacturing industries so that consumer goods in finished form constituted the main bulk of our imports;
  • the high level of available foreign exchange; and
  • the windfall of war damage payments and aids from the United States.

Overall Growth Rates.—The character of the period was manifested in some of the overall statistics of economic growth during this era. Taking the period from 1950 to 1959 as a whole, gross domestic product increased at a compound rate of 6.3 per cent per year while total produc­tion grew at about 3 per cent,

Domestic production was augmented by substantial im­portation. Imports were financed by rising export receipts, by the in-flow of foreign capital largely in the form of re-invested earnings, substantial foreign donations and by a reduction in the country’s international reserves.

The combination of growing domestic production and substantial imports increased the availability of goods and services in the economy. These were largely absorbed by consumption which increased at the rate of 3.3% per annum per capita. Investments were only increased on a per capita basis at the rate of 1.3% per year. During that period the country was only investing at the rate of P8.62 for every P100.00 worth of gross product available. The rapid growth in domestic production was achieved with relatively small investment of capital. During the decade. it took only P1.36 of investments to get each PI.00 increase in domestic, product

Recent Changes in Policies

In the last two years, fairly radical changes in policies have occurred. On April 25, 1960 the cheap dollar policy of the Central Bank came to a close. The policy had under­gone several modifications before that date. But these modifications took somewhat less direct forms. Thus the exchange tax of 17% increased the exchange rate for most important transactions from P2.015 to P2.358. Barter made it possible for exporters of certain grades of commodities to appropriate a portion of the premium on foreign exchange. Finally, the margin fee which replaced the exchange tax effectively raised the exchange rate.

On December 31, 1955, Executive Order No. 150 in­creased tariff duties on several commodities and on June 22, 1957, Congress passed the Revised Customs Code of the Philippines which also raised the duties on some lines of imports. These had the effect of raising the cost of imports. But it was not until April 25, 1960 that the Government took official cognizance of the fact that the rate of P2.00 per US $1.00 was unrealistic.

Many firms are now losing gradually the benefits of the tax exemption law. In its stead, the Basic Industries Act provided a more limited tax exemption for the machinery and equipment importation of “basic industries.” Only import duties, special import taxes and other levies on importation are waived.

What does all these mean? Over all, profits on foreign exchange will cease to be a source of inducement for invest­ments. To some extent, the Basic Industries Act and the Tariff Code may provide specific inducements to particular types of enterprises. It is safe to anticipate, however, that more than at any time during the last ten years, business enterprises will have to rely for attractiveness of economic efficiency in processing and in distribution.

Significance of the New Policies

Two conclusions follow from the premises:

1. The field for investment during the next ten years will be much narrower at the start because the tests of attractiveness and. feasibility will be more rigorous.

2. The character of the investments will change. More basic developmental effort will be neces­sary.

Further development of mining, agriculture and forestry will involve more substantial investments in basic facilities—roads, irrigation and water control system, warehouses, heavy equipment for clearing and cultivating, pest control equipment, housing, etc. This is the result of bringing less developed lands under cultivation. The development of forestry will involve exploiting more remote timber lands. The expansion of mineral production will mean more extensive exploitation and development of deposits in more remote places. Further progress in industrializa­tion will mean the establishment of facilities for processing raw materials.

During the past ten years, the chief industries which were newly established, being devoted to the later stages of processing, assembly and packaging, had to be located in or around Manila, near the principal markets. In the coming years, the principal industries will likely be located near sources of cheap power or raw materials. Larger investments will be required in the country to set up new communities with all the facilities involved in building water systems, electric power generating and distribution plants, sewerage systems, housing, roads and communications facilities.

Further growth in the Philippine economy will thus involve larger average investments than in the past. The country will need to rely to a larger extent on external resources from foreign aid, institutional loans, and foreign investment.

To look at this picture in terms of the statistics of overall economic performance, if from 1950 to 1959 the equivalent of P1.00 of additional output in the economy could be achieved by overall investments in fixed assets and inven­tory of PI.36, in the coming years it will likely take between P2.50 and P3.00 of investment to achieve PI.00 of growth.

The other side of investment is saving. To try and double the rate of investment will mean that we have to increase the rate of savings in order to continue the growth of per capita product in this country.

THE ECONOMY TODAY

Thus, today we must begin our labors at a point of economic difficulties. To fully realize the severity of the tasks before us we must recognize that:

Firstly, the country has fully exhausted the potentialities for growth offered by the complement of policies ruling over the decade of the 1950’s. Over the last three years from 1958 to 1960, the growth rate of real gross national product has declined.

Secondly, it has become obvious that the impetus to investments which exchange controls and various tax incentives provided has worked itself out.

Thirdly, the country already enjoys to the fullest extent the export potential feasible under present exchange and trade policies. The weakening of world copra prices has caused the country’s export earnings to level off from the rather steep growth of the last ten years. Even the stability of our earnings from sugar exports is threatened by the current move in the U”. S. Congress to have the United States purchase sugar on the basis of global quota and at “world free market prices.”

Fourthly, this weakening of our export potentials as­sumes most serious proportions in the light of an immediate balance of payments problems. Philippine international reserves have dropped to a precariously low level—unprecedentedly lower than any which has caused great concern in the past.

Finally, we are faced with a serious population problem. Philippine population growth is one of the highest in the world. The country’s requirements for consumer and capital goods must grow with it.

Urgency of the Problem

The urgency of the problems of the present definitely calls for drastic changes in our monetary, fiscal and ex­change policies. Because of government inaction, specula­tion has become the order of our day. Exporters have been holding back negotiations of export sales. Importers have been fast building up inventories of imported goods in anticipation of higher costs.

Uncertainty and instability are visible under the symp­toms of rising prices, low purchasing power of the currency and increasing unemployment. Fiscal revenues have not increased in proportion to the clamor for more government expenditures. Consequently, the public debt has increased considerably.

But most important of all, our own investors have for at least the past three years held off making long range plans until the government policies become clearer and more stable. The climate, far from being beneficent to the type of long-term saving and investment which our situation requires, is hostile to long-range planning and encourages short-term speculation.

In the light of these facts, I must declare that govern­ment action is imperative. To this end, we must—

a) establish immediately a new, stable base for business valuation and planning to remove the uncertainties that pervade the present economic atmosphere; and

b) set clear directions for overall economic, monetary, fiscal and commercial policies and for government invest­ment programs in order to generate a new dynamic for continued economic growth.

THE FIVE-YEAR INTEGRATED SOCIO-ECONOMIC PROGRAM

Need for an Economic Development Program

It is essential for the government to formulate and adopt an integrated economic program. Without it, all economic development efforts will be haphazard, sterile, and inef­fectual. There will be uncertainty and the business com­munity will remain in a state of doubt as to what economic policies, decisions, and activities the government will undertake.

Past Efforts.—The sluggishness in the pace of economic development in recent years was largely traceable to our failure to officially adopt a concrete economic blueprint that sets down vividly the course which the public authorities are to pursue in the matter of promoting economic growth and which the business community and the people at large may utilize to advantage as a guidepost to their own efforts.

It is true that there were attempts to formulate an economic planning program for the country, notably by the National Economic Council. The last program for­mulated by the Council was for the period 1959-1962-The plan, however, remained good on paper only as it did not receive presidential approval, much less congressional adoption.

Our Program.—I am, therefore, submitting to this Congress, as part of this message, an integrated five-year socio-economic development program which we propose to adopt and implement during our tenure and which both the Government and the private sector may use as a guide. This program focuses attention on the most pressing eco­nomic problems of the country and incorporates within its framework our economic philosophy translated into con­crete, appropriate policy measures and institutional reforms.

As it shall be tedious to read the whole program on this occasion, I have appended it to this message as Annex A.* For a proper appraisal of this program, I suggest for sup­plemental reference the recent study made by the World Bank on the Philippine national economy, dated January 4, 1962, as well as the last economic development plan made by the National Economic Council, printed copies of which are also appended hereto.

Objectives of Our Program

While I commend to Congress the full perusal of this socio-economic program, I should like to underscore some of its more significant highlights.

The great goals we seek and the critical condition of the economy today make it essential for the Government to accomplish the three-fold objective of: 1) immediately restoring economic stability; 2) alleviating the plight of the common man; and 3) establishing a dynamic basis for future growth.

RESTORING ECONOMIC STABILITY

The present speculative atmosphere in Philippine busi­ness springs from uncertainty with respect to government policies. With the objective of immediately stabilizing the economy, and apropos of the five principal sources of instability I have earlier indicated, we propose to imple­ment—

First, a program of exchange rate adjustment and unifi­cation and a procedure for orderly decontrol to transfer the allocation of foreign exchange to a genuinely free market;

Second, a set of complementary measures to protect Philippine and Filipino industry and agriculture from undue foreign competition at their “infant stages”; and

Third, a set of policies and measures to provide guar­antees to foreign investors in particular lines of investments, principally mineral exploration and heavy industries such as iron and steel and basic chemicals, together with an official declaration of preference for joint international business ventures with substantial Filipino capital and management participation.

GENUINE DECONTROL AND FOREIGN EXCHANGE PROGRAM

It is my privilege to inform Congress that yesterday, January 21, 1962 I approved a unanimous decision by the Monetary Board of the Central Bank, embodied in its Cir­cular No. 133, to institute the first large measure of genuine decontrol in our foreign exchange transactions since the establishment of exchange controls over a dozen years ago. This is both in fulfillment of our electoral pledge to the Filipino people and in compliance with the provision of the law requiring decontrol by 1963. In an atmosphere of freedom, our entrepreneurs and citizens may now achieve prosperity for themselves and the country not through arti­ficial advantage but through their talent, integrity and in­dustry.

Exchange control had become a cesspool of corruption that brought disgrace to the Nation. With genuine de­control now in effect, we have removed a vital source of graft and, I trust, we have thus shown that we are ready to give up a part of the economic and political powers of the Presidency to eradicate corruption and promote the national wellbeing.

This action had become imperative and desirable for several reasons. The imbalances of the past must be righted. The administration of controls had become so complicated and cumbersome that only a sweeping change could remedy the situation. There was such a shocking maladministration of economic policy, particularly as regards fiscal and foreign exchange policies, that inflationary forces had been reactivated and our dollar reserve had been vir­tually wiped out. At the same time, a new climate was desirable in which our economy could move forward with confidence and optimism despite transitional difficulties.

It may now be expected that with genuine decontrol instituted in our foreign exchange transactions, a completely new atmosphere will prevail in our economy. The alloca­tion of foreign exchange and the determination of the ex­change rate will be left to market forces rather than to the arbitrary decisions of administrators. We should clear the obstacles which have grown up in the past during the re­gime of controls, and liberate the energies and imagination of our people and our entrepreneurs for economic projects of lasting value to the country. For the first time, the people will have it in their hands to determine the true external value of the peso by their freedom in buying and selling, without the necessity of licensing. With the uncer­tainties of an arbitrary control mechanism removed, I expect renewed investments to take place. Furthermore, with barriers to free movement removed, I expect foreign invest­ments to come in an ever greater flow to supplement our savings and augment our investments.

As is the case with any necessary moves of a sweeping nature, there will be difficulties at the outset, but these will be transitional and should lay the base for real economic stability with a more rational economic system in the future. Some of these difficulties are the necessary outcome of the previous practice of disguising overall arbitrary and in­flationary policies by favoring a few commodities with spe­cial treatment. In so doing, they only postponed the real solution to our problems by diverting our productive re­sources away from the production of substitutes for these commodities.

In order to prevent runaway inflationary movements, the Monetary Board has taken complementary measures to restrain the unwarranted creation of credit, especially for speculative purposes. As a further protection to con­sumers, I have directed the Secretary of Justice to study and alert the applicability of Article 186 of the Revised Penal Code aimed at conspiracies and combinations in restraint of trade or collusions in fixing prices.

All these moves have been taken after consultation with and approval by the International Monetary Fund. In ad­dition, we have secured commitments from the United States Government and from private banking institutions to support our decontrol program. I am glad to announce that the Special Presidential Mission to the United States headed by Acting Secretary of Finance Fernando E. V. Sison has secured financial support for these moves in the amount of $300 million, This does not include the amount of $55 million still available from the International Mone­tary Fund, $93.7 million worth of commodity accommoda­tions from U.S. Law 480 and $73 million from additional war damage payments. We can count on further support from both international and United States entities including the U. S. Treasury once our decontrol program is underway, as well as financial support that may be negotiated with other countries.

In substantiation of this statement, I quote hereunder a dispatch datelined Washington, relayed by UPI and pub­lished in this afternoon’s papers, as follows:

“Washington, Jan 21 (UPI)—The United States demonstrated its support of the new Philippine program by announcing it will provide the Philippines with loans from the Agency for International Development and the Export-Import Bank.

“The U.S. Treasury will also assist President Diosdado Macapagal’s new foreign exchange program with its stabilization fund.”

Our decontrol program, therefore, is fully backed up by massive and more than adequate financial support that we have merited from external sources. With the coopera­tion of all concerned, I am confident that the decontrol program will succeed to pave the way for a stronger economy and prosperity in freedom for our people.

I must emphasize that the launching of genuine decontrol is only the short-term commencement of our long-term economic program. We are laying the basis for stable and orderly growth with a stable and orderly currency. I am arranging for large long-run production and development credits to bolster our investment effort, as distinguished from short-term commercial credits which have been used at times for speculative purposes. I am also going ahead with plans to set up a private industrial development bank, towards whose subscription we expect to secure external financing both from international agencies and from funds generated under U.S. Public Law 480.

I feel confident of the success of the decontrol program, both because of the complementary measures that go with it and the massive financial support which we have merited from external sources. I call on our people to face the new situation without apprehen­sion and excitement and to set their sights on the prospects of a bright future rather than on the temporary difficulties of the present. I assure our people that I have taken this step in fulfillment of my sworn duty to serve only their welfare. Some transitional difficulties are perhaps inevit­able but in due time, the situation will open the enjoyment of a better life for our people. The best norm of conduct for all is to behave with restraint and patriotism so as not to place undue strain on our currency. I feel confi­dent that the people will comport themselves in their own best interests.

As we have taken the measure of genuine decontrol for the wellbeing of our people, we will not brook any conspi­racies against them by attempts to foil up the program. Should any speculative movements arise, I declare that the ample financial resources which we have secured will be deployed against movements unwarranted by normal market forces and that the full force of the law will be brought to bear against speculators and conspirators.

In any event, such speculative movements cannot be of long duration, as our economic development program goes into gear and the country’s production begins to fill the pipelines of commerce and to elevate the living standards of our people.

To cope with the long-run foreign exchange problems of the country, the integrated economic program sets as one of its major objectives the promotion of our export trade in order to raise adequate foreign exchange resources a) to meet the import requirements of the nation for the next five years; b) to honor all the foreign exchange liabilities of the country including investment remittances, interest and amor­tization on foreign loans and repatriation of capital; and c) to generate an increase in the international reserves which will provide the fund adequate to stabilize the international value of the peso.

Policy of Protection to Domestic Industries

One of the principal fears of business in the decontrol of foreign exchange is the loss of the protection which exchange controls provided to domestic industry against un­due external domination. There is no valid ground for this fear. As the exchange control machinery is dismantled, the alternative means of achieving the legitimate ends of controls shall be instituted. To this end, I have availed of the power granted us by law to increase the rates of import duty on nearly 700 articles already being produced by domestic industries in order to provide them a means to meet the loss of the protection they have enjoyed under exchange control. Besides this measure, we propose—

1) To make such further increases in the tariff as may be found necessary to provide a reasonable margin of preference which will render domestic producers more competitive;

2) Wherever necessary, the Tariff Commission shall recommend the imposition of countervailing duties under Section 302 of the Tariff Code to offset benefits that may be derived by imports from foreign subsidies. To the same end, the Secretary of Finance has been instructed to immediately cause to be undertaken a study of articles of imports that are being “dumped” into the Philippine market from abroad within the context of Section 301 of Republic Act 1937;

3) The Tariff Commission has been directed to imme­diately investigate, in accordance with Paragraph G of Section 402 of the Tariff Code, whether and to what extent commodities imported by the Philippines from countries with which a trade agreement has been entered are being im­ported in such increased quantities as to cause or threaten serious injury to the domestic industry producing like or directly competitive products in order to recommend the establishment of import quotas for the protection of the domestic industries affected.

Policy on Nationalization as It Affects Foreign Capital Inflow

It will be noted that the program raises the necessity of earnestly attracting foreign capital to assist in the financing of the program. For this reason, a healthy climate for foreign investments must resolutely be created. This task is related to nationalism, with respect to which it is desirable to set forth concretely and clearly the position of the Administration.

The Administration upholds nationalism. Properly chan­neled, nationalism is a constructive and powerful force in the growth of a nation. Its assertion considers relevant factors such as choice of field and timing. It has been asserted wisely in the nationalization of the retail trade, which is the channel of distribution of the elemental re­quirements of our masses in their day-to-day living. It has been asserted even more wisely in the nationalization of the rice and corn industries, which provide the staple food of our people.

While we uphold that the principal responsibility for development should belong to Filipino citizens, who must be the principal determinants as well as chief beneficiaries of Philippine economic progress, we at the same time caution against the type of radical nationalism and nationalization measures that deter the coming of foreign assistance in our economic development. We must be sincere in at­tracting foreign capital to invest in productive enterprises in our country in joint ventures with Filipino businessmen and must show this sincerity not in words but in deeds.

ALLEVIATION OF THE PLIGHT OF THE COMMON MAN

The second goal of our integrated economic program is the immediate alleviation of the plight of the common man. In comparison with the living standards of the relatively wealthier countries, ours in the Philippines is far from adequate. The per capita consumption of superior foods like meat, eggs and milk, beans and vegetables is far below healthy nutritional standards and much lower than what obtains in wealthier countries.

Moreover, within the Nation itself, the distribution of welfare is far from satisfactory. This is indeed a nation of contrasts where very few regions and communities enjoy affluence in contrast to widespread poverty in others.

It is our avowed task in the program to translate objec­tives into specific improvements in the overall level of eco­nomic welfare and its distribution. Improvement in this sense means that our production capacity must grow more rapidly than the growth of our population. It also means that those regions that have lagged behind in progress must be given special assistance to enable them to participate more fully in over-all national progress.

The Rice and Corn Program.—In accordance with my pledge, I have incorporated, as a major feature of our five-year socio-economic plan, a rice and corn program to bring about, at the earliest possible time, sufficiency in those cereals at prices within the reach of our masses. It is paradoxical that in a land with resources ideally suited to the production of rice, the country is unable to produce enough of this product which is the staple food of our people. We must liquidate this problem with resolve and success as a first priority. It is ironical to talk of magnificent plans for progress and prosperity if we cannot even provide the rice and corn that our common people cannot go without in their daily lives. Before attempting anything else, let us work together to insure that our people have and be able to afford the rice and corn that they need in their daily living.

We shall also concentrate our efforts to raise agricultural productivity throughout all the regions in the country in order to achieve self-sufficiency in food production. It is incumbent upon government to provide improved irrigation and water control facilities, the continuation of subsidies for fertilizers and seeds, expansion of research programs for developing high-yielding and disease-resistant varieties of agricultural crops, the establishment of liberal credit facili­ties, and the improvement of marketing and transportation networks.

Program for Employment.—-Our greatest task in improv­ing the welfare of the masses is to ensure that opportunities for employment are generated. Our program envisions that the attainment of the target increase in overall domestic production of about 6 per cent per annum over the period FY 1963 to 1967 will ensure that some 330,000 to 360,000 jobs will be provided annually to absorb a large portion of the yearly increase in the labor force. It is also a part of our program that the greater portion of the annual increase in employment is to be absorbed in industrial production. This will increase the average wage earnings of the mass of our workers.

Public Services.—I also propose greater outlays by the Government for public services designed to improve the general living standards of the people, particularly in the less developed areas of this country. It is my belief that the Government can provide a total outlay of P656.6 mil­lion for public education, about P15 million for low cost housing projects and P470 million for public health over the next five years. The public health program shall include expansion of health services in rural areas, water supply, reduction of infant mortality, tuberculosis and malaria con­trol, establishment of medical research centers, and nutri­tion research.

ESTABLISHMENT OF DYNAMIC BASIS FOR FUTURE GROWTH

Our final goal is to establish a framework of policies that will give a stable basis and a more realistic and sober impetus to a new growth trend which will extend much farther into the future. The new dynamic for economic progress that we seek and should attain must be of a more genuine quality and must provide a richer and longer lasting energy for national progress.

In assuming our proper responsibilities, we shall be guided by the economic philosophy of Faith in the Filipino. We believe that economic development is principally a task of private enterprise and not of government. The government’s role is to create a favorable environment that will provide the inducements necessary, in terms of suitable policies and measures needed, to foster economic growth and stability. It must be in a position to devise new and effective methods, democratic in character and spirit, to induce the private sector—properly called the dynamic sector—to risk idle capital for development purposes.

The exchange rate adjustment and the stabilization pro­gram are expected of themselves to create a fundamental climate favorable to investments in the required lines of activity. The specific role of government will be to provide direct assistance where needed, to establish required social overhead facilities, and to ensure that bottle-necks to pro­duction are neither created nor allowed to persist.

I must point out, however, that the restoration to a large degree of the freedom of enterprise does not remove from government the obligation to exercise economic leadership. On the contrary, government leadership not only becomes all the more important, but its exercise must be all the more firm as it is all the more just, imaginative and skillful.

Requisites for Government Economic Leadership.—The first requirement for government is to ensure the judicious application of public investment programs to the establish­ment of basic facilities such as roads and irrigation systems, transportation and communications networks, hydroelectric power, harbor facilities, and the development of land, forest and mineral resources. The program envisions that it is feasible for the Government to put up directly P2,809 mil­lion over the five-year period 1963 to 1967 for these purposes. These investments will amount to an annual average of P562 million to be financed from current government sav­ings, reparations, foreign loans, and domestic bond issues.

The second requirement for government is the establish­ment of a complement of policies designed to induce and mobilize the maximum of internal domestic savings and the maximum external financing in order to sustain the overall investment requirements of the economic development program.

Over the five years from FY 1963 to 1967, we anticipate that a total of P11,500 million must be mobilized in the form of domestic savings out of a total gross national income of P78,200 million expected over the same period.

All the powers at present available to induce savings out of current incomes must be put to effective use. The Central Bank of the Philippines shall be urged to push with greater vigor the establishment of local community cooperative banks and savings and loan associations and to encourage these institutions to offer more attractive in­ducements for systematic savings plans.

It is necessary to undertake a careful re-examination of the tax structure so as to ascertain the impact of the present tax rates on investment activity and living costs; to adjust the rates or eliminate those taxes that are either unduly inequitable or are hampering the growth of invest­ments and output and to recommend new tax measures to support the government’s socio-economic program. The Executive-Legislative Tax Commission should immediately apply itself to this problem and make appropriate recom­mendations as early as possible for desirable changes in the tax structure consistent with the basic objectives of economic policy.

It is likewise the objective to promote the expansion of the facilities and resources of existing financial interme­diaries, and the establishment of new ones designed to induce habits of thrift in, and mobilize the savings of the rural communities.

In anticipation of foreign investments and loans from abroad, our program proposes to provide facilities for private business that will enable them to meet the requirements of foreign investors and creditors in a manner that will redound to the greatest advantage of the country.

We likewise foresee that the establishment of a new complement of policies necessitates adjustment—the bene­ficiaries of older policies are likely to suffer the burden of losing benefits. It is incumbent on government to antici­pate and measure the costs of adjustment, and to distribute its burden in an equitable manner.

THE OVERALL TARGETS OF THE PROGRAM

The goal of the program is essentially to ensure that domestic production, augmented by imports, shall be ade­quate to supply the needs of our people.

In order to meet the requirements and to improve over­all levels of living, gross domestic product needs to grow over the five-year period at a compound rate of 6 per cent. The annual growth rate must rise from 5.5 per cent between 1962 and 1963 up to 7.0 per cent from 1966 to 1967.

The targets are feasible provided—

1. An average of 16.1 per cent of gross domestic product is channeled into gross domestic investments during the five fiscal years;

2. Gross domestic savings including reinvestments of foreign earnings in the Philippines reach 13 per cent of gross domestic product in FY 1963, 13.8 per cent in 1964, 14.6 per cent in 1965, 15.4 per cent in 1966, and 16.0 per cent in 1967;

3. There is a total net inflow of new foreign capital into the country of roughly U. S. $860 million during the five-year period; and

4. The export earnings of the country total U. S. $3.7 billion during the period or an average of $740 million annually.

The rate of gross domestic investments is intended to mobilize new capital formation of P12.7 billion over the five fiscal years. This amount has been allocated on the basis of a first approximation of sectoral and regional priori­ties that give emphasis on the production of import substi­tutes such as integrated iron and steel, basic chemicals, pulping plants, expansion of agricultural food production and processing, and the development of the cattle and dairy industries.

The Government’s share in the total investment target is placed at P2.8 billion or 22 per cent of the total target of P12.7 billion. The public investment program includes principally P1.3 billion for water supply, roads, highways and irrigation, and Pl.l billion for power development, and expansion of railroad lines and of telecommunications.

In these magnitudes, the total program can be financed entirely from non-inflationary sources: from domestic savings as well as foreign loans and investments. In ad­dition to the normal growth of domestic savings flowing through such financial intermediaries as the commercial banks, the Government Service Insurance System, the Social Security System, the Postal Savings Bank and the private insurance companies, the program contemplates the estab­lishment of rural savings institutions and cooperative banks to encourage systematic savings out of current income in the farm areas.

The anticipated government revenues during the program period are expected to cover current expenditures and a little savings to finance a portion of the public investment program. The balance will be financed out of bond issue sold at competitive money rates directly to insurance com­panies, pension funds, private banks, and other private investors.

An outstanding feature of the program is the contem­plated reorganization of public administration to improve the machinery for the formulation and implementation of consistent economic plans and fiscal and monetary policies, to achieve maximum coordination among the various de­partments of the Executive Branch of Government in the pursuit of economic objectives, and to attain more rigorous control over government budgetary and developmental ex­penditures.

SPECIFIC RECOMMENDATIONS

I shall take the initiative of immediately implementing those remedial measures that need no legislation, and such part of the program will be the responsibility of the Execu­tive.

But many of the specific measures that must be estab­lished require legislative action. They shall be measures of far-reaching implications.

I, therefore, recommend for your consideration the enactment of legislation which would establish, promote, and sustain the following specific measures:

For Moral Regeneration

1. The establishment and financing of a Moral Commis­sion composed of outstanding and upright leaders in government, religion, education and the professions. This Com­mission shall study and recommend ways and means by which all elements and institutions of the country may be mobilized towards the goal of national moral regeneration.

For the Immediate Alleviation of the Plight of the Common Man

2. The adoption of a comprehensive program on rice and corn which shall achieve self-sufficiency in these cereals at prices within the reach of the masses; and the establish­ment and financing of a Rice and Corn Administration to implement the program. This entity shall absorb the functions of the NARIC and shall coordinate various pro­grams concerning the production, processing, and marketing of rice.

3. The enactment of legislation to assist private enter­prise in the creation of job opportunities. Specific measures will be submitted to Congress to support employment proj­ects that not only will create jobs but will also simulta­neously increase production and productivity.

4. The appropriation of funds for the construction of apartment houses for displaced squatters and persons per­taining to the lowest-income groups who shall pay nominal rentals for occupancy thereof.

5. Greater outlays by the government for the improve­ment and expansion of essential public services designed to raise the general living standards of the people, especially in economically-depressed regions of the country. These public services include education, more low-cost housing, and public health.

For Support of the Decontrol Program, Restoration of Economic Stability and Establishment of Dynamic Bases for Future Growth

6. Further revision of tariff rates as Congress may deem necessary with the following objective:

a. To use tariffs as instruments of economic development by protecting our domestic industries until such reasonable time when these industries can be exposed to world competition.

b. To discourage conspicuous consumption by imposing prohibitive tariffs on luxuries.

7. The passage of a foreign investments law, with the following objectives;

a. To clearly delineate the fields of economic activities open to foreign capital, thereby protecting the preferential rights of Filipinos in certain economic fields.

b. To attract new foreign investments to flow into the country.

c. To define unequivocably the treatment of foreign capital, particularly concerning repatriation of capital and remittances of profits.

8. The enactment of an appropriate law imposing a selective export tax on certain protected exports, and on raw materials that can be processed locally, with the following objectives:

a. To prevent inflationary pressures arising from decontrol and generated by generated by windfall incomes of recipients of foreign exchanges.

b. To expand government sources of investible funds for overhead projects essential to economic growth, by obtaining such funds from a sector which has ample resources.

9. The repeal of the margin levy on foreign exchange, to give relief to the consumers who will ultimately bear the burden of adjustments in the exchange rates arising from the decontrol program.

10. The repeal of the barter law.

11. To re-examine and revise the tax structure so as to ascertain the impact of the present tax rates on investment activity and living costs; to adjust the rates or eliminate those that are inequitable and to enact new tax laws to support the government’s industrialization program. Spe­cific tax bills shall be presented to Congress in due course during the regular session.

12. To amend the charters of the Development Bank of the Philippines, the Government Service Insurance System and the Social Security System in order to funnel the funds of the last two entities to the Development Bank of the Philippines for lending purposes, with the view to expanding the authority of the latter to grant long-term industrial and investment loans for productive enterprises.

13. The creation of an Anti-Smuggling Office to era­dicate smuggling activities that seriously deprive the Na­tional Treasury of due customs and internal revenue receipts,

14. The adoption of the five-year integrated socio-economic development program embodied in this message, in order that this program may become not only the program of the Administration but also of the entire Government. Thereby, the program shall serve as the nation’s guidepost for economic progress and shall be effectively implemented through the joint efforts of the people and the Government.

CONCLUSION

Need for Sacrifice

Allow me to impress upon you and upon all citizens of the Republic that the task of achieving a modicum of economic development, especially in a developing country like ours, requires serious and concerted effort on the part of both the Government and the people.

Attainment of the desired goals will depend mainly upon public support and a sympathetic understanding of our objectives.

The Government takes the initiative and provides the inducements necessary in terms of suitable policies and measures needed to foster economic growth and stability.

The people, on the other hand, must realize that eco­nomic development involves, particularly during transi­tory stages, sacrifices of magnitude and the subordination of personal ambition and interest to the general welfare.

I say then with candor and emphasis that our people must be ready to undergo sacrifices. The prospects of better times are not likely to be realized without the imposition of self-discipline and the assumption of certain social responsibilities. Progress and prosperity will come. It will come, if all the people rally to maintain economic freedom and security and a higher standard of living for themselves. Single-handedly we cannot realize these ob­jectives. Together, we shall.

Executive-Legislative Collaboration

The responsibilities of the Executive and Legislative branches of the Government are just as demanding. All the agencies of the Executive, including financial institutions and corporations, will be mobilized towards a coor­dinated implementation of the program. We shall take particular pains to see that there is a minimum of conflict between our announced goals, our economic philosophy, and the day-to-day operations of all those government agencies with which the private sector is continuously in contact.

But the Executive alone cannot meet the prodigious tasks that are required to supply the needs and demands of our people. The Legislative branch has a share in this responsibility. I seek your full cooperation. I will submit additional legislative proposals to this body which are necessitated by an integrated analysis of our economic situation, our problems and our requirements that consti­tute the basis of our program. From time to time, as the situation requires, I shall come to consult you on pressing matters requiring legislative action.

No one is more aware than I of the coordinate impor­tance of the Executive and Legislative departments of our Government. I am aware of their basic independence of each other.

I am also aware of the need for cooperation between them if the business of government is not to suffer, and if the welfare of the people is to be safeguarded. I there­fore appeal to each member of the Fifth Congress to set aside partisanship and contribute his experience and wis­dom to the common task entrusted to us by our people. We face a challenge to our free political system, to our dedication as public servants and to our patriotism as Filipinos.

We have been elected under different parties but we have been elected by the same people. As the people did not mind our political parties in placing in our hands their welfare and future, so are we called upon not to mind our parties in serving their well-being. Adhering firmly to this attitude, with minds anxious over our people’s difficulties and hearts full of sympathy for their just long­ings for a better life, I have faith that Almighty God will show us the way that we can take together towards the fulfillment of our Nation’s dream for a life of dignity, prosperity and freedom.

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