Country Study 2

From 1984 until its fall in February 1986 the Marcos government attempted to implement a standard IMF-type stabilization and adjustment programme. In some respects the programme was startlingly successful: inflation was brought under control and the payments deficit was eliminated. But, as this searching analysis shows, Marcos left a bitter legacy to the new Aquino government in the shape of an unmanageable foreign debt burden, a chaotic financial and banking system and an economy that was on its knees. The external adjustment had taken place entirely by means of a fall in imports rather than an expansion of exports - which also fell during a period when most developing countries' exports were booming. The adjustment period thus completely failed to lay the basis for renewed growth; rather, it perhaps fatally weakened the engines of growth in the Philippine economy.The IMF and World Bank share responsibility for this poor record with the Marcos government. They consistently supported the government with new loans and standby agreements despite clear evidence that it did not have the will or capability to carry out the longer-term structural reforms that were necessary to strengthen productive capacity and the efficiency of the economy. The international institutions turned a blind eye to the obvious fact that the nature of the political support for the regime drained the reform programme of any substantive content, however good it looked on paper. They did not apparently even realize that the official figures understated the country's foreign debt by some $8 billion.Adjustment should have begun much earlier - in 1980 rather than with the payments crisis of 1983. Adjustment was postponed partly because of the support of the international financial community of the Marcos government. When it did start in 1983 it did not tackle the most important issues - the domestic financial crisis, the budget and the foreign debt. Instead, it relied entirely on devaluation and sharp monetary contraction with their predictable accompaniment of soaring interest rates and plunging economic activity. The human suffering occasioned by this misguided strategy will be felt at least to the end of this century.