The Rotary Balita no. 796 (May 10, 1956)

CAVITE

Manila Rotarian Gaudy Antonino was guest speaker at the luncheon meeting of the club, on March 18. Gaudy spoke of his practical solutions to the economic problems and said:

As I make an effort to stand after partaking of this sumptuous luncheon, I am reminded of the story of a bright young man who saved himself from being eaten up by a hungry lion during a lion man-eating festival. Asked how he drove back the hungry lion into its cage even without lifting a finger, the young man replied, "Very simple, sir. I only whispered to him that after his meal, he was going to deliver a speech."
Fellow Rotarians, if for nothing else, my presence before you this afternoon proves that a lion cannot match a Rotarian.

Going now to a rather serious subject, I would like to discuss with you the practical solutions to our economic problems today. This I will do, even at the risk of being branded by a Manila bank executive as among those who are not even qualified to manage a small-time bank in a rural area.

When President Magsaysay invited a group of producers, economists, bankers and professors to discuss with him our economic problems, he said and I quote — "I called you to this conference not to find out who is wrong, but to find out what is wrong" unquote. A Bank executive who sat with President Magsaysay during this conference became more papish than the pope when in a recent speech on the subject of dollar allocation for imports, delivered before an international group of businessmen in convention, he suddenly misallocated, not dollars, but ill conceived malicious personal at tacks against the integrity and intelligence of those who happen to differ from his views. Claims on the monopoly of intelligence and pretensions to the extent of trying to play God may be good behind the Iron Curtain, but certainly not, in a free society such as ours.

Following that most diplomatic and cautious approach of our President to the solution of our economic problems, I shall limit myself to their objective analysis and practical solutions.

Everybody agrees that our economic problems are (1) mounting unemployment, (2) low per capita income, (3) dwindling dollar reserves, (4) imballanced foreign trade, and (5) underproduction. These were the same problems that were intended to be solved in 1949 when our present economic policy was adopted as a temporary measure.

After a fair trial of six long years, the failure of this economic policy to improve our economic position to solve in a substantial measure the aforementioned problems is, indeed a most compelling reason why we should change or at least modify the cure that we have adopted and are continuing to adopt up to the present time.

As a result of the Great Debate and the war of economic ideas that is plaguing the country today, underproduction has been singled out as the root cause of all our economic problems. All are agreed that incentives, in one form or another, to increase production, is the definite step in the right direction. What seems to be the divergent views among the opposing economic planners are on the specific kind of incentives that should be given the producers.

Among the proposals from the Cuaderno school of thought are price supports and government subsidies, while from the Montelibano group the various proposals are: (1) abolition of import and exchange controls, (2) outright devaluation, (3) dollar retention scheme, (4) barter as in Republic Act 1410, and (5) adoption of a multiple rate of exchange.

Judging from the tenor of the various proposals from both camps, it seems quite clear that there is unanimity on the unacceptability of our economic policy in its present form, particularly as it affects the producers-exporters.

In seeking the practical and most acceptable solution to our economic problems, it may only be necessary to analyze the objectionable features of the different proposals already made, in order to single out the one that can best serve the criterion, quote "the greatest good to the greatest number" unquote.

Price supports and government subsidies as advocated by the Cuaderno camp suffer from a very serious defect that is best expressed in the question "Where shall the government get the money with which to implement such a plan?" Thru additional taxation on an already tax burdened citizenry and population? Thru deficit financing which is tantamount to the issuance of "printing press money?" If the concept of price supports and subsidies were to be adopted, it would entail in its implementation a ponderous administrative machinery with the attendant opportunities for graft and corruption. Moreover, what is given the producers in the form of price supports and subsidies is taken back from them in the form of taxes which all the factors of production are bound to pay.

One proposal the Montelibano group advocates is the abolition of import and exchange controls. Pears have been expressed that if adopted, such a proposal would inevitably lead to chaos and to the dissipation, overnight, of our dollar reserves. Aside from that, it might result in the unrestricted flow into the country of non-essentials, particularly luxuries. to the detriment of the great mass of the people, whose need for the essential items necessary for decent living would only be half satisfied. Such proposal, it is alleged, might lead to the international instability of the Philippine peso.

Outright devaluation, while it may have its own inherent economic justification, suffers from s serious demerit in that, as President Magsaysay observed, it is bound to affect adversely the welfare of the great masses of the people whose in comes are fixed, such as the wage earners and salaries group, and those who depend on pensions and annuities. For them, as the cost of living rises, their real income diminishes. Moreover, as others claim, the benefits rising from the temporary and short-lived stimulation of the productive capacity will in the end be negated by the increased costs of production. Obviously, it is feared that outright devaluation is not the correct solution.

And now let us analyze the dollar retention scheme. Briefly, this proposal allows the exporter to retain a certain portion of the dollar receipts of his exported goods, for him to utilize in any manner he wishes. For example, if his dollar receipts amount to $1,000, he may be allowed to retain two or three hundred of that amount, the balance to be surrendered to the Central Bank at the official rate of exchange. It is claimed by some quarters that this scheme is tantamount to legalizing the black marketing of dollars. Obviously beneficial to the exporter, it is alleged that it will, however, result in the peddling of import licenses and the jacking up of the prices of the goods covered by such peddled licenses, or might even make of the producers-exporters a new class of importers, thus disturbing the import channels of the country. Then, there is also the additional probability, in the view of many, that the retained dollars will be used for importing relatively scarce commodities on which the profit is substantial, even if the country has no urgent need for them. source comes the rather serious objection that the From another dollar retention scheme might be utilized to facilitate the flight of capital which might have deleterious effect upon the productive capacity of the country. That it certainly will not contribute to the building up of the country's dollar reserves is the concensus of opinion among those against the proposal.

And now for barter. As authorized under Republic Act 1410 and implemented under the rules and regulations adopted by the Department of Commerce and Industry, many have expressed the opinion that it leaves much to be desired, favoring as it does only certain sectors of the producers exporters. It is claimed that benefits derived there from do not permit the entire economy on account of the uncertainty of the benefits derived there from; that there is a strong tendency for the traditional and legitimate importers to be dislodged from their business by the barter exporters; and that it has contributed to the jacking up of prices of the goods imported due to the peddling of licenses at premiums as high as 50%. Barter, therefore. has become just as controversial as the other proposals.

Lastly, there is the multiple rate of exchange, which to my mind suffers from the least defect and bears the utmost advantage to all the different groups that constitute the mass of our people. Briefly it is a system which involves more than one legal rate of exchange. During the time that the 17% Foreign exchange tax law was in effect, our currency system might be said to partake partially of a multiple rate of exchange character, but it was one from which the exporting group did not derive any benefit at all. It is significant that no less than thirty countries have adopted the multiple rate of exchange system whose popularity seems to be on the ascendant as more countries strive to improve the competitive position of their exports in the world markets.

An idea of the benefits to be derived by all sectors of the economy under the multiple rate of exchange system may be gleaned from the specific proposal which I hereby offer under such a system, namely:

1. The present import and exchange control will be maintained by the Central Bank as usual. 2. 60% of all dollar receipts from exports will be sold at P2.00 to $1.00 to be allocated exclusively for essential commodities, essential raw materials and capital investment goods. Producers will also be paid P2.00 to $1.00 for this 60% portion of the dollar receipts surrendered to the Central Bank.
3. The remaining 40% of the dollar receipts from exports will be sold at P3.00 to $1.00 for allocation to non-essential commodities and for other non-essential purposes; producers will be paid P2.90 to $1.00 for this 40% portion of the dollars delivered to the Central Bank, the P.10 differential to be retained by the Central Bank for scientific research, trade promotion and allied purposes.
4. All other dollars available from other sources will be sold at P2.00 to $1.00 to be allocated at the discretion of the Central Bank.
The aforementioned plan is designed to protect the interests not only of the government but also of all segments of the business community, with special emphasis on the protection afforded the average wage earners from the tendency of prices of prime commodities to rise.

The possible effects of the proposal may be summarized as follows:
1. The government will have an additional income of about P25,000,000 to devote to trade promotion, scientific research and allied purposes, while the Central Bank will continue to have absolute control on the allocation of the dollars. 2. Industrialists will have sufficient dollars at P2.00 to $1.00 with which to finance the purchase of essential raw materials and capital goods for their enterprises.
3. Importers-middlemen will not be dislocated in their position, but will continue to get their regular dollar allocations from the Central Bank.
4. The masses will be afforded adequate protection from price increases of essential commodities on account of the availability of sufficient dollar allocations for such commodities.
5. Producers-exporters will be afforded tangible and lasting incentives for increasing their production.
6. The Great Debaters will have no more cause for engaging in a raging controversy over our economic policy.
In advancing this Compromise Proposal, I am impelled by a sincere desire to seek a solution to our country's economic problems that can give the fullest measure not only of prosperity but also of equity to all segments of our population.
In closing, I would like to thank each and everyone of my fellow Rotarians from Cavite for having given me this honor to share with them my humble views on our current economic problems. I believe it is the duty of every citizen of our country to concern himself on any and all public issues that may affect our economic future, especially Rotarians, who thru their leadership, prestige and business connection, are in the best position to generate public opinion that can guide the wise decision of our economic policymakers, I thank you.