The Philippines and the International Monetary Fund Negotiations on Petroleum and Imports by Faulve-Montojo Kenneth;

Author:Faulve-Montojo, Kenneth;
Language: eng
Format: epub
Publisher: Lexington Books/Fortress Academic

Chapter 6

1994 GOP-IMF Petroleum Price Observation

The 1994 IMF-GOP agreement grew out of the Fidel Ramos platform to transform the Philippines into a “newly industrialized country” by the tum of the century. To meet this challenge, referred to as the “Philippines 2000” program, the GOP would lead the way to revitalize the country’s economic environment through intensive structural adjustments in the areas of education, infrastructure, and energy.1 Qualitative improvements in these areas would resolve the environmental constraints that had continuously handicapped the private sector, and allow entrepreneurs to take the lead in the country’s drive toward industrialization. The GOP sought to fund the program through increased foreign capital, as domestic public investment hit low levels in 1992 and the government was reluctant to levy taxes for fear of placing a drag on the economy. The GOP sought to increase the flow of foreign capital through securing an IMF standby agreement, intended to provide the key toward funding the “Philippines 2000” program.

Ramos sailed smoothly through his honeymoon period but met his first taste of political defeat during the 1994 IMF-GOP negotiations. Indeed, after narrowly winning the 1992 presidential election to succeed Aquino, Ramos had numerous successes implementing market-oriented economic policies. The GOP achieved many milestones but failed to meet IMF expectations of deeper market reforms and additional revenue generating measures. For the most part, Ramos succeeded in pushing these demands through congress; however, his efforts to push through passage of critical revenue generating measures stalled. Ramos resolved this problem by circumventing congress and using his powers of executive privilege to impose a levy on petroleum imports that led to the eventual increase in petroleum prices. Dramatic domestic opposition mounted in resistance to the price increase, forcing Ramos to rescind the increase and seek other means of revenue accumulation.

International Political Economy of the 1994 Petroleum Price Observation

Like the 1989 IMF-GOP standby agreement, the new IMF-GOP negotiations were clouded by an atmosphere of doubt and dissent. The parties reached a consensus on some issues, but the first round of talks ended with a wide gulf between them. Indeed, the IMF negotiation team felt that the GOP engineered its data to dress up the country’s sanguine economic prospects. The parties delayed continuation of the negotiations until the GOP instituted additional prior requirements to support the economic data. Despite these steps, the IMF insisted that these prior conditions were inadequate and pressured the Philippines to deepen its reforms. One of the central reforms demanded by the IMF was, again, that the GOP raise additional revenues. The GOP attempted to generate additional revenue through an increase in petroleum products but failed. In the end, the GOP managed to increase the nation’s value-added tax to appease the IMF.

At the onset of the negotiations, the GOP felt optimistic that it had more bargaining leverage vis-à-vis the IMF. In 1992, the GOP successfully instituted, at a rate that surprised even the IMF, full liberalization of the foreign exchange market.2 In addition, the peso registered a 5.8 percent appreciation from the previous year and strengthened significantly against other major currencies.

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