The accumulating external debt, combined with the economic and political crises of the early 1980s, affected investment and savings and undermined poverty reduction efforts, causing the Philippines to lag drastically behind its dynamic Asian neighbors. The deteriorating economic situation gave the impetus to an extended period of structural adjustment and reform. In the early 1990s, an array of reforms including deregulation, privatization, and price, trade and investment liberalization helped to contribute to an economic turnaround. The recovery was led by expansion of exports and foreign investment, with merchandise exports rising by 29 percent in 1995. Although the proportion of people living in poverty fell by 13 percent between 1971 and 1991, the incidence of poverty still remains high, with a 1994 figure of 36 percent of the population, a decrease from the 1991 figure of 40 percent.
Income distribution remains uneven with significant regional disparities.
Challenges to Development To sustain growth while alleviating poverty, the Philippines needs to focus both on the factors that have constrained development in the past and on the current issues of poverty and environmental degradation. Macroeconomic Stability and Infrastructure Investment Sound macroeconomic management will emphasize fiscal adjustment, including massive tax reform, savings incentives, and management of rising private capital flows. Civil Service Reform and Fiscal Decentralization Program implementation capacity will be improved by providing skills training and incentives to the public sector. Additional priorities include strengthening the competitiveness of the civil service and aligning its activities with recent government decentralization activities. The government will encourage competition by continuing deregulation, expanding banking services, rationalizing tariff schedules, liberalizing restrictions on foreign investment, developing the capital market, restructuring the power industry, and adapting appropriate regulatory frameworks.