I. Program Objectives and Obstacles to

Their Attainment

The objectives of the FOA program are to assist the Philippines to: (1) Increase the nation's economic capabilities to participate effectively in the mutual defense effort, and, at the same time, achieve a more adequate rate of productive investment without impairing consumption levels.

(2) Achieve political and social stability with a concomitant improvement in the general understanding and exercise of the principles of democratic government.

These objectives are accepted both by the United States and Philippine Governments. There are no apparent major divergences in interests. Both Governments are exercising sincere efforts toward their attainment.

There are a number of basic problems encountered in the Philippines which are retarding progress toward program objectives. Among the most significant are:

(1) The present low rate of domestic capital formation prevents a growth in economic capabilities sufficient to permit increasing contributions to the mutual defense effort and improvement in consumption levels. Capital inflows are currently inadequate to make up for the low rate of domestic saving. The inflationary implications of increased deficits in the central Government budget further restrict expansion in defense and public investment expenditures.

(2) Current and anticipated long-run balance of payments problems prevent any rapid expansion in imports of capital equipment required for economic development without undesirable reductions in consumption which would, in turn, threaten political stability.

(3) Lack of economic opportunity, oppressive land tenure and agricultural credit conditions, underemployment and unemployment, disease, and rural and urban poverty give rise to dissatisfaction and dissidence and provide a fertile field for the growth of communism. Neither local government institutions nor civic organizations are sufficiently well developed to combat these tendencies and provide for a continuous improvement in the understanding and exercise of democratic political procedures.

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A number of means are now being utilized to assist the Philippines overcome the basic problems which the country faces and facilitate attainment of the objectives of the program. The fiscal year 1956 illustrative FOA program is designed specifically to aid the Philippine Government in its efforts to:

(1) Formulate and execute a coordinated economic development program.

(2) Encourage private investment in productive enterprise and encourage diversification and expansion of agricultural production.

II. Contributions of Past Programs to the

Attainment of Program Objectives

FOA and Philippine Government efforts to increase private investment to date have, by and large, been less successful than efforts to expand public investment and government services. Imports of industrial equipment for resale to small and medium-sized enterprises and the establishment of an industrial guarantee and loan fund have made some production and employment increases possible, which might not otherwise have materialized. Technical assistance to be provided under the industrial development center now being established will provide interested investors with assistance and encouragement in establishing and expanding basic enterprises.

The industrial guarantee and loan fund was established in 1952. It is supervised by a committee representing all of the financial agencies of the Philippine Government and is chaired by a senior official of the central bank. The United States Government is also represented on the committee and has a strong position on it. As of June 30, 1954 three firms have been assisted with loans guaranteed totalling 1,086,000 pesos. A portion of the fund held in the form of bonds (peso) as of the same date totaled 8 million.

The industrial development center was organized by the Philippine Government, is headed by an outstanding Philippine engineer and has a relatively small Philippine staff. The industry officer of USOM also functions as principal industrial adviser to the center (Philippine Government). FOA is providing four technical assistants to the center to advise their Philippine corresponding numbers at an overall cost of $150,000 in the current year: A chief engineer, industrial management training specialist, industrial accounting specialist and an industrial information specialist. It is intended to function somewhat along the lines of the European productivity centers as these functioned in 1951 and 1952. If successful the idea may be adapted for further application in other countries of the Far East.

Both the industrial guarantee and loan fund and the industrial development center are parts of the larger complex of the commercial banks, Export-Import Bank operations and technical assistance in general working to promote industrial development.

To date, FOA's most important accomplishments in the field of private investment stimulation have taken the form of intangible contributions toward the improvement of the investment climate. These accomplishments have resulted from efforts to provide investors

with information and encourage the Government and Philippine financial institutions to improve the reasonableness and consistency of their treatment of potential private investors. Increased confidence in the operation of the Government is, of course, one of the principal prerequisites to expanded private investment.

III. United States Contribution

to the Program

United States contribution to the Philippine program have been provided in the form of commodities, technical services of United States Government employees, contract technical services, and training of Filipino administrators and technicians abroad. To the end of fiscal year 1954, nearly $80 million in assistance had been provided, all on a grant basis. The fiscal year 1955 program totals $20.0 million in grants. It is interesting to note that while the ECA-MSAFOA aid programs of 1951 to 1955 inclusive total $100 million, the report of the Bell mission to the Philippines issued in 1950 recommended a total aid program of $250 million for the succeeding 5-year period as being needed and within the absorptive capacities of the Philippines. It would appear that the ability to use aid effectively has been reached or possibly exceeded by the lesser amount of $100 million. In past years the Philippine program was developed and presented on an integrated basis combining technical assistance, defense support and economic assistance aspects. In fiscal year 1955, to conform with the requirements of the Mutual Security Act of 1954, there are two components to the program: Technical cooperation grants, $7.6 million and defense support grants, $12.4 million. The fiscal year 1956 request is comprised of three components: Technical cooperation grants, $7.7 million, defense support grants, $8 million, and defense support loans, $25 million.

Funds made available under the Philippine program have been utilized largely for Philippine Government sponsored projects designed either to increase investment in productive public projects or improve and expand essential public services. The assistance allocated to the private section of the economy has been restricted to about $15 million in commercial imports in fiscal years 1951 and 1952 and $5 million included in the fiscal year 1955 program for the import of machinery for sale to small and medium-sized private enterprises.

The projects for which FOA assistance has been made available include activities in nearly every field of Philippine Government operation which affects the operation and development of the economy. In table 1, below, there is shown the distribution among fields. of activity of assistance provided to date and proposed for fiscal years 1955 and 1956.