Sector policies and economic performance in the ASEAN region

Explanations are sought by comparisons with three other ASEAN countries: Indonesia, Malaysia, and Thailand. The disappointing Philippine performance does not appear to be due to a bias against the agriculture sector per se. A more likely explanation comes from the prolonged tendency of Philippine development policies to focus on domestic market protection rather than on gaining international market competitiveness. A detailed comparison of the agricultural, industrial, trade, and exchange rate policies practiced by the four ASEAN countries is undertaken to show that agricultural policies were similar among the four. There was a common tendency by all governments to intervene in both food and export crop markets. Each promoted often contradictory policy objectives such as low domestic consumer prices, self-sufficiency, and increased rural incomes. While all four countries engaged in some form of import-substitution strategy, the Philippines relied most heavily on its domestic market to foster the growth of its industrial sector. Trade and exchange rate instruments were used aggressively in the Philippine case to protect the domestic market against import competition. These policies led to a high rate of resource transfer out of agriculture and into the rest of the economy in the Philippines. Although the anti-agricultural bias is sometimes blamed for the disappointing economic performance of the Philippines, the more damaging long-run impact of the protectionist trade and exchange rate policies in the Philippines was to weaken the international competitiveness of Philippine products. Compared with other ASEAN countries, the Philippines was less able to take advantage of the phenomenal post-war growth of the international economy that contributed to the high rates of economic growth in the region. (Author abstract)