Political Economy of Liberalizing Foreign Trade: Philippine Experience

The Philippines has had a long history of liberalization experiences. They span a wide range of policy direction from a regime of full decontrol to a mixture of restrictions and free trade. Perhaps this explains why the country has not been able to hold on to a trade direction that has been sustained on a long-term basis. Four liberalization episodes have been described in this paper not in terms of the technical character of the trade sectors but of the processes that went into their evolution and their eventual fallout. Several forces are identified as impinging on these processes: the overall political ethos; the executive and legislative branches of government; the bureaucracy; external forces of the IMF and the World Bank, among others; various vested interest groups; and coalitions among them. These forces have marshaled a variety of tactics to pursue their causes from lobbying to exaggerating the extent of injury to the economy from liberalization drives. The argument of this paper is really to suggest that liberalizing foreign be immediate given the political economy of it which would attempt at delay or postponement. If there has to be a protracted timetable, such should not be long enough for political forces to mount a resistance. In a transition from import-substitution to export orientation and freer trade, immediacy is even more critical since vested interests are more powerful. In a transition from a closed economy to an open, outward-looking regime, immediate liberalization is also argued both to prevent the emergence of strong vested interests and organized resistance, and to send an unmistakable signal of commitment. In fact, other than possible opposition from the bureaucracy and state-operated enterprises there would hardly be any opposition to a liberalization drive by the party-in-power itself. Of course, it goes without saying that accompanying reforms and other policy measures are equally important and pursued in tandem with trade liberalization. These would include some economic growth, and institutional support for industries of comparative advantage, among others.