‘Economic rehabilitation after World War II — Philippine republic in infancy’

The destruction of the Philippine economy after World War II was caused by the Japanese occupation from 1941 to 1945. The last and fierce battle for liberation, especially in the capital city of Manila, further aggravated the huge damage on the people and economy because big guns, bombs, and fire, including human rampage, converged.

Baselines: population and GDP. Based on 3.2 percent per year that was then assumed as the natural growth of the population, about one million Filipinos lost their lives during the war years from 1942 to 1945.

This estimate is fully consistent with the population number of 18.4 million reported by statistical authorities for 1946.

In a study that I made at the School of Economics, UP (Philippine Economy during the Japanese Occupation, 1941-1945), the total output (GDP) of the economy in 1945, by war’s end was reduced to 30 percent of the pre-war output level. The country also experienced the worst inflation in its history.

Early recovery began as the war was ending. The recovery began as soon as military liberators began to retake the country. The army engineers of the conquering US military restored or enhanced strategic infrastructures so that supply lines could be re-established.

This improved transport and communications, which at least encouraged resumption of economic activity, began to alleviate existing conditions.

The destruction of Manila, south of the Pasig River was, however, an example of a serious setback. Long established institutions and structures were bombarded, decimated, burned, and some, fully destroyed. Moreover, it involved horrendous loss of human lives.

As supply lines improved, imports also began in earnest, though at first in trickles. Direct needs of the civilian population for relief were flashed. As the Commonwealth government on Feb. 28, 1945, then president Sergio Osmeña had pleaded to the UNRRA (United Nations Relief and Recovery Agency) head, “... within this ruined capital city we find ourselves face to face with problems of staggering proportions. Thousands and thousands of families are without shelter and in rags, millions are facing hunger and starvation.”

Soon after, UNRRA began to send emergency relief: food, medicine, used clothing, including, later, agricultural farm implements to help in production.

UNRRA was essentially a US operation, headed by an American official. In reality, the United States was underwriting UNRRA’s budget. Also, the reorganizing Commonwealth government got dollar savings support from the US Treasury which held them in escrow in addition to its resumed tax powers.

In summary, all the additional goods that entered the country came from new imports of goods financed externally, mainly from (1) American military operations, (2) civilian relief (mainly from UNRRA), and (3) Commonwealth government spending.

Filipino civilian authority was propped up by spending that it could undertake based on revenues and on budget deficits for which it had to borrow from the US government, to help finance expenditure.

Of course, the new activities also brought in (4) new businesses being opened by those in the private sector whose activities began again, even if slowly.

The new republic takes over civilian government. Because of critical political decisions, the rehabilitation funds and economic normalcy would arrive soon.

The newly independent republic took the quickest route toward reconstruction: to accept the constitutional amendment on parity and get essential rehabilitation funds, as well as institute economic normalcy through the trade relations route with the US.

This was the great compromise that the leaders of the new republic – Manuel Roxas in the lead at the time, and followed by other leaders – had to accept for pragmatic reasons.

The remaining discussion focuses on the rehabilitation of public facilities destroyed during the war (also further continued next week). The Philippine rehabilitation program supported by the US law had two components: the rehabilitation of government facilities and the support for the rehabilitation of the private sector.

Public sector rehabilitation work undertaken. The Philippine War Damage Commission (PWDC) was set up to administer the rehabilitation program by the United States and the new Philippine republic.

The commission was composed of three members. Two of the officials (the chairman and a member) were appointed by the US president; the third member, a Filipino, by the Philippine president. (Frank Waring was the American chairman and Francisco Delgado the Filipino member.)

The war damage commission was responsible for allocating all the funds for reconstruction between 1947 to 1950. All its major decisions were made in consultation with the new republic, but it was essentially an operation that reported to Washington D.C.

Remembering that the dollars of those years were a large multiple of today’s dollars in terms of purchasing power, here is a summary of the report on the public sector. These numbers come from the terminal report of the commission.

The public sector rehabilitation program  was used for the following allocations: hospitals and dispensaries, $4.6 million; waterworks and irrigation systems, $3 million; schools, $34.3 million; national government buildings, $6.9 million; provincial and municipal government buildings, $4.2 million; and government corporations, $2.2 million.

All of the public allocations involved a total of $55.25 million, of which more than 62 percent was spent for the rehabilitation of the educational institutions.

Some specific rehabilitation projects. From the allocations above, it is noteworthy to mention some specific projects : repair of quarantine stations in Mariveles and Cebu; the purchase of seven iron lungs or respirators; the construction of a tuberculosis children’s pavilion in the Quezon Institute; and the purchase of rolling stock for the Manila Railroad Co.

Big grants were given to the University of the Philippines, $6.3 million; Metropolitan Water District, $1 million; barrio schools program, $2.7 million; Philippine General Hospital, $1.1 million; and national government buildings, $6.5 million.

To be continued: Next, rehabilitation in the private sector.

My email is: [email protected]. For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/