Carlos P. Garcia's First State of the Nation Address

MR. PRESIDENT, MR. SPEAKER, MEMBERS OF THE CONGRESS:

In the exercise of their sovereign prerogatives, our people have entrusted to us the responsibility of administering the affairs of the nation. As Congress opens today the legislative phase of our joint trusteeship, I have come to counsel with you in accordance with the Constitution’s mandate. I am confident that, guided by the Infinite Wisdom, we shall prove equal to the people’s expectations, and live up to our solemn commitments to them.

Fortunately, we have succeeded to an administration that was also our own because most of us were part of it and because, under the concept of party responsibility, its policies were formulated and implemented by us. Consequently, we have to continue these policies; with some addition, we must continue building up the nation, spurred by the dynamics of progressive national growth.

The Administration before us suffered a rude interruption with the tragic death of my illustrious predecessor, Ramon Magsaysay. His loss is irreparable. The Philippines and the rest of the free world sorely miss him. We, however, find consolation in the fact that his spirit abides with us to inspire us to new heights of achievement.

You are all aware that I assumed the presidency in the wake of a shocking national tragedy and at a time of intense political activity, leading to the November elections. Accepting the will of the Divine Providence and the mandate of the Constitution, I occupied the office of President for nine and one-half months to complete the term of the late Chief Executive and carry on his work to the best of my ability and capacity.

I shall therefore, endeavour to report to Congress the state of the nation as I found it at the end of the Magsaysay term, covering achievements of four years since 1954. Having done this, I shall indicate the pressing problems facing the Republic and recommend to you what I believe to be their solutions.

During the last four years of Nacionalista Administration, the climate of distrust approaching despair that had pervaded the nation was replaced by a receiving faith in the Government and a growing confidence in the future of the Republic. The masses of our people came to enjoy the fruits of a determined effort to improve their lot. Our people were reaping the benefits of schools and sanitation, expanded irrigation systems, increased credit facilities, and improved transportation. Our businessmen and industrialists were reacting with understanding to the coordinated efforts to promote the general economic development. The entire nation faced the future with increasing hope and confidence.

In completing the term of my predecessor, I had the advantage of the tremendous momentum he had generated in the promotion of the common welfare. During 1954-1957, unprecedented advances were made in almost all sectors of national progress. I myself did not hesitate to take new measures and introduce new policies whenever they were advisable and necessary. Such measures and policies were intended to check untoward developments mainly caused by the forces of nature or by international events beyond our control and also by our own transgressions against the eternal verities and the laws of measure and proportion.

RELATIONS WITH OTHER NATIONS

National security is anchored on our own internal strength as well as on our cooperation with the United Nations, buttressed by regional arrangements like the SEATO and by our special alliance of mutual defense with the United States.

Relations with the United States — While we have promoted our diplomatic and trade relations with countries in Europe and Asia, we have continued to strengthen our special relations with the United States. Although there have been disagreements on some of the provisions governing military bases, Philippine-American relations have remained as close and harmonious as ever.

Diplomatic Services — We have expanded our consular and diplomatic facilities and services abroad. We have sent an ambassador to the Vatican and have set up a legation in Cairo, Egypt. We have raised our legations in Karachi, Pakistan; New Delhi, India; Seoul, Korea; and Saigon, South Vietnam, to the status of the embassies. We have also opened honorary consulates in 13 key trade centers of the world. Our participations in the United Nations, the SEATO, and other world and regional conferences have raised our international stature and prestige.

We have concluded trade protocols with Germany, Switzerland, Nationalist China, and Japan, and have added trade and press attaches to a number of our embassy, legation, and consular staffs. The trade protocol with Germany includes provisions for the training of Filipino scholars and technicians in German industrial and educational institutions. A major study is being undertaken on the proposals to expand our foreign trade not only to establish new financial contacts but also to set up working balances abroad in other stable and freely convertible currencies. In due time the result of this study will be submitted for your consideration.

INTERNAL SECURITY

The Armed Forces of the Philippines under the late President Magsaysay broke the back of the communist movement and paved the way for the outlawing of communism in our country. The almost total liquidation of the Huk rebellion forced a change of tactics and adequate measures were taken to meet the new situation. The CAFA recommendation for the outlawing of the Communist Party and amendments to make the law on treason applicable in peace time were indorsed by the late Chief Executive, subsequently passed by Congress, and finally signed into law by me.

National security has two supports—diplomacy on one hand and the Armed Forces on the other. The two are interrelated phases of national policy. Our Armed Forces has a two-fold mission — the safeguarding of national security and the maintenance of peace and order, including assistance to the Administration’s socio-economic and rural development efforts.

In the first mission, our Armed Forces participated in several manoeuvres, conferences, and seminars under the auspices of SEATO. With American assistance, in accordance with our mutual defense alliance, and within the limits of our resources, we are beginning to streamline our military equipment and organization in conformity with the expected new requirements of warfare in this atomic-missile age.

In the second mission, aside from taking all necessary measures for the protection of life and property, our Armed Forces has conducted psychological campaigns against dissident elements, helped in the large-scale resettlement of former outlaws, and assisted in the manufacture and installation of prefabricated schoolhouses where needed.

THE WELL-BEING OF THE MASSES

Rural Development Program — As a dynamic answer to Communism and a positive boost to economic progress, the Administration launched a greatly expanded and bold program of social and economic development aimed at rural amelioration and at advancing industrial and agricultural productivity. The Rural Development program included land reforms, land resettlement, the establishment of the Court of Agrarian Relations and the Land Tenure Administration, the organization of cooperatives, the extension of credit, the setting up of expanded rural health units, the construction of roads, irrigation systems and artesian wells, the extension of educational facilities, and the encouragement of enlightened labor unionism.

Land Reforms — In the implementation of our established policy of giving land to the landless, the Government issued during the last four years more than 162,219 patents as compared to only 25,440 during the administration that ended December 30, 1953. The survey and subdivision of new land for distribution is also being hastened, and I propose the adoption of photogrammetry to further expedite survey requisite to the issuance of land titles. The policy launched in 1954 by President Magsaysay of distributing six-hectare farms to those willing to pioneer has resulted in the settlement of 21,587 families in 18 settlement projects, mainly in Mindanao. The Land Tenure Administration’s target is to purchase and distribute 105,000 hectares of land to 17,500 families yearly.

Credit Facilities — Government institutions like the RFC, the PNB, and the ACCFA expanded the area of their operations to rural areas, thus channelling the savings of the economy to rural production. Complementarily, private banks increased not only their respective volumes of business but also their numbers and branches. Following a liberal policy from 1954 to late 1957, the banking system expanded credit to both the public and the private sectors by P1,209 million.

Rural Banks — To further accelerate development at the grassroots level, the rural banking movement was intensified during the past four years. We now have 102 banking institutions well distributed over the country. We are considering the demand to enlarge the lending capacity of rural banks through the assistance of government banks or financial institutions.

Cooperatives — For the benefit of our rural masses, we have since 1954 organized 271,000 farmers into 467 cooperative marketing associations. In 1957 alone 51 FACOMAS with a combined capital of P2.6 million were formed, bringing up the total of FACOMA membership to more than 26,000 farmers. This growth has enabled the ACCFA to extend loans amounting to P142 million to 55,000 farmers for increased production enabled 65,000 farmers to acquire work animals and 15,000 others to purchase farm equipment. During 1957, the ACCFA also financed the purchase of P30 million worth of fertilizer and invested P1.5 million in the development of the ramie program.

To achieve a more efficient distribution of goods, especially the products of our farms, as well as to facilitate travel among our people, we have expanded our net work of roads.

We have also improved the Manila Railroad by converting it into diesel resulting in reduced operational cost.

Roads, irrigation, and Artesian Wells — During the last four years, around 3,940 kilometers of roads and 295 permanent bridges were constructed. Twenty-four national irrigation systems servicing 115,251 hectares and 27 communal irrigation projects servicing 57,410 hectares were constructed. Also installed and drilled were 31 irrigation units consisting of pumps and servicing 196,805 hectares and 8,408 artesian wells i addition to 121 waterworks systems. Under construction are 98 irrigation projects to water 198,893 hectares. All these projects, completed and under construction, will bring the total irrigated area to 568,359 hectares. This figure represents about six times that irrigated by the systems constructed from 1907 to 1953.

Public Health — Rural health was considerably fostered through the organization of health units, each manned by a physician, a nurse, a midwife, and a sanitary inspector. As of today, there are 1281 health units servicing 1300 municipalities in the country. The death rate is definitely declining. Infant mortality alone decreased from 98 to 84 per thousand. It should be stated that the organization of rural health units has the active assistance of the International Cooperation Administration of the United States (ICA), the World Health Organization (WHO), and the UNICEF.

In the long-range program of health improvement, the total eradication of malaria continues to be the objective. In cooperation with health and hospital agencies, our blood plasma dehydration laboratories have started an interisland blood collecting program. Under Republic Act. No. 1136, BCG immunization has resulted in the tuberculine testing of 8 million children and the vaccination of 3 ½ million. Our pilot influenza virus preparatory to its approval by the World Health Organization of the Western Pacific regional center.

Social Welfare Assistance — Through the Social Welfare Administration the Government during the past four years has aided 1 ½ million persons. In 1957 alone 599,568 persons were extended relief by this government agency. It also resettled 1125 families from the slum areas of Manila. With the expansion of its regional offices, the Social Welfare Administration was able, in the same year, to extend aid to 6400 families belonging to non-Christian or cultural minority groups. The program of vocational rehabilitation for the blind and other physically handicapped person has also been greatly expanded. A total of 1240 disabled has been given a thorough readjustment training to convert them into active and useful citizens. Forty-seven per cent of these people have already been absorbed in industries.

Public Education — No less significant are the strides made in public education. As a measure of insuring effective instruction, the full-day primary school session, which we had before the implementation of Commonwealth Act 586, has been restores and the maximum size of classes has been reduced from 60 to 40 pupils. The vernacular is now being used as a medium of instruction in the first two years of the primary grades, thereby promoting optimum literacy, especially among those pupils who can stay in school for only a few years.

The secondary curriculum has been revised so as to provide a common program of studies for the first two years, after which the student is given the option, with the help of a competent counsellor, to choose between a vocational course and a college preparatory course. In the revised curriculum more science and mathematics are offered, in view of their importance in present-day life and world progress.

The community school, which has been developed after years of careful experimentation, has become the pattern for our country, particularly in the rural areas. Because of the improvement that this type of school has effected in the living conditions of the people in the community, it has elicited favorable comments from foreign educators who have observed how it works.

In line with the economic development program of the Administration, vocational education has been receiving in­creased emphasis. Home industries are being fostered as a means of enabling our people to have a supplementary source of income. All school divisions have organized home industry centers which survey local raw materials to be developed, train workers, standardize products, and assist producers in marketing them.

Justice and Public Service — The Administration of Justice has been speeded up since 1954, resulting in a greater pop­ular confidence in our courts. Our justice of the peace courts disposed of 80,000 out of 90,000 cases filed, while our courts of first instance settled 40,000 out of 42,000 cases. The Court of Industrial Relations decided 612 out of 758 cases filed before it, bringing its total of settled cases since 1954 to 8,576. The Agricultural Tenancy Commission also amicably arbitrated 2,800 cases out of 3,200 submitted. The Court of Agrarian Relations disposed of 3,000 out of 5,400 cases; the Court of Tax Appeals decided 93 out of 114 cases handled; while the Juvenile and Domestic Relations Court, during only six months of operation, disposed of 3,200 out of 7,000 cases.

The announced objective of establishing the highest pos­sible morality in the Government is slowly being realized, with the Presidential Complaints and Action Committee, the Department of Justice, and other agencies working hand .in hand to minimize graft and corruption in public service. To attain a higher level of morality and efficiency in public service, a thorough study was undertaken by the Government Survey and Reorganization Commission and its recom­mendations which were enacted by Congress are well in the process of implementation.

ECONOMIC DEVELOPMENT PROGRAM

The last Nacionalista Administration was committed to a program of economic development designed to accelerate the transition of our trade-oriented economy to an agro-industrial type. Emphasis was given to the building of the industrial strength which would produce an increasingly large proportion of our essential consumer needs. To coordinate government planning, the National Economic Coun­cil was revitalized and a long-range and integrated economic plan backed by a fiscal program was formulated. Last year, Congress was requested to create a National Development Authority to carry out economic policies, plans, and programs approved by the NEC and the President. Unfortunately the powers provided by the bill creating such a body were not sufficiently broad and flexible for the vast mission it is intended to accomplish that I constrained to veto it.

Development Expenditures — Towards the achievement of our economic goal, power development was stepped up; ramie, pig-iron smelting and steel plants were started; and overhead projects such as highways, communications, and other facilities which support direct productive processes and trigger private enterprises were expanded. The em­phasis on economic development was evident in the rise of the total government expenditure for this purpose, from P151 million in the fiscal year 1953 to P456 million in the fiscal year 1956, and to P506 million in the fiscal year 1957. Fiscal policy was deliberately employed as an instrument of econo­mic development by allocating the highest possible propor­tion of our available financial resources to this purpose. I wish to call your attention to the fact that while the admin­istration before 1954 used borrowed money for both budget­ary and economic development purposes, our administration borrowed only for economic development.

Power Development — 1953-1957 the development of hydroelectric power gained momentum. The Binga hydroelectric plant which will be in full operation in 1960, the Ambuklao hydroelectric project, and Unit No. 2 of the Maria Cristina hydroelectric project, being built at a total cost of P225 million will supply a total of 225,000 kilowatts of electric power. Likewise finished are the hydroelectric projects in Digos and Talomo, Davao; in Loboc, Bohol; in Penaranda, Nueva Ecija; in Amburayan, La Union; in Balombon, Catanduanes; in Lake Buhi-Barit, Camarines Sur; and in Camp Philips, Agusan, Bukidnon, supplying a total of 30.300 kilowatts.

Other Government Industrial Projects — Complementary to the increase in hydroelectric power capacity, various indus­trial projects were undertaken or authorized. These includ­ed the rehabilitation and modernization of the Naga Cement Plant and the completion and operation of the Iligan Steel Mills producing merchant steel bars. Already authorized is the construction of another unit of the Maria Cristina Fertilizer Plant costing P15 million and estimated to double its present fertilizer production. Establishment of a pig-iron smelting plant in Iligan, Lanao; in Jose Panganiban, Camarines Norte, and in Angat, Bulacan, costing P50 million to be financed from loans is under way in order to furnish the country with an integrated steel industry and to enable us to process our own iron ores instead of exporting them as such ores.

Sale of Government Enterprises — In fulfilment of the gov­ernmental policy of giving way to private capital whenever feasible and practicable, the Bacnotan Cement Plant of the CEPOC in La Union was sold to a private group at very reasonable terms. In the same manner, the Government’s shares in the Campania de Cellulosa de Filipinas were sold. Under this policy, the Government has offered for sale its participation in the Philippine Electrical Manufacturing Company and in the Manila Gas Corporation. It has also announced the outright sale of the Romblon Marble Project and the Pulp and Paper Mill. Proceeds from such sales would enable the government to pioneer and invest in areas where private capital hesitates to venture. Thus, the gov­ernment is in business only to pioneer and pave the way for private enterprise ultimately to take over.

Industrial Development Center — Channelling of American aid to the private industrial sector is being encouraged through the Industrial Development Center which, out­side of offering training courses and equipment demon­strations, has given dollar allocations totalling P33.7 million to 185 firms, long-term loans of P26 million to 46 firms, and guarantee-assistance on loans amounting to P9.5 mil­lion to 56 others, including Pi million for livestock develop­ment.

Reparations — Pending the organization of the Reparations Commission now in process, the bulk of the first two years of Japanese reparations goods and services has been ear­marked for Government offices and corporations, but start­ing with the second year schedule, a procurement program for the private sector has been put into effect which will furnish canning plants, fishing boats, ocean-going vessels, pulp and paper plants, machineries for cottage industries, and similar equipment for much needed industries. As of November, 1957, contracts for a total of P88.8 million worth of reparations items have been concluded.

PRODUCTION

National Income — The strong showing of the economy’s productive sector from 1954 to 1957, underlined the general efficacy of the policies and measures implemented by our Administration. Our national income increased at a steady rate from P7 billion in 1953 to P8.3 billion at the end of 1956, a gain of 18.6 per cent. All important sectors of the economy have advanced in this respect: agricultural income rose from P3 billion to P3.3 billion; mining, from only P107 million to P141 million; and manufacturing, from P834 million to P1.2 billion, registering a spectacular surge.

There has been no let-up in the steady development of our agriculture. The country’s cultivated area increased from 6 million hectares in 1953 to 7 million in 1957. Of this area, 5.5 million hectares are devoted to food crops and 1.6 million hectares to commercial crops. It is estimated that agriculture contributed about P3.5 billion or 40 per cent of the national income.

The greater flow today of income from construction, trade, transportation, and communications activity is added testi­mony that we have travelled a long and vigorous way from the ruins of war. It is not surprising then that a recent United Nations report has described the Philippines as having the highest record of production in this part of the world during the past ten years.

Per Capita Income — Population has increased by approx­imately 6 per cent since 1953, from 21.2 million to our 22.5 million. Yet in spite of the fact that we have 1.3 million more people today than in 1953, the average annual per capita income has gone up from P322 to P361, showing a 12 per cent improvement.

Volume of Physical Production — During the past four years we have seen the total domestic goods and services increased by 17.4 per cent. This development has been due to the phenomenal expansion of 47 per cent in manufacturing, 25 per cent in agriculture, and 13 per cent in mining. We have also witnessed the establishment or 533 “new and necessary” industries out of 830 granted tax-exemption privileges by the government under Republic Act No. 901. Non-agricul­tural employment in 1289 establishments in the country has risen by 14.5 per cent during this period of expansion. Since 1954, more than 5586 manufacturing concerns have been established, many of which are producing commodities which we had to import in the past.

In spite of the substantial gain shown by the economy during the last four years, the country still has to increase production with greater diversity at a pace faster than the rapid population growth Increased production for increased export and increased volume of domestic trade is the key to the solution of our problems of unemployment and unfavorable balance of payments.

The fact that the Philippines is still far from producing all the needs of the country underscores the continuing im­portance of foreign trade to our economy. There are certain consumer goods which we cannot now produce or hope to produce in the near future, but are nevertheless basic to maintain standards of living and public health. Among these are medicine and certain essential foodstuffs. We also have to import an increasing volume of machinery and raw materials required by our growing domestic industries.

Foreign Exchange Receipts — With their gradual removal al­ready envisioned, exchange and import controls with all their attendant administrative difficulties continued to be a necessary part of the economic life during the last four years. Our aggregate capacity for external payments was inadequate to finance our increasing import requirements and servicing of foreign capital. Although the trade rela­tions with the United States were somewhat improved by the Laurel-Langley Agreement, the trade imbalance per­sisted, partly owing to the loopholes in the controls and partly to the additional import demands generated by our developing industries. From 1954 to 1957 our foreign ex­change earnings reached the record total of $1.7 billion. However, our import payments amounted to $2.3 billion. The trade deficit of $600 million had to be paid from the dollar reserves. Aside from the vulnerability to wide fluc­tuations in world prices and the demand inherent in the raw material nature of our exports, the sale of our export prod­ucts has been limited by trade restrictions in industrial countries and their discovery of cheaper substitutes.

Further affecting our foreign exchange receipts was the undue use of barter under Republic Act No. 1410. This diverted a considerable part of our dollar earnings into hoarded deposits abroad. It also facilitated additional non-essential imports and contributed to our failure to fill our sugar quota to the United States in 1957. Thus, the re-examination of Republic Act No. 1410 recommends itself to the attention of Congress. For the same reasons, I vetoed Senate Bill No. 167, known as the Dollar Retention law, and suspended temporarily the processing of barter applications.

That we have succeeded to a certain extent in the judi­cious use of our international reserve to secure benefits to the economy is evident from. the specific economic gains pre­viously cited and the steady change in the pattern of our imports since 1949, when the government undertook to manage the country’s foreign exchange resources directly.

Changing Trade Patterns — Of our total import disburse­ment from 1954 to November, 1957, $0.4 billion went for the purchase of capital goods with which we are building the base of our industries, $1.2 billion for raw materials to feed our growing number of factories, and $0.5 billion for consumer goods to maintain the well-being and living standards of our people. We also find that Philippine trade has diversified considerably since 1954. In that year almost 64 per cent of our total trade was carried with one country, the United States. Today, with our total trade expanded from P1.8 billion in 1954 to P1.9 billion, we have channelled 42 per cent of it to Europe, Asia, and Central and South Amer­ica. This geographical broadening of our trade is an en­couraging feign of growing stability and lessened dependence on a single country us the source of our imports and the market for our exports.

LABOR

There was considerable improvement in labor-manage­ment relations. Last year, 135 collective bargaining con­tracts were concluded. During the same period, 412 labor unions were accredited, bringing the total to 2676 since 1954. Eight regional offices, in addition to those in Manila, were set up in strategic points throughout the country to serve the nine million Filipino workers. Of the 57 strikes dec­lared during the past year, 50 were satisfactorily settled through conciliation. Under the Workmen’s Compensation Act, P8 million were paid to labor. Matching its acquisition of a widening range of improvements and benefits, labor is developing a deeper sense of responsibility which is helpful to industrial peace.

While the objective of affording our government employ­ees more time for leisure and self-improvement through the enactment of the five-day law is laudable, its implementa­tion has created certain problems in various government units. We should, therefore, give serious study to these problems, as they would affect the adoption of a general policy in this regard.

With respect to unemployment, our program of economic development will precisely produce increased job opportuni­ties. While we believe that we are in some measure taking care of the annual additions to the employable labor force the backlog of unemployment is expected to be absorbed by the accelerated pace of our industries as well as their logical expansion consistent with our resources.

THE PRESENT PROBLEMS AND THE NECESSITY FOR AUSTERITY

Calculated Risk — The Magsaysay Administration fully real­ized that the problem of mobilizing the resources necessary to implement the policy of accelerated development would be a difficult and complex task. It was, nevertheless, a task that had to be done if the country was to attain an economic independence compatible with its political sovereignty. Accordingly, the Administration boldly resorted to the liberal use of national credit to cover the inevitable gap inherent in our underdeveloped country, between the growth of needed investment and voluntary savings. The only other alternative would have been to cut our essential develop­ment investment to a point where the budget would be balanced with no risk of inflation but at which economic forces would be at a standstill.

The aroused desires of our masses for improving their lot and the threat of communism left no choice to the Administration but to take the calculated risk inherent in the generous use of national credit for financing economic development. The risk that the program might generate inflationary pressures was taken after a careful appraisal of the situation and with the firm determination on the part of the Administration to retrench in its budgets and adopt safeguards whenever pressures would develop that would produce adverse effects on the economy.

Failure of Envisioned Conditions — Unfortunately, the envisioned conditions in the accepted program of development failed to materialize within the estimated time. Many of the proposed tax measures failed to get congressional approval while outlays for essential government services increased in response to the demands of a growing population, thus aggravating the inflationary pressures generated by the development spending. On the other hand, the private sector responded enthusiastically to the impulse policies of the development program which included tax incentives, subsidies, protection, and easy credit. As a result, private investment expanded at a rate beyond what was allocated in the budget of real resources. Most of the investment was at the same time diverted to capital intensive projects that required substantial amounts of foreign exchange. Likewise, the foreign exchange receipts of the country were undermined by overshipments, overpricing of imports and underpricing of exports, smuggling, and other practices to circumvent controls.

Upsetting further the forecasted monetary implications of the program were the continued inflationary pressures abroad, the Suez crisis, the rise in freight charges, all of which were reflected in a rise of prices of industrial and consumer goods that the country buys from foreign countries. As a result, the heavy spending for development of both the private and the public sectors exceeded the country’s ability to produce and its capacity to export.

The Administration’s program of development could not thus but unleash inflationary pressures; so the major task of the Administration was the prevention of such pressures from jeopardizing the development efforts and the living standards of the masses. Despite the inflationary effects of the program, however, domestic prices were kept at reasonable levels considered tolerable for a growing eco­nomy, by drawing on our international- reserve. In 1949, when exchange control was established, the consumer price index, with 1955 as base, was 101.6. By 1956, the index had settled at 102.7 after slipping down from the 1952 peak of 106.1 points.

Sacrifice of International Reserve — Without resorting to substantial foreign assistance, we achieved our economic progress at some sacrifice of our international reserve. The question of why the country’s international reserve has con­tinued to decline in spite of controls finds an answer in our committed policy of development within a framework of monetary stability. The reserve has not been dissipated as the pattern of importation clearly demonstrates. It has been increasingly put to use to purchase the machinery and the tools of our industrialization without which no satis­factory solution to the problems of poverty and unemploy­ment would ever be possible. In addition to the increased requirements of our growing industries, we dipped into our reserve for the expanding needs of our growing population for imported essential consumer goods. However, we can­not continue to draw on our dwindling reserve indefinitely at the present pace without undermining the international value of the peso and completely setting back our develop­ment program completely set at its crucial stages.

As we reached this limit, in drawing on our international reserve as the inflationary effects of the heavy spending for development became correspondingly greater on the domes­tic economy as indicated by recent spiraling of prices. No one in this country considers inflation compatible in our democratic system. Aside from its manifest social in­justices, it creates social unrest. The Government and our citizenry are determined to insure economic and monetary stability even if this means a temporary retrenchment in our program.

PROBLEMS AND RECOMMENDED SOLUTIONS

Thus far, I have presented to you a picture of our country that glows with the record of our growth and achievements. It is something of which we can justly be proud. But it would not be realistic and true to life if I did not point out its dark side. Life after all is a blend of sunlight and shadows, of successes and failures, of joys and sorrows. We do have problems and serious ones that challenge the best in us to solve them. Self-denial and even some sacri­fices may be needed. We have the problems of food in­sufficiency, unemployment, rising prices, dwindling inter­national reserve, decreasing revenue collections, increasing budgetary requirements, and other problems of equal importance and urgency. But with faith and courage we will meet these problems and solve them to the satisfaction of our people.

Economic problems are not solved in a day, and foreign assistance does not immediately jump at the beck of oppor­tunity. We must, therefore, face the fact that we shall have to rely mainly on our own resources if we are to proceed with our development. It is clear that we cannot continue to draw on our international reserve at the present rate. But a slackening for a time of our consumption of dollars would mean either cutting down our imports of machinery and raw materials—or sacrificing more of our consumer imports in favor of the industrial. The cause of economic progress constrains us to take the latter course, while efforts are being exerted to explore sources of new capital from abroad.

We cannot expect to bring about the degree of economic improvement which we have set for our country without diverting a higher proportion of the national income to cap­ital investment. Such a course inescapably entails our fore­going of less essential consumption and wasteful investment. This implies a policy of voluntary austerity on the part of our people since we are a democratic nation. Sacrifice and a policy of austerity will have to be adopted temporarily on many fronts.

Meaning of Austerity — Austerity as a policy means temper­ate spending. It signifies more work, more thrift, more pro­ductive investment, and more efficiency. It means less im­ports and less extravagant consumption. It is a challenge to our resiliency as a people to change our past habits and make thrift and economy our everyday way of living. Im­posed on us by harsh realities; the exercise of austerity in our everyday life is a desirable end in itself. The Govern­ment will do all in its power to direct the main impact of this policy against, extravagant consumption and ostenta­tious living in a way that: will not affect the basic living standard of the ordinary individual. Curbing such con­sumption and eliminating wasteful and unproductive activ­ities the only safe and sound way by which we can move ahead in our development program without running the risk of national retrogression. The situation calls for continuing energetic and courageous action on our part.

Retrenchment Measures Adopted — During the early part of 1957, the Central Bank tightened existing selective control measures directed to meet the urgent requirements of trade and industry and arrest the expansion of credit for non-­productive and speculative activities. Parallel to this, the bond financing of P264 million announced to Congress by my late predecessor was reduced to P250 million in May 1957 and to P194 million in August of the same year. Early this year, the amount was further pared down to P145 million.

Other measures of monetary retrenchment included the raising of the rediscount rate to 4 ½ per cent in September and the imposition of pre-import cash deposits in December.

The Cabinet is studying ways and means of suspending temporarily certain public services or expenditures that can be deferred. To improve our international reserve position, I have plugged loopholes in our controls and have suspended private barter transactions. I have also created a Producers Incentives Committee to look into feasible and practical ways of stimulating production, especially for exports. I am now exploring ways of promoting export expansion to bolster our international reserve. Arrangements for the receipt and distribution of Japanese reparations have been advanced.

These measures we have adopted so far to relieve the mounting strain on our scare resources, may be drastic in certain respects. They are however, necessary to provide economy with a breathing period. Meantime, we are changing the phase of our economic program on a more selective basis to ensure that our efforts and resources, instead of being dissipated, are devoted first to the most important economic pursuits.

PROPSED COURSES OF ACTION

While adhering to the long-range overall goal of a balanced agro-industrial economic development, we have short-range targets that require our immediate and urgent attention if we are to surmount our present difficulties.

I. SELF-SUFFICIENCY IN FOODSTUFFS

Our first and immediate goal, as I have already announced in my inaugural address, is self-sufficiency in food, specifically in rice, corn, and fish. It is a challenge to our industry and sense of proportion as a people that, blessed with vast and virgin lands and a favourable climate, we have so far failed to produce enough rice and corn to feed ourselves. Likewise, endowed with great bodies of water from which fish of all varieties can be had for the taking, we cannot supply even the minimum needs of our people. Yet, these commodities are the real index to our national well-being. They also exert a profound influence on the general level of prices. Abundant cheap rice may be our most effective weapon against inflation. I therefore propose an intensified rice production estimated to cost P20 million and expected to increase the rice yield by 6 million cavanes in the first year alone which, at P10 per cavan, would mean P60 million additional income,

The ABC of Food Sufficiency Program — Under this program, we envisaged: (a) the distribution of fertilizers, selected seeds and insecticides to small farmers of food crops; (b) the speeding up of the completion of irrigation projects now underway; and (c) the building of impounding reservoirs to guarantee adequate water supply even during drought. We must provide other aids and devise incentives, preferably in kind, and emphasize intensive and scientific cultivation. Similar measures must be taken with respect to fish and fowls and livestock.

Apropos of producing more foodstuffs, I further recom­mend that the fullest encouragement be given to food conser­vation and food preserving industries. The attainment of food sufficiency projected in this program can be of only limited benefits unless the surplus can be processed and stored for future use. This should help to ensure year-round availability of otherwise perishable commodities and to eliminate sharp seasonal price fluctuations.

I would also like to see the establishment of more com­modity exchanges for our agricultural crops.

II. FULLER UTILIZATION AND GREATER CONSERVATION OF NATURAL RESOURCES

We must not take for granted that our natural resources cannot be exhausted. They are direct blessings from the Divine Providence and it behooves us to utilize them econo­mically and scientifically and to conserve and preserve them properly. The cutting of timber must be followed by reforestation; fishing must be followed by replenishment of our river and lakes with fry; mining must be done with high recovery method; and farming must be done with refertilization.

We often tell ourselves that we have natural resources greater in proportion than those of most other countries in the world. This is true. We have mineral wealth beneath our valleys and in the bowels of our mountains. Our nickel deposits in the Surigao reservation alone are said to be worth P10 million. In this connection, may I invite the attention of Congress that the law authorizing the develop­ment and exploitation of the Surigao deposits failed to attract bidders and should be amended, to liberalize its terms.

Perhaps even more important than the exploitation of our natural resources, however, is their proper conservation. All ways and means to stop the dynamiting of fish must be found; we must intensify fish culture in our fishing grounds. The law requiring the reforestation of areas subjected to lumber operation has not worked in practice, resulting in denuded forests and consequent disastrous floods and droughts. It will perhaps be necessary to withhold the release of cut timber from sale until after the concessionaire has complied with reforestation requirements. Mining must be scientific so that extraction is thorough. Unextracted ores in abandoned or collapsed tunnels or pits are in most cases forever given up and lost. . Lands must not be allowed to reach exhaustion but must be constantly kept productive by contour plowing, fertilizing, fallowing and other scientific measures. Our natural resources have been extended by the Almighty for the benefit of Filipinos until the end of time. It is our sacred obligation to conserve our national patrimony and transmit it to our posterity undiminished until time is no more.

III. APPROPRIATION FOR SCIENTIFIC RESEARCH

Intensive and extensive scientific research is a necessary hand-maiden of both the utilization and conservation of natural resources. I, therefore, request more appropriations for scientific research. Positive encouragement must be extended to private industry and the universities to enable them to cooperate to their fullest capacity with the Govern­ment to the end that they may ultimately take over the burden of such research work. The reduction of production costs, for instance, perhaps by simplified and more scientific procedures and by increased utilization of by-products, may save many of our export industries from adverse effects of the liquidation of the free trade with the United States. Research may enable us to raise all the cotton and ramie we need for our textile industry, kenaf for our bags, and the rubber for our tire and rubber industry. It may lead to the discovery of new uses, as raw materials or food or medicine or chemicals, of our crops, plants, and other pro­ducts, and to the invention of machines and equipment suited to our farms, forests, and other needs.

I urge the coordination of the work of the different re­search and scientific agencies with a view to obtaining maximum results.

IV. STABILIZATION OF FISCAL POSITION

As a first step towards the stabilization of the fiscal posi­tion of the Government, we must reinvigorate our revenue collection services by extending their intensive efforts in areas beyond Manila and take the necessary measures to insure that existing taxes are collected efficiently and equitably. To supplement our present revenues to meet the expanding needs of our growing population for essential government services, I am presenting in my budget message tax proposals designed to distribute the tax burden justly and fairly in accordance with the principle of ability to pay.

I propose a re-examination of the present policy of grant­ing tax exemption to new and necessary industries with a view to correcting certain unsound pattern of investment resulting from the present policy.

We must revise our policy of price support so as to exclude low-grade or sub-standard products. The need for this re­vision is clearly demonstrated by the price support given to leaf tobacco under Republic Act No. 1194. To encourage low-grade production is wasteful and self-defeating.

We are committed to a gradual removal of controls. To­wards this end, even within the restrictions of the Laurel-Langely Agreement, we must make more resourceful uses of tariffs such as the more widespread and more ingenious application of special duties.

V. EXPANSION OF EXPORTS

As demonstrated by our experience, our economic devel­opment hinges significantly on our export trade; neverthe­less, several of our export promotion measures have not been updated since we became independent. In order to make export expansion more feasible, I submit the following measures for your consideration:

1. To give top priority and incentives to more extensive processing of local raw materials whose production or ex­traction has already undergone some development. Such incentives may take the form of preferential treatment for processed goods out of local raw materials as against the export of materials in their raw state..

2. To make more vigorous use of economic diplomacy for the more profitable marketing of our products and the development of new markets.

3. To broaden the economic functions of our overseas diplomatic and consular offices.

4. To improve the quality of our export products.

5. To accelerate the diversification of our export trade by promoting research, market studies, improvement of pro­ducts, and greater utilization of by-products.

6. To set up standards and grades for our manufactured products which should be effectively administered.

VI. REDIRECTION OF AVAILABLE CREDIT RESOURCES AND REORGANIZATION OF ECONOMIC AND BANKING BODIES

We must channel most of our credit and financial resources to enterprises that are immediately productive, particularly those that turn out goods needed by our people.

In line with the policy of doing first things first, I recom­mend that all arms and instruments of the government charged with the formulation and implementation of eco­nomic policies be endowed with efficient and effective or­ganizations. I, therefore, urge the amendment of the Cen­tral Bank Charter so as to make possible the appointment of more members of the Monetary Board on full-time basis. I submit that the National Economic Council, while it should maintain its advisory character should be provided with an’ executive arm to carry out the economic policies approved by the Council and confirmed by the President.

Investment of Reparations Proceeds — It is also my considered opinion and I so recommend:

That the proceeds from the sales of capital goods from reparations should constitute a perpetual source of funds for investment in our economic development. To this end, the establishment of an Economic Development Bank capitalized with these proceeds is indicated. This is perhaps the only way to bring our people not only of this generation but of those yet to be born the benefits of reparations.

Mobilizing Hoarded Capital — Likewise, we should look into ways and means of flushing out hoarded capital so that it may be gainfully utilized. As an inducement for domestic capital to come out of hiding, we may offer tax amnesty and set higher interest rates for savings and time deposits.

VII. MORE EFFICIENT UTILIZATION OF OUR FOREIGN RESOURCES

While economic controls cannot be immediately abolished, we must see to it that the administrative difficulties inherent in controls be kept to a minimum. As earlier stated, some of the objectives of these controls can be attained through a wise management of the tariff and customs laws which, however, will require amendatory legislation. The creation of a single agency of full-time members to centralize economic controls which are at present handled by the Central Bank, the Department of Commerce, the NAMARCO, and the Export Control Committee may be necessary while the government is directing its efforts to do away ultimately with controls.

At the same time we are stepping up the campaign against smuggling at our ports, sea frontiers, and other areas in order to prevent the leakage of dollars and the evasion of taxes.

We must try to get the optimum advantage out of our limited foreign exchange resources by funnelling them to these industries that can contribute most to our national income. Overcrowding in many industries needing imported capital equipment, investing in many lines of production not basic to our development, and importation of non-essential consumption goods are unnecessary drains on our foreign exchange. We should bring existing industries to their efficient productive capacity before going ahead with any but the most necessary new ventures.

Our domestic transportation system must be extensively revamped so as to do away with wasteful practices and conserve fuel and spare parts.

The NAMARCO should shift more of its activities to handling local manufacturers. Its dollar quota should be used for legitimate needs of Filipino retail business in accordance with the spirit of the Retail Trade Nationalization Act.

VIII. ENCOURAGEMENT AND PROMOTION OF OUR COTTAGE INDUSTRIES

We must try to extend greater incentives and encouragement to our small producers on the cottage industry level.

Properly developed, this broad sector of the national produc­tivity will be a tremendous boost to our economy as well as an additional means of tapping the talents and ingenuity which we as a people possess. These cottage industries, integrated and strengthened through the establishment of a common clearing house for the regulation of standards as well as for marketing and financing facilities, can become a solid base for further industrial growth.

IX. ATTRACTION OF FOREIGN INVESTMENTS, ASSISTANCE, AND FINANCING

We must define in clear terms our foreign investment policy. It is my considered opinion that foreign invest­ments, through welcome, should be admitted on a selective basis in order that legitimate Filipino business may be protected, particularly in fields already being fully exploited by our own nationals. The remittance of net profits and repatriation of capital by foreign investors should be under most reasonable terms compatible with our exchange re­sources and development program. While efforts to obtain foreign loans for our development is believed necessary, domestic capital must be encouraged to participate fully in Philippine business.

X. PRICE STABILITY

I must invite your urgent attention to the rise in prices of prime commodities, which appears to be artificial, that is causing undue hardships to our people. The preserva­tion of the nation is the supreme law which no one can violate with impunity. I, therefore, ask Congress for broad powers to handle the situation swiftly and effectively in order to protect the people from those who would exploit them and who seem motivated by insatiable greed for profit.

XI. NATIONAL DEFENSE

The advent of radical changes in military concepts oc­casioned by the strides made in science and technology makes it imperative for us to place under constant review the problems and requirements of our national defense es­tablishment.

As the minimum requirement of adequate defense, I have earlier emphasized the necessity of reassessing the organ­izational structure of our Armed Forces in such a way as to make it a balanced and effective instrument for national defense. The aims of such a reassessment is to make our defense plans realistically consistent with our national cap­ability.

I believe that our best contribution to our allies in the de­fense of the free world lies first in our ability to maintain peace and security in our own country.

I endorse the modernization of our Armed Forces as far as our resources would permit.

XII. WORLD DISARMAMENT

I would like to restate solemnly my stand in favor of world disarmament. We should support in every possible and rea­sonable way all sincere efforts towards world disarmament. I understand that the world powers have spent and are spending billions of dollars in the armament race. With world disarmament, this huge expenditure can be devoted to the removal of the causes of war and the promotion of human welfare. In this way the human race will be as­sured of peace, goodwill, happiness, and contentment.

XIII. SHIFT OF EMPHASIS IN EDUCATION

It is time to gear our educational system to our economic development program. Since up-to-date textbooks and modern equipment essential to efficient instruction are not being supplied adequately to our schools, their acquisition through sufficient appropriation should be given serious con­sideration.

XIV. PROMOTION OF TOURISM AND CULTURE

As a means of augmenting our foreign earnings, we must promote tourism and improve local facilities to take care of the increased passenger and cargo traffic that passes through our country. Our cultural landmarks and public places must be kept in good condition, and new facilities for cultural expression and preservation must be provided. Art is dear to the Filipino soul.

XV. EXPANSION OF SOCIAL SERVICES

We must improve and expand our social services. To the many measures long in effect to promote this objective, was added only five months ago the Social Security Law which provides a system of mass insurance covering the non-governmental sector against disability, sickness, old age, and death. Before the passage of the law, less than three per cent of our nine million labor force enjoyed the protec­tion of social insurance.

The combined savings of non-governmental employees augmented by the contribution, of employers have already placed in the coffers of the system the sum of P9 million which, invested in RFC bonds, has become available for economic development. In time, the system will be one of the richest sources of such capital. It appears advisable, however, that the law creating the system be amended to improve the benefits and conditions of membership and to make the system a more effective source of funds for eco­nomic development.

XVI. PUBLIC SERVICE

I shall continue to insist on honesty and integrity in the public service. I must serve stern warning that erring public servants will be dealt with severely but justly. De­serving employees, however, will be rewarded. This Ad­ministration will exert its utmost in combating all forms of graft and corruption in the government.

gentlemen of the congress: I have tried to report to you the true state of the nation. In addition to the rec­ommendations I have submitted, I may from time to time during your session submit other recommendations for your consideration. I am sure that with the guidance of the Divine Providence and the unstinted cooperation of Con­gress, which counts among its members some of the finest minds and talents in our country, we shall in this crucial year begin our tenure by meeting the great expectations of our people with decisiveness, swiftness, boldness, and patriotism.