Ferdinand Marcos' Third State of the Nation Address

Two years ago I came before you for the first time to report on the state of the nation and I gave you a faithful picture of a nation bogged in crisis and a people gripped by fear of the future. Barely a year ago I came again before you to report that the crisis had been surmounted and that the people had a new lease on hope and faith. Today, as I pass the halfway mark of my term of office, lam glad to report that in the year just past we have sustained the momentum of our advance; we have moved forward at an accelerated and accelerating rate.

Many grave problems remain and most of our people’s needs remain acute. But today we face them with the confidence of self-made success; we have lost our fear of the future; problems have become challenges and goals to action.

In terms of history two years is just a fleeting instant in the life of a nation. What could be done in two years, set against the centuries-old hard crust of problems—the mass poverty, ignorance and disease that make up the main heritage of a former subject people?

But we believed in our people. We believed that in two years a resolute people could do something meaningful for themselves—perhaps meaningful enough to alter their destiny. We set out two years ago to accomplish some basic tasks which popular belief held to be impossible. The results of our common labors hearten us. For they show that the impossible can be attained and that in some respects, it has in fact been attained.

Some of these achievements are in fact historic breakthroughs for our people in their march to a fuller life. Others are much less spectacular, but in the long run just as important. Consider the following:

—We have succeeded in solving our chronic food shortage. The country has attained self-sufficiency in rice and corn one year ahead of the deadline set for it by our Administration. This fulfills a historic dream of several generations of Filipinos who equated the solution of the rice problem with the nation’s self-esteem.

—We have built up the physical underpinnings of our economic develop­ment faster and more thoroughly than any other Administration before us. The government’s output of roads, bridges, irrigation dams, airports, portworks and other infrastructure projects exceeded by several hundred per cent the total accomplishments of preceding Administrations.

—We have attained the growth objective set in our four-year development program. In agriculture, the rate of growth in the past two years averaged 6 per cent, which exceeds the target of 4 per cent in the program. In manufacturing, the target increase was 7.1 per cent; the actual increase has been placed at 8.7 per cent. We have increased per capita income. In terms of real national income the preliminary estimates show an increase of 5.4 per cent against the goal of only 5 per cent.

Investments in 1967, according to preliminary figures of the NEC, amounted to P5.375 billion compared to P4.562 billion in 1966, showing a growth rate of 17.8 per cent. An independent, non-governmental source, the Economic Development Foundation, places the figure at P5.614 billion, or an increase of 23 per cent.

Paid-in capital of newly registered corporations for the period January 10 November, 1967, totalled P385 million compared to P358 million in 1966 and P294 million in 1965. Increased capitalization of existing corporations amounted to P1,108 million in 1967 compared to P824 million in 1966.

—We have boosted rural employment by about 10 per cent and community development self-projects by 68 per cent over the preceding years.

—We have coped successfully with the runaway problem of housing for the nation’s school children in the face of a population explosion. In less than two years’ time, the production of school buildings dwarfed me combined total of three preceding Administrations during the past dozen years.

—We have increased the collection of taxes by 21 per cent over the pre­vious years and in the second semester of Fiscal Year 1966-1967 customs collection increased by about 50 per cent over the comparable period of the preceding year.

—We have successfully carried out land reform for the first time on a meaningful scale, encompassing the second district of Pampanga. With our assistance, hundreds of leasehold agreements were initialed throughout Central Luzon. We have demonstrated that land reform is attainable under a sincere and determined government.

—Confronted with the threat of a foreign-inspired rebellion in Central Luzon, we honestly sought to turn this grave danger into a great opportunity for the development of this pivotal region. We have spurned counsel to further fratricide; we welcome the reconciliation of brothers; we eschew civil strife unless forced upon us by lawless and unscrupulous elements.

—The problem of smuggling which used to overshadow most other problems in our national life has been placed fully under control. Direct smuggling has been wiped out. Technical smuggling is still being combatted. But the dramatic rise in revenue collections and in textile production proves that this form of smuggling, which is more difficult to control, is being sharply curtailed.

—The conservation of our natural resources, especially forestry and fisheries, is now a major program of our government. It requires strict compliance with the laws on reforestation and discourages marginal and therefore wasteful logging. This solicitude of the government will extend to the entire patrimony of the nation.

—We have dutifully ploughed back our earnings as a nation to the tasks of development. We have become a more disciplined and far-sighted nation. We devote 60 per cent of our budget to social and economic development. A more dramatic index of our new orientation towards production rather than consumption is this fact: up to 84 per cent of our imports in the previous year consisted of capital goods, reversing the traditional proportion of non-essential to essential importations.

Between January 1966 and September, 1967, government financial institu­tions provided long-term financial assistance to private enterprise in the amount of P4.4 billion in loans, equity investments, and guarantees. Of this amount, about 40 per cent went into manufacturing and about P1 billion consisted of assistance to rehabilitate industries that became distressed during the previous Administration.

—We have developed a more creative role for the Armed Forces of the Philippines in the task of economic and social development. Thus our defense effort now serves also our peaceful development goals which, in the long run, constitute the true ramparts of our security as a democratic society.

—We have introduced administrative innovations and reforms which have raised the level of public service significantly, especially in the fields of rice production, land reform, infrastructure, and manpower development — through systematic coordination of related programs. This has filled up a gigantic gap in public administration which had made it impossible for government-wide programs to succeed in the past.

—We have achieved the first stages of effective local self-government through decentralization. In the past year the local governments increased significantly their share in internal revenue taxes and were relieved of financial burdens in the upkeep of agricultural extension workers and rural health units.

—We have laid the basis for industrial democracy through the creation of a private securities market and the increasing participation of the public in the financing of economic development. The goat ofP200 million in DBP progress bonds has been oversubscribed.

—The general peace and order has been maintained and criminality has been reduced in most areas, except in the metropolitan areas where the national agencies do not exercise jurisdiction.

—The price of rice has been stabilized though the last two typhoons last year disturbed the prices of other components such as vegetables. The problem now is how to keep the price of rice profitable for the farmers.

—For the first time our people have witnessed the punishment of Fiscals and Judges, up to the level of Judges of the Court of First Instance, for purported abuse of their offices. Innovations have been introduced to facilitate justice, changes that expedite preliminary investigations, eliminate red tape, and deny bail to those who pose a grave danger to society and seek the im­mediate prosecution and punishment of feared and influential criminals.

—The National Police Commission has been organized and strengthened. The rules and regulations for all police forces have been finalized. All major services of the Armed Forces have been utilized in the peace and order drive, resulting in the immediate breakup of pirate gangs in the Visayas and Mindanao. The government today is coping more effectively with the menace from roving Huk bands, smuggling syndicates, carnapping groups, kidnap­ping, rape and robbery hoodlums and teenage gangs.

—Our foreign exchange reserves more than doubled in the past two years, from almost $100 million in 1965 to $237 million as of January 1968.

—After twenty years of muddling through and groping for a policy on in­vestment, we have now an Investment Act. A Board of Investments is now preparing the rules and regulations and the priority areas for investment. This should clear up unnecessary blocks to foreign and domestic investments in our country.

—Education has become more than ever a reality for the poor. About 8,100 new school buildings have been constructed and erected. Scholarship funds and student loans funds for the poor have been extended.

—With the substantial increase in rural health units and free medicine for the needy, medical facilities have been extended to the indigent population all over the country.

—We initiated the improved conduct of political campaigns by reducing the period for campaigning and by setting up a workable machinery for the curtailment of election expenditures.

—We have maintained our military security, dealt a firm hand against subversion, and increased the atmosphere of friendship and security with our common neighbors.

—More than P520 million have been channeled into the rural areas in 1967 as a result of the increase in rice production and the subsidy to rice and corn. This has promoted a new demand among fanners for the acquisition of modern farming equipment and household goods. Thus, the increased income of the fanners becomes mass purchasing power for the goods of industry and stimu­lates further economic growth.

—Subsuming all these achievements is a new spirit and a new outlook dis­cernible in the Filipino people—the will to confront the tasks of development and of nation-building purposively and energetically.

These are achievements not of a particular government administration but of the Filipino people as a whole. All these results, realized with no increase in material resources, tell a story about us—a success story that exhilarates by its very novelty and rarity in our national experience. We are no longer what we always believed we were—a nation of incompetents and failures. We have become a nation of achievers. We have begun to undergo the experience of competence which forms the basis of genuine self-confidence for men and nations.

There is a new birth of confidence in ourselves as Filipinos. This is in itself a source of great creative power. It reminds us of our distinguished heritage as the nation that pioneered the libertarian movement in Asia and founded the first democratic republic in our part of the world.

Some Goals for 1968. This year we shall be called upon to initiate bold steps to support the pace of development that we have begun, to maintain the momentum of our social and economic advance, and to achieve within the next two years a meaningful degree of well-being among our people.

The experience of nations shows that the cost of development must be borne mainly by the people themselves. Increasingly, the burden of development will have to be shared by citizens in proportion to their economic means. It is in this spirit that the Administration plans to propose to the Congress this years sweeping reform in our traditional and inadequate tax structure. To act on this will requires an atmosphere of courage and civic spirit and the ability to face the unpleasant today in return for the just rewards of tomorrow.

It seems to me that this will put to a test the capacity for courage and statesmanship of the distinguished numbers of Congress.

We appeal to you for your support so that the means required to sustain the pace of our efforts for national development can be made available to the government.

I think we can now point to a well-defined consensus as to certain priorities that will demand our undivided attention and concern in the year just beginning.

A national consensus certainly stands behind the fuller implementation of the Land Reform, especially in Central Luzon.

A massive housing program for low-income groups will be launched under a coordinated leadership with various agencies of the government taking part. An energetic thrust in the field of manpower training will be carried out, to upgrade our labor skills and meet the growing needs of business and industry for technicians and skilled hands. We shall engage in a vigorous campaign for the promotion of Philippine export products to realize an increased amount of foreign exchange needed to provide the import requirements of our growing economy.

We shall concentrate great energies on the problem of peace and order. Local governments will be asked to play a more active role.

We shall press vigorously the existing efforts to assure our food self-suf­ficiency on a sustained basis, to meet the crisis posed by the lack of school-houses for our children, to conserve our natural resources, and to upgrade our human resources through adequate educational facilities.

Success of the Economic Program. As we look back over the last two years, we can say that, in general, we have good reasons to be pleased; and our satisfaction is heightened by the fact that, on the most important occasion so far given them to make their opinions felt, the great majority of our countrymen have shown that they agree with our estimate. Halfway through the Adminis­tration, and almost halfway through its economic program, both the progress and the prospects of the country are encouraging. Many serious problems still confront us; but some of the most critical ones have been handled with a success that has surpassed even our early expectations. A good start has been made toward solving the others.

The Administration addressed itself upon taking office to the three roost serious requirements:

1. Attaining self-sufficiency in food production;

2. Providing the necessary infrastructure to support our industrial program and serve the growing population; and

3. Assuring the country of large and steadily growing foreign exchange earnings, under the present particularly difficult conditions.

A necessary condition to securing these was the solution of the peace and order problem.

These problems had to be solved to attain the basic objective of the economic program, which was to increase real income per head by about 2.5 per cent annually. This meant that gross national product had to increase at the average of 6.1 per cent annually over the four years of the plan: the target growth rates to increase progressively from 5.8 per cent in the first year to 6.3 per cent in the fourth year.

In the attainment of these targets, large amounts of both investible resources and foreign exchange were expected to be needed; and foreign exchange was thought harder to obtain. Domestic savings were expected to fall short of investment requirements by a total of P2.4 billion over the four years of the program; but the shortage of foreign exchange earnings as compared to import requirements was projected at P3.3 billion. A high priority was therefore attached to the expansion and diversification of our exports.

Progress. The end of last year was also the end of the first year and a half of the Four-Year Plan, and a partial comparison is now available of targets and accomplishments for fiscal year 1967. In most sectors, achievements have sur­passed expectations. The target growth rates for the first year of the program were 5.0 per cent for real national income and 5.8 per cent for real gross national product. A rough comparison may be made with actual growth rates obtained during the last calendar year. According to preliminary estimates, these were 5.4 per cent for real national income and 5.6 per cent for real gross national product: the first figure well over the target, and the second just under it.

The target growth rate for agriculture was 4.0 per cent for the four years of the plan. Over the last two years, our agricultural production index has been growing at almost 6 per cent annually. The increase in real agricultural value added was 5.1 per cent during the last year. Target growth rates were also exceeded in the transportation and commerce sectors and just about matched in the service sector. The manufacturing sector has responded vigorously to massive government support. I shall dwell later on the extent of this response.

Especially encouraging was the extremely high growth rate in agriculture over these two years, almost one and a half against the target rate that had seemed ambitious by the standards of the past. It is an indication that, well ahead of schedule, we have made a major breakthrough in food production. The National Economic Council has certified that we will have a substantial over-supply of rice at the end of the current crop year.

Industry. When this Administration took office in 1966, our manufacturing sector was in a state of deterioration. Many of our factories had sputtered to a stop or had substantially reduced their operations, laying off thousands of workers and leaving idle a considerable portion of our industrial capacity.

Recognizing the importance of industrial development to our country’s economic growth, we immediately instituted measures to relieve the manu­facturing sector.

Thus, we harnessed all government agencies to an unrelenting drive against smuggling. Tariffs on imports were strictly administered to protect local products; anti-dumping measures were intensified. On the positive side, our domestic industries were encouraged to step up operations, to expand and to diversify according to the demands of the local and foreign markets. Infra­structure projects were implemented to aid industrial undertakings. Capital investments were stimulated in both domestic and foreign sectors through the issuance of an Administrative Order to guide investments, the approval of an amendment to the Corporation Law to allow broader investments in mining ventures, and the enactment of an Investment Incentives Act designed to induce the rapid growth of industries.

The most tangible results of government assistance to industry in the past year were in financing. To alleviate the crisis of manufacturing and mining enterprises, the Development Bank of the Philippines accelerated the industrial refinancing program which the Administration launched in its first year. By November 1967 a total of P1,073 million had been channeled to distressed industrial enterprises under the program.

In addition, the Administration geared the lending operations of DBF, GSIS, SSS and PNB to the need to bolster the pace of industrialization. By the end of September last year, these financial institutions had extended accom­modations totalling four and a half billion pesos. Nearly 40 per cent of this figure, more than PI.7 billion, was coursed to mining and manufacturing enterprises.

The beneficial effects of this financial assistance and of these measures instituted to curb smuggling and protect the local products, can be readily seen in the upsurge of activity in our industrial sector. Production for the second quarter of last year, the latest available figure, exceeded the comparable 1966 level by 8.7 per cent. Formerly distressed industries have come up with definite signs of good health, particularly the textile industry which was floundering and hence required sizeable aid from the government. Other essential industries also showed significant improvement. The output of plywood rose by 14 per cent in 1967; veneer by 38 per cent; cement by 28 per cent; and tire manu­facturing by 20 per cent.

In general, mining and manufacturing in 1967 made very favorable im­provements over 1966, and even more from earlier years. Similarly, and sig­nificantly, electric power consumption rose by about 15 per cent from the level in 1966.

The gratifying trends in the operations of our existing industries have carried over to the business atmosphere. Our private sector—our entre­preneurs, investors and industrialists have shown a new faith in the future of Philippine industry. Some 2,112 new corporations were registered in 1967, an increase over the figure for 1966 and exceeding the registrations in 1965 by over 40 per cent. The subscribed capital stock of these corporations combined reached over P400 million, representing a tremendous amount of fresh capital pumped into Philippine industry. Out of these registrations, some 483 new companies with over P150 million in subscribed capital were in mining and manufacturing.

As to the actual implementation of industrial projects, we identified more than 40 major ventures in mining and manufacturing which started operations during the past two years of this Administration. The essential products which these projects are now adding to our industrial strength include great volumes of refractory chromite, magnetite, tiles, cement, plywood and veneer, resins, ammonium sulphate and liquid ammonia, carbon black, synthetic fabrics and petroleum products. A host of other large-sized plants are currently in the process of construction or expansion. Some will supplement existing production capacities, while others will introduce new product lines for the domestic market and for our export trade. The new capacities will include among others, steel products, copper ore and copper concentrates, pulp and paper, and plasticizers.

We have also reached the final stages of negotiations for the exploitation of our valuable nickel deposits in Mindanao, which offer the prospects of a huge new source of foreign exchange income for our economy from the export of nickel or ferro-nickel, mild steel billets and cobalt.

Financing for Development. We have succeeded in securing substantial financing abroad for our economic development projects. The support we helped secure for shipping has already been mentioned. Also, during the calendar year 1967, foreign funds amounting to P12.5 million were secured from the World Bank for the construction of the Bataan Thermal Plant in Limay and the Maria Cristina Hydroelectric Plant Unit 4 in Iligan City. These power projects, when completed generate 75.000KW from the Bataan Thermal Plant and an additional 50,000 KW from the Maria Cristina Unit 4.

Loan agreements with the AID were similarly approved during the year. Irrigation received a $4.7 million loan to finance the acquisition of equipment needed for irrigation construction and rehabilitation work. Also, a $2.0 million loan for undertaking feasibility studies was granted.

Assistance has likewise been granted to our export crops, of which the case of abaca may be cited. The production of abaca dipped by 4.9 per cent from 135.3 thousand metric tons in crop year 1966 to 128.7 thousand metric tons in crop year 1967. To alleviate the plight of this industry, the government extended financial help by releasing P2.5 million to the Abaca Corporation of the Philippines.

Prices of abaca were also threatened when the U.S. announced its decision to dispose of its abaca stockpile. The Philippine government intervened in behalf of this industry and secured an agreement for a more orderly schedule of disposal.

The Infrastructure Program. The accomplishments of the first two years of the government capital program are impressive; particularly impressive when one considers that they were done within the framework of limited gov­ernment financial resources. The expected new taxes failed to materialize; we relied instead on the more efficient and organized use of what was available. We cite the effective assistance of the Aimed Forces in implementing the road building and schoolhouse programs; we point to the proficient, productive performance of our dredging fleet. In infrastructure, here are our achievements over the last two years:

In highways, 515 kilometers were paved with concrete and 903 kilometers with asphalt; 3,167 kilometers of feeder roads were constructed and 7,685 lineal meters of temporary badges were replaced by permanent steel and reinforced concrete structures. The complete projects include roads and bridges thousands travel every day: the Manila North and South Diversion Roads, E. de los Santos Avenue, the Sayre Highway in Mindanao, the Cagayan Valley Road, and the Nagtahan and Guadalupe Bridges.

In irrigation, a total of 22 national gravity, 109 communal and 813 pump projects were undertaken, designed to irrigate a total of 161,670 hectares of farm lands, out of which 75,092 hectares were placed under irrigation during the 2-year period. Rehabilitation of the 79 existing systems provided extended water coverage to an additional 25.500 hectares.

In airports and airways, runways, taxiways and aprons in 25 airports were either constructed or improved and a terminal building for the Mactan Airport was constructed. In our effort to provide the improved communications facilities which are essential to safe air travel, we are attempting to provide an integrated nation-wide airways system under a turn-key deferred payment arrangement.

In ports and harbors, 55 new berths, 9 of which are for international shipping, were completed, with attendant port service facilities. The principal port projects were the completion of Piers 3 and 15 at the Manila South Harbor. The first phase of marginal wharf for the proposed Manila International Port is nearing completion, while the contract portion of Pier 16 at the North Harbor is already complete. Other major port projects included those at the ports of Tacloban, Zamboanga, Iligan, Dumaguete, Pagadian, Batangas, Pulupandan and Makan.

On 1 August 1966, by Presidential directive half of the Bureau of Public Works fleet of 14 dredges were transferred to the operational control of the Philippine Navy. Before the transfer the fleet had been dredging at the rate of 317,000 cubic meters a month. This total was immediately improved to 616,000 cubic meters a month; by December the fleet was dredging 1,500,000 cubic meters a month, almost a five-fold improvement. At the same time, the cost of dredging was cut to one-sixth of what it had previously been from P5.00 a cubic meter to P0.70 a cubic meter.

In power, 112,000 additional kilowatts capacity of electrical energy was added and work is continuing on projects to provide 225,000 kilowatts of new hydro and thermal power. Two major hydroelectric power projects were undertaken. One of these, the Angat project, was inaugurated last September 9; the other. Maria Cristina Unit 3 in Lanao. is almost complete. The Bataan Thermal Plant Unit I was started last August.

A total of 97 provincial waterworks projects were completed, of which 37 were improvements or extensions of existing systems; 365 artesian wells were drilled and 1,422 more rehabilitated, 35 springs were developed for water supply. The Manila and suburbs water supply project continues to receive special attention, and is expected to be completed by December 1968.

Twenty projects in major or regional flood control systems and 60 localized flood control projects were completed. The principal projects were projects to control rivers in Pampanga, Agno, Cotabato, Ilog-Hilabangan, Agusan, Bicol and Manila.

In school buildings, over 5,816 units of prefabricated 2-and 3-room steel and wooden types have been delivered to sites, of which 1,765 units of the steel type and 1,247 units of the wooden type were erected and another 1,145 units of the steel type were under construction. In addition, 1,179 schoolrooms of other various types were erected with 135 rooms more underway. These have the capacity to house 660,000 school children over our many rural and urban areas, assuming single-session classes of 40 pupils per class.

Finally, in the related field of transportation, the government was instrumental in securing significant addition to our shipping capacity, both interisland and international. With the use of German capital aid and under loans and guarantees provided by the Development Bank of the Philippines, four passenger-cargo liners and two bulk carriers were ordered by five inter­island shipping companies. Also during the year and likewise under DBF guarantee, two oil tankers with a total dead-weight tonnage of 173,000 were ordered for our international shipping fleet; they have increased our capacity for overseas cargo carriage by fully one-third.

Agriculture. The general success of our production program has already been mentioned; the success was most striking in the sector to which the gov­ernment devoted most attention, namely agriculture. For the last crop year, agricultural employment was up 10 per cent; instead of the target increase in production of 4 per cent annually, the actual yearly increase over the last two years has been about 6 per cent. For the current crop year, our supply of rice including importations will be 63.6 million sacks of 56 kilos. Our consumption over the same period will be no more than 55.1 million sacks. We shall therefore exceed our requirements by about 8.5 million sacks, or over 15 per. This excess, moreover, is accompanied by a handsome increase in the efficiency of production. From 30.8 sacks per hectare in crop year 1967, we shall rise to 32.8 sacks per hectare in crop year 1968, an increase of 6.5 per cent. This welcome situation has occurred in spite of severe typhoon damage; and the prospects for the next crop year are even brighter.

Increased Fish Production. At the same time we stepped up the development of our fishing industry by restocking inland waters with 1.6 million fish seeds, by intensifying the campaign against illegal fishing, and by promoting fishpond production through the opening up of new fishpond areas and the expansion of credit for the fishing industry. Last year alone the DBP pumped in P3,122,700 in long-term loans to the industry. As a result of these steps, we expect fish production to reach 705,300 metric tons this year, which would represent an increase of 10 per cent over the production last year.

Forestry and Conservation. We have achieved the full consolidation of timber licenses into viable units of not less than 20,000 hectares each with an annual allowable cut of not less than 25,000 cubic meters. We have also set 100,000 hectares as the maximum size of each logging concession. The result of these steps is the emergence of our forests as our second major foreign exchange earner.

We have also undertaken vigorous measures to conserve our forest areas, through the strict enforcement of the law against illegal cutting and through a sustained reforestation program which saw the planting last year of 139,273 hectares with 292 million tress using mainly such fast growing varieties as the Kaatoan Bangkal and the Albizzia Falcata. We have required logging concessionaires to conduct systematic tree-planting, which they religiously do now since failure to comply could mean cancellation of their permits.

In this way we have speeded up the systematic replenishment of our denuded forests and reduced the dangers which the wanton destruction of our forests areas in the past brought in its wake.

The Social Structure. The government continues to direct most of its expenditures toward the social infrastructure, and here again there are many bright spots to report. Under this heading we include the extension of government services to improve health, education and welfare, as well as the improvement of the efficiency with which these and other government services are provided.

Improved Government Organization. The improvement pf government organization is apparent in its performance, especially in such matters as the improvement of tax and customs collections and the success of the rice program. The most conspicuous of the improvements in organization are probably the various coordinating groups, such as those for rice and corn and infrastructure; but there have been many other innovations; and the morale of government employees has been raised as well as their salaries.

By improving our administrative machinery for collections of customs revenues, we have been able to increase net customs revenues accruing to the General Funds by 44.3 per cent from 1965 to 1967. On the other hand, imports increased by 30 per cent only during the same period.

The improvement in the administrative machinery has also helped diminish smuggling. The textile industry increased its production of cotton fabrics and knitted fabrics by 30 per cent and 43 per cent, respectively in 1967. On the other hand, specific tax revenues on cigarettes increased by 11.9 per cent in the calendar year just ended. These outstanding increases, in the industries most sensitive to smuggling, indicate the extent to which this social and economic evil has been brought under control.

Some new administrative projects and practices may be mentioned. The Decentralization Act of 1967 has been approved granting further autonomous powers to local governments. The allotment share of provinces and cities has been increased from 10 to 13 per cent and the allotment share of municipalities, from two to four per cent. To enable provincial and city governments to undertake field agricultural extension work and rural health work, they have been empowered to retain the amounts theretofore contributed by provincial, city and municipal governments to the National Government for these purposes. Steps are now being undertaken for the establishment and operation of a security printing plant to safeguard the printing, issuance, distribution and procurability of security printing jobs. Steps are also being taken for the early operation of the Board of Investments which has been created to encourage domestic and foreign investments in certain areas of economic activity to accelerate the sound development of our economy.

New Educational Perspectives. In education and manpower development, there have been many achievements; but our needs are very great, and lack of funds has prevented us from going as far as we would have liked. Nearly half a million children were admitted to the first grade this year, as well as 150,000 out-of-school youths, making a total of 7 million students in school; this is one out of five Filipinos. Three million textbooks are being produced for the Public School Textbook Program; the vocational education curriculum has been revised to make it more responsive to economic needs; and training centers have been established for cottage industry workers and urban squatters. And while government relationship with private education will veer towards encouragement and assistance in place of regulation and control, we have reconstituted the Board of National Education to help our schools become channels of change and development.

Our participation in Southeast Asian educational cooperation has attained for our country the establishment of two internationally-assisted centers for regional research and graduate study in agriculture and tropical medicine.

Land Reform: A Modernizing Process. The Land Reform program continues to improve the livelihood of our farmers as well as their dignity; here again, however, more could profitably have been done, if the funds had been forthcoming. Among other accomplishments, about 8,000 leasehold contracts were negotiated and entered into; about 80,000 hectares of private and public lands were disposed of, with another 21,000 under expropriation, or investiga­tion; and almost half a million hectares of disposable land were maintained or improved.

In land reform areas, credit assistance to farmers rose by 250 per cent over the previous year, with a total of P3,549,169 in loans released to 3,029 farmers working in an area of 13,762 hectares.

Also significant was the acquisition by the government of one private agricultural estate, thus finally inaugurating the land-buying activity of the Land Bank. With an area of 108.8433 hectares, the properly was purchased at a cost of P380,900, of which 10 per cent was paid in cash and 90 percent in Land Bank bonds.

Opportunities for Land Bank Bondholders. In this connection, a con­sortium of Filipino consultants has been formed for the purpose of identifying specific projects in which Land Bank bond-holders may invest. The US-AID has made available to the National Economic Council the sum of P600.000 to finance this activity. Initially some Central Luzon land owners have expressed preference to invest in fishpond, beef and dairy projects. At present the consortium is studying the possible sites of these projects.

All this demonstrates the validity of our decision to proclaim the whole second district of Pampanga a land reform area, a bold decision which, for the first time, raised the implementation of land reform to a serious level. Our experience in the second district of Pampanga has proved, beyond doubt, that land reform is both necessary and feasible and that our people, both landowners and landless, area now prepared for land reform’s liberating and modernizing impact.

Central Luzon Development. The development of Central Luzon con­tinued to be a prime concern of the government. During the current fiscal year, the Budget Commission has already released a total of P 13,871,660 for various development activities in the area, hiking the total budgetary releases since the start of the Central Luzon operations to P60,269,734. This amount was used mainly to finance production loans, public works projects, rural health units, and community self-help activities.

In Central Luzon, the ACA extended loans amounting to P1,636,456.05 to 3,572 farmers thus raising total ACA fund releases in the area to P25,894,933.39 for 49,059 farmers; at the same time a total of 153.327 bags of fertilizers valued at P2,685,713.40 were issued to farmers, including 55,700 bags secured under the reparations program.

Land Settlement Program. Side by side with land reform, we shall open new settlements in virgin lands, preferably drawing settlers from enclaves of tenancy. This will ease up the pressure of population in crowded areas and at the same time harness manpower to more challenging and productive activities. To this end, I have ordered the Land Authority to make an inventory of land which may be transformed into settlements and so formulate systematic resettlement program patterned in part after the Malaysia land settlement project.

This will consist of large-scale land development program for the settlement of landless rural people on economically viable farms in land schemes provided with all essential public utilities and social amenities, adequate management, training and extension facilities and suitable processing and marketing arrangement in order to raise very substantially their level of living. The aim is to develop them into progressive and knowledgeable farmers so that they can take their rightful place in the community.

I have also directed the Land Authority to coordinate with the Land Bank in arranging with landowners the exchange of their present landholdings with government lands for conversion into agro-industrial estates. This will implement the land reform objective of converting land owners into entrepreneurs, of shifting capital and energy from idle lands to productive industry.

Expanded Health Services. The year 1967 witnessed the expansion of health services in the rural areas, with the deployment of more physicians, nurses, midwives and sanitary inspectors in our barrios, the establishment of more rural health units, and the procurement of P6 million worth of medicines and other supplies for our rural population.

Hospital services were increased and upgraded, as 17 government and private hospitals were opened and 76 hospital plans and designs were approved for immediate construction. Supplies and medicines worth P1.5 million were channeled to government hospitals for the benefit of our less fortunate countrymen.

Nutrition Program. A five-year national nutrition program, designed to combat malnutrition among children of pre-school age, was launched, together with the Cholera Eradication Program, the Poliomyelitis Eradication Program, and the Malaria Eradication Program with financial and technical assistance from WHO, AID, and UNICEF.

Last year, a cancer center was established with the cooperation of the private sector, the first of many cancer centers to be established in various parts of the country.

Achievements in Labor. The year 1967 saw the launching of vigorous programs for the strict enforcement lf labor laws, the upgrading of labor and social services, and the acceleration of manpower development and utilization.

Upgraded Labor Law Enforcement. Due to effective labor law enforce­ment, 22,770 workers in the logging and mining industries were paid P2,166,564 last year. These special enforcement projects formed the basis for the establishment of a Metallic Mining Industry Wage Board and the con­templated establishment of two other wage-fixing machineries in the logging and coconut industries. These impact projects aside from achieving fruitful results paved the way to the resumption toward the end of 1967 of a general enforcement campaign aimed at affording protection to the greater mass of workers. Victims of industrial accidents were recipients of P8,864,295 in compensation benefits; 2,129 workers received awards totalling P336,010 arising from various labor cases.

To cope with the needs of a developing industrial sector, a Manpower De­velopment Council, composed of agencies whose activities have to do with human resources development directly or indirectly, has emerged to undertake the planning and implementation of an integrated manpower development program.

Employment Exchanges. Two employment offices recently created are the first step towards the operation of a network of employment exchanges throughout the country. The need for such a national network of exchanges is basic. Providing not only placement services, they collect labor market data upon which depend planning efforts for the development and utilization of manpower resources.

An improved industrial relations climate was brought about significantly through the intensification of preventive mediation by the Department of Labor. This included the holding of industry-wide dialogues between labor and management in the shipping and arrastre, wood and coconut industries.

Salary Increase for Government Employees. Through the rigorous exercise of fiscal discipline, we were able to effect last year the 5 per cent salary increase for all government employees, including public school teachers.

We shall always keep an open mind to further salary readjustments as changing conditions require and as we succeed, through economy, in making funds available.

The Citizen as Investor. The opportunity to participate in the benefits of investment will be extended to the average citizen. The Government Service Insurance System will soon launch a special program to lend money to employees with which to buy stocks in private corporations. In this way, we accelerate the process of economic growth and further broaden the social base.

Broadening Social Security. During the last two years, the total benefits paid by the SSS added up to P46.6 million, representing 48.4 per cent of all benefits paid by the SSS since its establishments in 1957. These benefits included payments for premature death, permanent disability, sickness and retirement. At the same time, the SSS released in 1967 a total of P10.4 million under its educational loan program, the purpose being to enable poor deserving students to go to school through SSS assistance. A total of P16.2 million has been loaned out to qualified SSS members since the inception of the educational loan program under the present Administration in 1966

The SSS also channeled last year a total of P10 million to the government rice self-sufficiency program, in order to help increase rural credit capacity and enable the farmers to avail of new and improved techniques of rice production.

A Shift to Low-Cost Housing. During the last two years, the Social Security System has released a total of P130.1 million for housing—P50 million in 1966 and P80.1 million in 1967. This amount represents 45.7 per cent of the total housing loans released since the inception of the SSS housing program in 1958. This year the SSS expects to grant housing loans worth P120 million under its low-cost housing program for its low-income members. Under the low-cost housing program, the ceiling for housing loans has been brought down to P15,000 payable in 25 years. The SSS also aims to launch its own housing projects by purchasing and developing raw lands and constructing on a massive scale housing units costing not more than P15,000 each. The SSS has an on-going scheme to grant loans to employer-members for the purpose of de­veloping housing projects for their employees at a maximum of P15,000 per unit.

Acquisition of Landed Estates. On the other hand, the GSIS is now making feasibility studies for the acquisition of landed estates where the GSIS plans to build 500 units of low-cost houses a month to be sold to low-salaried employees on easy terms. The GSIS looks forward to increasing this monthly production target so as to enable the Administration to close the huge gap in its overall low-cost housing program. Also contributing to the housing program of the Administration is the Development Bank of the Philippines and the PHHC. Last year, the PHHC sold 934 dwelling units worth P5,151,471.27 and 173 lots with an area of 66.083.30 square meters at Pl,031,671,85.

Integrated Social Welfare Program. An integrated and coordinated social welfare program is now taking shape, to put an end to the sporadic and disor­ganized effort of the past. This program gives priority to services designed for social change and the development of productive skills. Special focus, however, will be placed on services that will advance the welfare of children, the youth and their families. We are determined that the problem of delinquency, of the school drop-out and the beggar shall not persist in our society.

Concern for National Minorities. Through the Commission of National Integration, we have accelerated the integration of our cultural minorities into the mainstream of our national life. Five farm settlements are being maintained and operated, and 3,075 hectares of land have been surveyed as possible new reservations for our minorities. The Commission has also allocated for settlers 282 lots, titles to which are ready for issuance. In 1967, the Commission granted 1,845 scholarships in Philippine colleges and universities, as well as a number of foreign scholarships.

The Protection of Settlers. We have added fresh meaning to social justice by the creation of the Small Settlers Protection Committee to see to it that the poor and ignorant settlers, who have left their homes in the hope that pioneering in the farflung hinterlands of our country could provide a better and happier future for themselves and their families, shall not be deprived of the lands they have occupied and cultivated for many years through the machinations of un­scrupulous elements. The Committee in its deliberation does not, on the other hand, overlook the rights of owners over their private properties, taking into consideration illegal occupation thereon by misguided settlers.

Greater Manila Terminal Food Market. The Development Bank of the Philippines has taken concrete steps to establish a Greater Manila Terminal Food Market, which shall form the base of an overall program for the establish­ment of similar markets in other populated centers of the country.

In this connection, field surveys have been undertaken, covering 17 provinces for selected food crops, 13 provinces for livestock movements, 10 provinces for commercial poultry farms, and 8 principal Greater Manila markets for the marketing system. At the same time, topographical survey of an appropriate site in the Fort Bonifacio reservation is in process.

The Market, when completed, will provide fanners and producers from 20 provinces with a convenient outlet for their produce, create adequate storage facilities, and reduce distribution costs. Retail markets and stores and large scale consumers in the Greater Manila area will have, on the other hand, adequate and regular supply of foodstuff, thereby reducing and stabilizing prices.

Peace and Order. When I assumed office in 1966, smuggling, criminality and other forms of lawlessness were rampant, sapping our national will and capacity to progress.

We have instituted vigorous measures to combat this threat. The PC strength has been augmented to intensify the campaign against criminality and against dissidents. This intensification is reflected in the increasing number of combat operations. The fact remains, however, that our police strength per 10,000 population, national as well as local, is one of the lowest in the world.

Hand in hand with increasing the strength of our national police, the PC has been revitalized and revamped for more efficient prosecution of the peace and order campaign. The METROCOM was recently activated and is now effectively assisting the Manila Police Department in maintaining peace and order in Manila. In view of its success, METROCOM-type units are now being organized in other urban centers of the Philippines. Recently, I mobilized the entire Armed Forces to augment the still limited resources for the peace and order campaign.

Police Act of 1966. A vital piece of legislation, the Police Act of 1966, was enacted to carry out badly needed administrative reforms in our local police forces. The full implementation of this law will go far towards upgrading the efficiency and quality of these police forces.

To harness civilian participation and cooperation in the anti-crime drive, peace and order councils have been organized on the national and local levels.

Despite all these measures, the incidence of crime index (major crimes per 100,000 population) continues to show an upward trend. Peace and order, therefore, remains a serious problem which will require our increasing attention in the years to come. One reason for this is the uncertain and diffused location of responsibility for maintaining peace and order on the local level. At the proper time I will propose the placing of local police forces directly under the Police Commission, and thereby liberate police forces from politics. Their immediate improvement is one of our major aims this year.

Internal Security. The campaign against dissidents was intensified in 1967, resulting in the death or capture of 24 Huks in battle, including four top commanders. The military operations against dissidents, however, although prosecuted with greater vigor, was matched by an increase in civic action work in Central Luzon.

Anti-Smuggling Drive. Smuggling activities decreased considerably in the past year, as indicated by the volume of goods confiscated and the number of persons apprehended in the relentless anti-smuggling campaign. Although the forces engaged in anti-smuggling drive have multiplied, only P3.5 million worth of goods were seized in 1967, compared to P8.5 million worth in 1965 when smuggling was at its peak. Similarly, 900 persons were apprehended, compared to 3,000 in 1965.

The Campaign Against Graft. We have carried on a determined campaign to stamp out graft and corruption, especially in the most sensitive areas of government. Last year, in the course of this campaign:

—One district Judge, 12 Municipal Judges, and five court employees were dismissed from office; three Municipal Judges and one employee were suspended; and several Judges and employees were either fined or repri­manded.

—Thirty-five cases were filed with the Courts of First Instance against customs personnel and private persons, 70 criminal cases were brought before city and provincial Fiscals, 170 administrative cases were fifed against customs employees, while 4 fixers and 4 government agents were recommended for criminal prosecution.

—Criminal and administrative charges were brought against 211 internal revenue collection agents and cash clerks and 100 taxpayers were criminally charged in courts.

The success of our relentless drive against grafting officials and employees is reflected, we believe, in the increase in our customs and internal revenue collections as well as in the increased efficiency and new vitality of our lower courts.

Justice. The administration of justice, as well as the machinery therefore, has been substantially improved. The sensational cases that have appeared in the front pages of our newspaper have been brought before our courts of justice and dealt with in record time. The preliminary investigation of criminal cases has been shortened, simplified and made uniform with the promulgation by the Department of Justice of Circular No. 74, series of 1967. Two administration measures were enacted, one enlarging the prosecution staff of the Department of Justice and the other creating 16 circuit criminal courts. Incompetent Judges and erring court employees are being dealt with administratively, to complete the effort towards improvement of the administration of justice.

The stand taken by the Administration on various legal controversies has been sustained by our courts of justice thus underscoring this Ad

Codification of Laws. The proliferation of statutes in different areas of legislation has become alarming, indicating the urgent need for codification of laws. I have, therefore, directed the Code Commission to initiate immediately the revision and updating of existing codes as well as the preparation of new ones.

In line for updating and revision are the Revised Penal Code, the Code of Commerce, the Revised Administrative Code, the Internal Revenue Code, and the Customs and Tariff Code. On the other hand, there is now a demand to codify our labor and social legislation, and the laws on natural resources.

Community Development. The Presidential Arm on Community Devel­opment has cooperated with religious and student volunteer groups; and has initiated some 43,000 self-help projects and 23,000 training and information activities involving 953,000 participants. Some of these self-help projects are: spring development for communal water supply and irrigation; rural electrifica­tion; the establishment of communal rice and corn mills; the distribution of IR-8 seeds, as well as the construction of feeder roads and the assembly on-site of pre-fabricated schoolhouses.

OEC Firms: P53.3 M Profits. The corporations under the Office of Eco­nomic Coordination realized profits amounting to P53.3 million for fiscal year 1967, representing an increase of 29 per cent over the previous year. To further improve the profitability of these corporations, allowances of board members and per diems for committee meetings have been standardized. In their role as developers of new industries, all investments are now required to be tunneled strictly to pioneering or pace-setting ventures.

Science and Technology. Recognizing technology to be the foremost factor in economic development today, as strikingly demonstrated in the economic recovery of Japan and Germany after World War II, the government has embarked on a new program to invigorate the scientific climate of the country. Additional funds have already been channeled to support new projects in the field of applied science. About P2 million have been allocated to augment the facilities and admit a larger enrollment in the Philippine Science High School. Thirty-five hectares of public land have been proclaimed by the Office of the President as a grant to the National Science Development Board to accommodate the science community.

In support of new projects in the field of industrial research, more than P6 million yearly have been allotted by the government for the Philippine Textile Institute, the Metals Industry Development Center and Coconut Research.

The government has also been active in tapping foreign assistance for the support of research in applied science. In the field of mineral resources development, the government has undertaken jointly with international agencies special projects in coal development and applied geology. More than P8 million yearly in counterpart funds are being expended by the government for foreign assisted research in dairy, fish, soil and training in agriculture, forestry and meteorology.

The government is also supporting, through bilateral foreign assistance agreements, an Institute of Small Scale Industries and a Technological and Re­search Center for Cottage Industries. The Administration is drafting a plan providing for increased financial support for science and technological devel­opment, including the possibility of establishing regional science high schools in the Visayas and Mindanao.

Government Scholarships. Recognizing the need to develop talent and provide it with greater opportunities, I have created a committee to formulate a new scholarship program. I am determined that poverty or lack of opportunity shall not prevent real talent from developing to its fullest possibilities. The committee on this new program of scholarships is now studying ways of financing the program and laying down the criteria for the grant of scholar­ships. I expect its recommendations shortly.

At the same time, we shall soon put into effect a scheme for the benefit of students, building on an existing service of the Social Security System where by students may be provided loans, under special terms and conditions, to cover their school expenses. This will be financed from a special fund contributed by various financial institutions of the government.

Economic Growth and Security. The progress we are striving for goes beyond the mere requirements of survival. Our economy must prosper if our society is to be truly secure. I have repeatedly said that the greatest peril to a people, to the safety of their lives and institutions, is their own country’s im­provident economy,

For the task providing our society with sufficient guarantees of stability and security, in the form of more abundant goods and a greater sense of well-being, I have enlisted the services of the Armed Forces. Although it is proper that our soldiers must be prepared to perform their role in the military defense of the country it is necessary that today they must also participate in the more imme­diate and vita! defense of the nation against poverty, ignorance, disease and injustice.

A New Mission for the Armed Forces. Accordingly, the Department of National Defense has participated actively in the rice production, school build­ing, public works, rural health, peace and order and civic action programs.

We have harnessed and augmented the manpower and equipment resources of military establishment in our heightened drive for economic development and for internal security.

In pursuance of this, we have activated 15 engineer construction battalions, increased the intake and expanded the concept of training of 20-year-olds, intensified the AFP’s civic action role, broadened its peace and order opera­tions, and increased its capability not only to provide for national security but also for participation in national development implementation. The AFP has achieved outstanding success in this add

Socio- Economic, Other Roles. More specifically, we acquired equip­ment under the U.S. Military Assistance Program to complete the requirements for 5 engineering batttalions, activated 27 civic action centers, trained a total of 119,082 reservists and trainess, including 118,082 ROTC cadets, for various economically useful skills in Calendar year 1967 alone, acquired modern aircraft and vessels and other military hardware to bolster our defense capability, effectively blunted smuggling operations and organized the METROCOM and other PC units to intensify the peace and order campaign.

We also sent the PHILCAG to South Vietnam to participate not in combat operation but in purely civic action operations, assisting that distressed country in the long range but equally important task of social and economic rehabilitation.

Meeting the Insurgency Threat. In the meantime, we have been intensify­ing our efforts to meet the insurgency threat. However, the threat remains real and has assumed greater urgency. This is reflected by the increasing number of combat operations and the increasing number of casualties sustained both by our troops and by the dissidents. On the credit side a substantial number of HMBs including 4 top commanders have been killed or captured.

Despite the continuing insurgency threat and the increasing number of civic action mission assigned to the Armed Forces, its proportional share of our total national budget has actually declined over the past 13 years. Budgetary data show that this has gradually decreased from 17.5 per cent in FY 1965 to 14.6 per cent on FY 1967.

Internal Subversion—The Main Threat. As I slated upon arrival from my recently concluded three-nation state visits, I am now convinced that the primary threat to our national security within the immediate future comes from internal subversion rather than from any external aggression. The military establishments will be developed along this basic premise in the years to come. However, since the development of our economy provides the permanent solu­tion to this threat, I intend to harness to a greater extent the resources of our de­fense establishments in our task of nation-building. It would be culpable negli­gence on our part if the peaceful uses of military forces were not availed of to the fullest extent possible in our continuing program of economic develop­ment.

In this regard, we will activate 5 additional engineering battalions and es­tablish 38 new civic action centers so that each province will have one such center. We will create 100 military rural health teams to minister to remote and medically depressed areas where civilian doctors are reluctant to venture for reason of personal security or inadequacy of compensation. We will also estab­lish 13 Coast Guard stations to strengthen our anti-smuggling posture, and con­tinue to acquire more modern weaponry for our ground, sea and air units. I wish to point out in this connection that additional equipment for 5 complete engineer­ing battalions, procured through the U.S. Military Assistance Program, will arrive before the end of this Fiscal Year 1968.

Civic Action. In the field of civic action, we have generated tremendous enthusiasm in our people, particularly in the rural areas, and we feel that the challenge of civic action today is now to meet the growing expectation and yearning of our people. Toward this end, we will reorient our civic action prog­rams from impact-oriented to development-oriented ones.

It is also our purpose to exploit fully the capabilities of the AFP for manpo­wer development and training, tying this in with the annual call of 20-year-old trainees. More 20-year-olds will be called and given training not only in the basic military arts but more importantly in agricultural, construction and other technical skill. They will be drawn from and trained in their respective localities and their non-military training will emphasize those skills that are responsive to the manpower needs of the particular locality.

Agricultural and Industrial Projects. As a further extension of this scheme, quasi-governmental companies composed of retired officers with managerial competence will be organized and encouraged to develop economi­cally viable agricultural or industrial projects in these localities, procuring their workers from among the 20-years-olds who have completed the training. Thus, aside from meeting the demand for skilled labor the program will assure the continued utilization of valuable managerial and technical skills at no extra governmental cost because the retired officers are already receiving their retire­ment pensions. In case these companies can generate enough income to pay higher salaries in lieu of these pensions, this will further relieve the govern­ment’s ever increasing financial burden of paying for such pensions.

We are also studying a phasing out program, over a ten-year period, of the military units and installations located in the metropolitan Manila area. For national security and economic purposes, these military installations should be moved out of population and industrial centers and transferred to more mili­tarily secure and underdeveloped areas. The valuable real estate presently occupied by me Armed Forces can then be sold to provide the much needed funds for economic development, such as financing the operations of the Land Bank or funding the vital infrastructure projects.

Mobilizing Resources for Peace and Order. I consider peace and order a continuing major problem. This is, however, concentrated in the metropolitan Manila area where about two-thirds of the reported index crimes for the entire country are committed and over which the PC incidentally has no jurisdiction. An increasing number of piratical raids in Manila Bay and the Visayas-Mindanao area has also been noted. I have been informed that these raids are abetted by the encouragement and support of certain affluent sectors in these areas. Our anti-piracy efforts have resulted in the breaking up of the noto­rious pirate gang operating in the Cebu area and our employment of the PC has enhanced our anti-crime drive. Nevertheless, the solution to the peace and order problem requires nothing less than the complete mobilization of govern­ment resources and the utmost participation and cooperation of the citizenry.

Maximum Use of Armed Forces. We have prepared the groundwork for a peace and order program that will call for the total involvement of all govern­ment entities hand in hand with civic organizations and the general public. We will make maximum use of the Armed Forces in this all-out integrated peace and order campaign.

Certainly we shall continue to maintain the PHILCAG in South Vietnam as an international commitment. Valuable as the PHILCAG’s civic action opera­tions are now in the country, they will be increasingly valuable in helping provide the means for South Vietnam’s economic and social recovery once the fighting is over.

No Duplication of Functions. It is not correct to say that the military is usurping or taking over civilian functions. There is neither usurpation nor dup­lication of efforts. The military merely supplements civilian performance, especially in areas where civilians, in and out of the government service, are either unwilling or unable to operate effectively. For instance, we are send­ing a naval medical corps to practice in Lanao and Sulu, in order to augment the extremely inadequate civilian medical service available in those remote areas.

What we have done is to refashion the role of the military towards civic ac­tion—the reassignment of soldiers from housekeeping in the barracks to active participation in the epic of development.

The Philippines and Asia. The concern for an accelerated and expanded program of economic development, using all possible means and resources, led me to explore recently with the leaders of Malaysia, Indonesia, and Thailand, possibilities of closer cooperation in economic development. My state visits to these three countries have increased my confidence that national develop­ment and regional development can and must go hand in hand. We and our neighbors, in a region where the opportunities for growth have been largely unfulfilled, must now bring our skills and resources together to establish the only real basis for peace and security.

An Objective of Our Foreign Policy. The community of interests in our immediate neighborhood, reaffirmed during my recent state visits, is in line with one of the fundamental aims of our foreign policy, which is to achieve economic development through close cooperation with other countries.

Thus, as a consequence of the specific agreements with the leaders of Malaysia, Indonesia and Thailand to undertake with the Philippines joint economic, cultural and educational projects, we can look forward to more speedy economic development on a national as well as on a regional scale.

The ASEAN and ASPAC. Only recently, we helped build the framework for progress through cooperation by joining, as one of five founding members, the Association of Southeast Asian Nations. The ASEAN as an instrument for economic advancement figured prominently in my discussions with the leaders of Malaysia, Indonesia and Thailand. The promise of success that the ASEAN holds has confirmed the validity of the increased emphasis in our foreign policy on our relations with the rest of Asia.

Our Asian identity has been further strengthened by our participation in the Asian Pacific Council. Concrete projects under the ASPAC, such as the Experts Services Register in Canberra, the Social and Cultural Centre in Seoul, and me Food and Fertilizer Bank, all designed to accelerate regional economic and material growth, are now in the final stages of implementation.

Missions for Prosperity. It was primarily the need to strengthen this ever-widening fabric of regional cooperation as a means to prosperity and peace in Asia that moved me in 1967 to undertake, personally, missions to several nations in our region.

I journeyed to Australia, following the tragic death of Prime Minister Holt late last year, to convey the sympathy of the Filipino people to that great country, with which we are allied in SEATO and ASPAC.

My visit to the Republic of Vietnam about the middle of last year enabled me to witness the humanitarian efforts and constructive building projects of our officers and men in the PHILCAG. That visit also gave me the opportunity to assess with the leaders of South Vietnam the chances of restoring peace, a requisite of enduring progress in our part of the world.

Second Aim of Foreign Policy. I am determined that the momentum for Asian prosperity and stability, which we gained through our recently renewed contact with Malaysia, Indonesia and Thailand, shall be maintained, if possible increased. For the second fundamental aim of our foreign policy, which is to ensure the security of the Philippines from aggression and subversion, is in­extricably linked with our economic development. A better life for our people is the best guarantee of their security.

Reorientation in Regional Security Arrangements. Present regional security arrangements should be recast to conform to a vital change in outlook. The real danger to our democratic life and institutions comes from internal subversion rather than external aggression. This danger grows and solidifies in direct proportion to the discontent among the people. It should be the primary concern of every government, therefore, to provide for the comfort and well-being of its citizens. On a regional scale, governments must find every possible means to align their efforts towards cooperation in economic development. The SEATO must now shift its emphasis from military preparedness to economic assistance among its members.

Credit and Prices. In recognition of the increased investment requirements of business our monetary authorities began the last calendar year by continuing the policy of credit ease which had been adopted during the previous year. The result, however, for the first half of the year, was a credit expansion more than 10 times the amount over the comparable period in 1966. Also, much of this credit went to finance imports, which increased by 45 per cent in the first six months as compared to the first half of 1966, while exports lagged behind. The result was the June circulars of the Central Bank, which were designed to curtail imports and redirect bank credit to other activities, especially production for export and food requirements; these circulars were later modified in October.

The measures that were contained in the June circulars and the subsequent October circulars contained a mixed policy of partial restriction and partial relaxation. The burden of the restrictive measures fell on imports financing because of the disturbing trend of our external trade.

Policy of Liberal Credit. At the same time, to ensure the continued nourishment of the more desirable roots of economic growth, credit continued to be more liberal for the producers of rice and corn as production was exempted from the rediscount ceiling; and half of (he ceiling was earmarked for the financing of export production. If some banks then still feel that their liquidity has been reduced it is perhaps a sign that their loan portfolio is unbalanced, favoring activities which, in the opinion of the government, are less conducive to economic development. The increased activity in our stock market shows that there is certainly considerable capital available.

A second purpose of these credit restrictions was to contain the increase in prices; but the ultimate solution to high prices, as our recent experience clearly demonstrates, is to improve production and distribution facilities, especially of food products. The early success of our rice program was reflected in a decline of the Philippine Consumer Price Index in the months of April and May 1967 from its level in December 1966. Then two typhoons occurred, which damaged the rice crop and blocked roads leading from production to market centers; and prices promptly rose again. The movement of vegetable prices was an even more striking demonstration. In April of last year, vegetables prices were 27 per cent below their December 1966 level. Then the storms came; and prices rose by more than half of their year end level.

Financing of Development. Over the last fiscal year, domestic savings exceeded the expectations of our economic program; unfortunately, investment requirements also exceeded expectations by a similar amount. The domestic savings short fall was financed almost entirely by reparations and grants, with reserves and a small capital inflow making up the remainder.

The government during this period significantly influenced the size and direction of private investment, as well as the conditions under which business was done. Domestic markets were protected against dumping by proceedings against undervalued synthetics and chemicals, and against actual and technical smuggling particularly in textiles and luxury items.

Massive support was also granted to the private sector by government financial institutions. Between January 1966 and November 1967, as has been mentioned, no less than P4.4 billion were extended by the five major government financial institutions to private concerns in the form of loans, guarantees and equity investment. These institutions were the DBF, PNB, GSIS, SSS and NIDC. Of this total PI.7 billion, or 40 per cent, went to manufacturing, and over P786 million to agriculture, forestry and fishing.

Management of Government Finances. The year just passed also saw a number of innovations in the management of government finances, again generally with striking success. The improvement of our tax collecting organization is now a matter of public knowledge and pride, and I shall only note here that it continues unabated. Total BIR and Customs collections for 1967, (January to October) were about 20 per cent over 1966; which in turn had been 10 per cent over 1965. Internal revenue collections were up by over 13 per cent and Customs collections (when volume of imports increased by 14 per cent) were up by almost 32percent. Both of these had also increased over 1965, by 5.7 and 16 percent, respectively. Since no new tax measures were passed, and since the economy did not grow by nearly the same amount, most of this increase may be attributed to greater efficiency in both these important government arms.

The management of government debt was also undertaken with imagination, efficiency and success. The market for government securities for the first time in our financial history became truly widened with treasury bills becoming available to the private commercial sector, at competitive interest rates. We have realized as much as P175 million from this source, with the balance now standing at about P130 million. The Progress Bonds of the Development Bank of the Philippines have been an outstanding success, and have tapped private savings to the extent of P200 million as of the beginning of this month.

The Investment Incentives Act. Finally, last year also saw the passage of the most sophisticated and potentially the most significant piece of economic legislation in the last twenty years. This is of course Republic Act 5186, the Investment Incentives Act. It sets forth in one legislation the investment policy of the government; but it goes beyond other incentives legislation in more than just comprehensiveness. It recognizes that economic conditions are constantly changing, and defines desirable areas of investment with corresponding flexibility. Most important, it creates in the Board of Investments a permanent machinery for planning investment in productive sectors, whose objectives are both to increase the amount of investment in the aggregate and to rationalize its structure.

In short, we have used with imagination and skill the resources we have for increasing the rate and improving the structure of capital formation, and we have added significantly to these resources. But both our recent success and the pressing needs of the people inspire us to further ambition.

Budgetary Policy. The search for economic prosperity demands that we straighten out the state of our financial affairs. Fiscal irresponsibility breeds conditions that are not conducive to monetary stability. When we sow the seeds of currency and price instability, we ultimately lose the benefits of economic progress.

Our budgetary policy, therefore, ever since I assumed the Presidency, is to maintain a balanced budget in so far as the ordinary operating expenses of the government are concerned. Funds raised through the issues of bonds and other forms of borrowings have been applied to infrastructure, development expenditures and investments.

In the allocation of funds, more emphasis has been given to economic development and less on general government. Two years ago the budget for economic development amounted to only 25.0 per cent of total expenditures. We have increased this to 30.8 per cent.

On the other hand, the budget for general government has been decreasing percentage-wise. It was 14.4 per cent of the total budget in fiscal year 1966. During the current fiscal year it amounts to only 11.5 per cent. Moreover, contrary to the common impression, the budget for National Defense has not grown in proportion to the total annual budget. In spite of the increased respon­sibilities of our Armed Forces, due to its dual military duties and civic-action activities, its expenditures even decreased from 14.5 per cent in fiscal year 1966 to an estimated 14.2 per cent for the current fiscal period.

Capital expenditures also increased from 9-3 percent in fiscal year 1966 to 17.5 per cent in fiscal year 1967, while current operating expenditures decreased from 90.7 per cent to 82.5 per cent for the same fiscal year.

Remaining Problems. We began this message by defining three major economic problems of long standing. After two years of the present Adminis­tration, we can say with reasonable confidence that the first of these, the problem of producing enough food for our needs, is no longer of primary concern. This does not imply a diminution of our efforts to aid agriculture — two-thirds of our people still live in rural areas and we have a long way to go before we can be satisfied that their way of living has improved sufficiently.

Of the problems that still confront us, the most serious one, and one that is important to national self-respect as well as economic life, is the problem of improving our foreign exchange earnings. With our rapid growing population and in our present stage of industrialization, our country must trade in order to live acceptably well. The limits of easy import substitution have been reached, and substantial overcapacities already exist in many industry lines. At the same time, the country’s list of exports has not changed markedly over the last twenty years, and remains composed primarily of agricultural products and industrial raw materials, for which the world market grows too slowly. Furthermore, our preferential trade relations with the United States are due to expire in a few years.

Need to Increase Exports. First priority must therefore be given to increasing our exports, and to sustaining this increase over the long term. Our ultimate goal is self-sustaining growth, i.e. a high growth rate which can be maintained without undue reliance on foreign borrowing. Domestic savings are rising fast enough to be sufficient for our investment requirements in about ten years; but exports continue to fall short of our import requirements. We must eventually aim at an annual growth rate of 8 per cent for our exports; and efforts to attain this goal must begin immediately.

This is a problem of the greatest importance; it affects every aspect of our economic life; and the pressure to increase export earnings will continue as far ahead as we can foresee.

The export drive must begin immediately, and continue far into the future; later on, I shall outline the measures I believe necessary to undertake immediately.

Financing the Infrastructure Program. The second major problem that remains is financing our infrastructure program. The government has committed itself to providing many services which are essential to welfare or even to life. Half a million children annually enter our school system; health services must be expanded; training programs are urgently needed to reduce un­employment; the HMB continue to be a threat to our national security, in spite of recent success in the field. Our support of these and other essential services are current, not capital expenditures; they already absorb the bulk of govern­ment earnings, and annually become more expensive to provide. Still, a large and growing surplus must be obtained for capital expenditures; and not even me greatly increased efficiency in collecting existing taxes can do this.

Required Measures. Measured against the achievements of previous Ad­ministrations, the performance of the last two years is impressive; measured against the people’s needs, they remain modest. The confidence we have gained from past success, as well as our consciousness of the needs which remain great, inspire us to set even higher goals for the future.

These longer-term goals are set forth in the rolling programs of our planning and implementing agencies. We shall merely outline here what has to be done over the next year. Our operational program involves activities in four areas: continuing government reorganization for efficiency; projects to be directly undertaken by the government, especially in infrastructure; manpower deve­lopment and land reform; the improvement of our foreign trade; and the direction of domestic and foreign investment.

Organization. In public administration, the most pressing need is for legislative action of the Reorganization Bill and the Revised Administrative Code, already submitted to Congress. We need to transform our administrative structure into the dynamic and synchronized machinery needed to perform effectively its role in economic development. In support of this, we also have to recast our long-established but now outmoded processes and procedures. We, therefore, propose to continue the reassessment of the organization and operations of our administrative machinery.

Infrastructure. In infrastructure, our basic objective remains the provision of a structurally safe and sufficient network of major thoroughfares, with supplementary integrable developmental road systems, complementary water and air transport facilities and a comprehensive communications network; together with the irrigation and other facilities necessary to support economic growth.

Our basic criterion in the selection of our infrastructure projects has been their contribution to economic growth; but our selection has been realistic as well. We have also considered the financial resources available to the government and what we hope to obtain from new taxes, as well as the capabili­ties of the agencies to utilize capital funds.

In highways, we propose the concrete and asphalt paving of a total of 1,000 kilometers, the construction of 2,000 kilometers of developmental and feeder roads and 9,900 lineal meters of permanent bridges.

We have started the groundwork for the construction of the 3,000-kilometer Philippine-Japan Friendship Highway which running from Laoag City in the north to Zamboanga City in the south will link Luzon, the Visayas and Mindanao. This highway will serve two purposes: it will also contain emergency airstrips, to augment existing airports, to make possible aircraft landings along the whole stretch of this cross-country highway at regular intervals.

Nationwide Transport Survey. We have also taken initial steps for the conduct of a nationwide transport survey which we hope to get off the ground this year. The purpose of the survey is to provide a comprehensive and coordinated transport program on the basis of the expected socio-economic development of the country and its various regions, suggesting measures to be taken in the field of planning and regulating transport services, in the field of the responsibilities and organization of the public and semi-public entities involved and identifying investments in the entire sector and priorities there.

We propose the irrigation of an additional 140,000 hectares to comprise our main irrigation program. In addition, we will continue the construction of communal and pump irrigation projects which will extend irrigation benefits to some 50,000 hectares more. We are pursuing the construction of the multi-million peso Upper Pampanga River Project which is designed primarily for irrigating 81,000 hectares in and providing domestic water supply to Nueva Ecija.

In airports and airways, we propose the concrete paving of runways and taxiways in 20 airports. We will improve and modernize the air navigation facilities throughout the country urgently needed for the safety of life and property in air travel. We also expect to complete runway resurfacing of the Manila International Airport by April this year.

Various projects at the port of Manila will be completed and provision has also been made for the improvement of 31 other ports throughout the country.

The most conspicuous of the communications projects is the permanent earth station of the Philippine Satellite Communications Project to be com­pleted in April of this year. An interim earth station for this project was completed in a record time of 45 days and made operational in April of last year.

Other targets include 14,000 school units, 9 Hood control projects costing some P13.6 million, low-cost housing, 40 waterworks projects, and various community projects.

To achieve these targets, we will need P580 million this year. This however does not include the whole cost of special projects like the Philippine-Japan Friendship Highway.

Land Reform. These facilities, by making it possible to increase production and income, will contribute indirectly to augmenting the livelihood and dignity of our people. But the government must also continue to make a more direct contribution. In addition to the services we normally provide, such as education and health services, we propose to concentrate on two programs, Land Reform and manpower development.

In Land Reform, we shall concentrate our efforts on the second land reform district of Pampanga, to make the program more effective. Also, sources of funds were authorized last year for the Land Bank; we shall encourage this year the utilization of these sources, to make the operations of the Land Bank more effective. New funds will be drawn by the Bank from the issue of bonds up to PI 0 million, which I authorized last year; and from the proceeds of the sale of 16 government properties in Manila authorized by Republic Act 5169. The sale is expected to realize up to P 120 million, of which three-quarters is to go to Land Bank and the remainder to the Agricultural Credit Administration.

To complement our land reform efforts, we are opening up the 33,000-hectare Barira Farm in Parang, Cotabato for Army veterans, former dissidents and landless tenants. Later this year we shall also open 30,000 hectares in Tuao, Lanao del Norte.

Manpower Development. Unemployment continues to be a pressing problem, with about 8 per cent of our labor force totally unemployed last year. We are considering several proposals to improve the skills of our idle manpower and thus make them productive members of society.

Among these measures are: an in-plant skills training program responsive to current and projected needs of industry; training for employment of out-of-school youth and unemployed adults through a network of practical training centers and free vocational instruction at the secondary school level. These proposals shall be embodied in an omnibus manpower development and training bill which I shall shortly submit to Congress for consideration and enactment.

We are laying the groundwork for a national youth development program. Eventually, it will redeem some three million of out-of-school youth, teach them civics, physical fitness, occupational and food production techniques. It involves the establishment of a national institute for youth leadership, pilot training centers, and the cooperation of the Manpower Development Council, the National Youth Coordinating Council, the Departments of Education, Labor, National Defense, the PACD and the private sector.

Finally, in the area of housing, we shall aim at increasing the credit resources available for low-cost housing as well as orienting lending practices: towards the needs of low-cost homes. Likewise support shall be given government housing agencies to make them effective instruments for low-cost housing.

Our Social Security System, for example, has finalized its plans for building 7,000 low-cost houses annually. This project is scheduled to start this year.

Financing the Program. Partly because of the growing needs of the people, partly because of their neglect in the past, the government is forced to spend this year and the next very large amounts for the provision of services essential for public welfare and facilities essential for economic development. To promise such things is popular: but we must not shirk the less attractive discussion of how they are to be financed.

In the drafting of this program, every possible reduction has already been made. The proposals have been subjected to ruthless scrutiny and pruning; only those that have met the strictest criteria of economy, efficiency and necessity have been allowed to pass, and these often in severely reduced form.

As evidence of this testing, I have laid down, in a proposal unprecedented in the history of Philippine budgeting, an absolute upper limit on the level of current expenditures. For this fiscal year, current expenditures from the general fund will not be allowed to exceed P2 billion. This limit will hold absolutely, in spite of the fact that the cost of providing the services that these expenditures re­present has risen considerably.

Every other centavo that the government can raise will go into our capital program. But this money must not only be spent wisely, it must also be raised wisely.

Four Alternatives. There remain four alternatives open to us, and we have already utilized as much as is possible or prudent, those alternatives that are open to purely executive action. First, we can borrow from abroad- We have already secured extensive foreign financing for capital projects; what keeps us from borrowing more is that we cannot raise the necessary local counterpart funds. Second, we can borrow domestically; and we have in fact programmed sizeable bond issues for both this year and the next. But fiscal prudence sets a limit to this sort of financing, to which we are already disturbingly close. The two remaining alternatives must also be used.

Approach to Problem of Revenues. We propose a two-pronged attack on the problem of raising government revenues. The first line of attack is to continue as we have done, and I think done conspicuously well to improve the efficiency of collecting existing taxes. But this has not proven sufficient; many important programs have had to be curtailed for lack of hinds. All that is humanly possible to increase the efficiency of the tax collecting agencies have been done and will be done. But this is not enough. A second line of attack is therefore necessary, has been necessary, for many years, and is especially urgent at this time precisely because it has been so long delayed. This is the passage of several new revenue measures, most of them long-standing proposals, other more recent, all badly needed. They have been the recom­mendations of recognized authorities on fiscal and monetary matters including former Central Bank Governors Miguel Cuademo and Andres Castillo and present Governor Alfonso Calalang. Likewise they have been the recom­mendations of the IMF and the World Bank. The alternative to their non-passage would be continued pressures on our international reserves which would compel us to further restrict credit and/or cut back on our development program. Failure to pass them could lead to unmanageable price increases for which you and I must bear the responsibility. While a moderate increase in prices is admittedly compatible and concomitant with economic growth, a runaway inflation, which we seek to avert with new taxes, would certainly not be conducive to growth and disruptive of it. How badly we need new taxes can be seen from the following example. We wish to raise P580 million for our capital program this fiscal year. Foreign financing has already been netted out of this figure. Existing taxes, even allowing for continuation of the increase in efficiency of collection, after deducting current expenditures and programmed bond issues, will lead us some P250 million short of this goal. A rather large amount remains, opposite the hopeful notation, “To be financed from other sources.”

Tax Reform. This enormous disparity between government needs and government means has existed too long; and the makeshifts and compromises that have been employed to bridge the gap have at last become insupportable. The reform of our tax system is long overdue. We ask that it be undertaken immediately.

The justifications are compelling. We can certainly afford more taxes: the proportion of national income our government disposes of is about half the comparable percentage for Malaysia and about 50 per cent less than that of Thailand, neither of which countries is conspicuously richer than we are. Furthermore, our present tax structure was essentially created before 1939, when our needs were much simpler, and when we had a colonial father to run to in case of need.

Measures Proposed. Most of the measures we propose increase tax revenues. But there is a second purpose for tax reform, besides increasing government revenue. We wish as well to distribute income more equitably, and to reduce the consumption of luxuries, especially those that are imported. The measures we recommend are thus of several kinds.

Some of these rationalize the existing tax structure. These comprise the measures to promote a more equitable distribution of income tax collection between the national and local governments; to amend certain sections of the Tariff and Customs Code of the Philippines; and to revise the rates on the individual income tax, some rates downward and other rates upward.

Other measures increase particular taxes, in the interests both of raising national savings and government revenues, and of discouraging conspicuous consumption, which is particularly harmful in this period of threatening unrest. These measures include increasing amusement taxes and specific taxes on certain distilled spirits and fermented liquors; requiring the payment of certain charges for foreign travel and for the registration of motor vehicles; increasing the rates of corporate income tax; and increasing the specific tax on oils and other fuels.

Temporary Surtax. Our final revenue proposal imposes a temporary surtax for economic development purposes. The main aim of this surtax is to enable us to carry on several essential capital programs, which have long been necessary and are more essential now than ever before, but have been suspended for lack of funds. The collections from this surtax are to be allocated to a special economic development fund, which is to be used solely for capital projects. The surtax is to be charged on certain taxes; but it is to be strictly temporary. It will cease when the backlog of capital projects has been erased, and will not in any case be imposed for more than four years.

By all these means, we hope to raise by prudent methods about P1 billion for capital projects over the next four years. Our past performance guarantees that the funds will be spent wisely; and if these measures are passed, especially the last, there will be an additional guarantee, in that we shall be spreading more widely the national stake in economic development, and hence the national determination that economic development does take place.

Directing Private Investment. At the same time we must make sure that private entrepreneurs channel their energies and their funds in the ways that best promote economic development. We remain committed to free enterprise; controls are a cumbersome and an inefficient tool. Our method is simply to make certain industry lines attractive to private business as well as essential to development. In the encouragement of priority lines industries, the Board of Investments and the Presidential Economic Staff will take a leading part.

We are also determined that this development should be primarily in the hands, and in the benefit, of Filipino nationals. But this places on us the obligation of making clear precisely what the conditions are that we impose on foreign investment. This we have already done in general principle, with the passage of the Investment Incentives Act, But there are a few particular uncertainties that must be cleared up immediately.

Other Measures. For the guidance of private investment, domestic as well as foreign, we are therefore considering two measures among others. The first of these is the re-classification of land used by factories as non-agricultural. This is a classification that conforms more closely than the present one to the facts. It has the further advantage of acting as an incentive to the promotion and continuance of productive investment.

A second uncertainty concerns the definition of the term national treatment with respect to foreign investment, especially in the fields of manufacturing, commerce and finance. This should be cleared up by congressional action.

Finally, the mining law should be revised to encourage exploration for domestic sources of petroleum. The present law classifies the processing of petroleum from domestic sources as a public utility, and is hence severely restrictive to foreigners; but it does not so restrict the processing of petroleum from foreign sources. Thus our petroleum industry remains heavily import dependent. Domestic entrepreneurs have the incentive to prospect for oil here, but not the resources. Foreign companies have the resources and knowledge, but not the incentive.

It is difficult to justify this policy, especially in the present circumstances. The discovery here of oil in commercial quantities would be a tremendous asset, not only to our international reserves but also to our national security. We should no longer deny ourselves this possible good fortune.

Guidelines. In all these matters, we will adopt a broad approach, marked |by four related guidelines. They are:

First, the encouragement of forward integration in our mining operations toward the processing of ores for local use or for exports as higher priced products, as well as the backward integration of manufacturing to develop domestic sources of material requirements which are still being imported.

Second, the promotion of industries which utilize indigenous raw materials and which will service foreign markets aside from meeting the demands of the domestic market.

Third, the expansion of import substituting ventures geared to local raw materials and whose products are competitive with imports in quality and cost.

Fourth, the stimulation of industries which provide material requirements to our agricultural sector and which support the capacity of the domestic market to absorb our agricultural products.

Banking and Manufacturing Sectors. We will also encourage cooperation between our banking system on the one hand, and our manufacturers on the other, toward the production of capital equipment for our industries and possibly for export. It is an established fact that our engineering industries are capable of turning out equipment, components and other durable consumer goods at lesser cost than their counterparts in other countries. What is needed in this respect is a financing arrangement between our public and private financing agencies and our manufacturers, which will render financially feasible the undertaking of significant capital goods production.

A Realistic Tax Program. Since its enactment in 1939, the National Internal Revenue Code, which is the basis of our existing tax system, has remained basically the same. About 72 per cent of tax revenues are from indirect taxes; the remaining 28 per cent come from direct taxes. This must now be revised.

A realistic tax program, one attuned to the development requirements as well as the structure of our society, is now imperative. We must produce a system which would not only increase tax revenues for financing intensified government action in economic development but also distribute the tax burden fairly and justly. The rich, rather than the poor, should bear the greater weight of the tax responsibility.

Special Funds. It is important that the funds we seek to generate shall be utilized with extreme prudence. I shall therefore define as clearly as possible the major areas in which we must sustain or accelerate our development efforts, and mark out the funds that shall be utilized to finance them exclusively.

I propose tax measures for the following special funds, and their corresponding uses:

1. A special land reform fund, consisting of 50 per cent of the proceeds from the specific taxes on distilled spirits, wines and fermented liquors, and to be administered by the National Land Reform Council.

This fund shall be used exclusively to hasten the implementation of the land reform program of the government as embodied in the Land Reform Code. Among others, the fund will be utilized for the (a) acquisition and expropriation of private landed estates: (b) survey and subdivision of lands into capability survey; and (c) provision of infrastructure needs of land reform areas.

2. A special school fund, consisting of all proceeds from: (a) a P3.00 levy on all individuals and P50.00 levy on all corporations required to file income lax returns; and (b) P1.00 for every P3,000 worth of real property and/or salaries, gross receipts and earnings, on all individuals and corporations required to file income tax returns or to pay the real property tax.

This fund shall be used exclusively to finance the preparation, printing and purchase of ordinary teaching aids, such as blackboards, chalks, erasers and visual paraphernalia.

3. A special manpower development fund, to consist of the proceeds from the imposition of a tax of 10 per cent and 5 per cent on the f.o.b. value of exports of logs and molasses, respectively.

This special fund shall be used exclusively to finance manpower training and development of technical skills in the labor force.

4. A special fund for free hospitalization and free medicine, to consist of 40 per cent of the tariff or taxes collected on imported blending leaf tobacco and of specific taxes collected on locally manufactured Virginia-type cigarettes, less 4 per cent thereof but in no case less than P3 million annually for use by the BIR in specific tax enforcement and collection.

This fund shall be utilized exclusively to finance a comprehensive hospital and medical care program for the efficient operation and maintenance of government hospitals, puericulture centers, and rural health units and distribution of free medicine to indigents-

5. A special science and technology research and development fund, to consist of the proceeds from the imposition of an additional 2 per cent miller’s tax and a new travel tax of P500 per foreign trip, under certain conditions.

This fund shall be used only for scientific research on a sustained basis.

6. A community development and social welfare fund, to consist of (a) increased collections resulting from the cutting down of the number of firms that can qualify for exemption under the Cottage Industries Law (RA 3470), through a reduction of the maximum capitalization requirement, and (b) proceeds from taxes to be collected from firms whose exemptions are proposed to be deleted from the Basic Industries Law (RA 3127).

This fund shall be utilized exclusively to intensify government efforts at improving living standards among the people at the grassroots level and to provide resources for aiding the needy and the victims of natural calamities.

7. A special infrastructure and development fund, to consist of the proceeds from the imposition of a 15 per cent surtax on the following taxes:

a) Personal and corporate income taxes

b) Transfer taxes

c) Real property tax

d) Fixed tax on business and occupation

e) Specific tax on alcoholic beverages

f) Sales tax on luxury goods

g) Percentage tax on luxury goods

h) Amusement taxes

i) Ordinary import duties

This fund shall be used exclusively to finance development projects in order to broaden the base of economic development.

8. A special low-cost housing fund, consisting of the proceeds from a tax of two per cent on the assessed value of idle lands, in addition to the regular real property tax payable thereon, the improvements on these idle lands being exempted from the regular properly tax for a period of five years.

This fund shall be exclusively for the construction, maintenance and operation of tow-cost tenement buildings or units for laborers and squatters in order to improve their standards of living.

9. A special agricultural development fund, to consist of the proceeds from the imposition of a tax on alt acquisitions by a Philippine citizen residing in me Philippines, residents of the Philippines who have stayed in the Philippines for not less than one year, and corporations incorporated, organized, and existing under Philippine laws of (a) foreign stocks, (b) foreign debt obligations, and (c) land and improvement thereon which are situated outside the Philippines.

This fund shall be utilized exclusively for intensifying the development of agricultural pursuits, including the importation of cattle for breeding purposes for distribution to the barrios.

External Trade and Economic Relations. I have saved until the end, to emphasize their over-riding importance, the measures to alleviate the most critical of the problems that still confront us. This is the shortage of foreign exchange. Our development program requires, in addition to heavy invest­ment, large imports of capital goods and some raw materials; and recent world developments indicate that we may shortly have either to give up some of our protected markets or share them with other developing countries. Furthermore, the improvement of our export earnings requires that we first improve our relations with other countries; so that external trade becomes a question of in­ternational prestige as well as of national development. The world at large, as well as our national entrepreneurs, will judge us by the efficiency with which we act on these measures.

Negotiations with the U.S. The most urgent of these is the impending ne­gotiation of our economic relations with the United States. A preparatory dis­cussion has been held in Baguio in which we succeeded in making our wishes known and, even at that early stage, securing agreement on two important matters. The first of these is the American acceptance of the principles of the Charter of Algiers: Non-reciprocal preferences should be granted to developing nations, and therefore important Philippine exports will be assured of continued entry into the United States. In the event of general preferences being granted, Philippine exports are also assured of additional special preferences, at least until 1974. The second is their agreement that problems arising out of the termi­nation of the Laurel-Langley Agreement will be resolved through the Philippine judicial process.

But that conference was only a preliminary exchange of views. The actual negotiations might take place in a few months: and for this, preparations must be undertaken immediately. Furthermore, the outcome of the negotiations will be a new treaty of economic relations between the Philippines and the United States, to replace the Laurel-Langley Agreement. Congress, as well as the Office of the President, is therefore involved, and Congress most directly, for it will have the final responsibility for the result.

Committees should therefore immediately be set up in Congress to discuss these questions. Our entire economic relationship with the United States should be reviewed. We must attempt to gauge the national feeling as to what concessions we are willing to grant the Americans, and what we wish to accept from them in return. We must send to the United States a well prepared negotia­ting panel, with Congress and private business well represented.

Our economic relations with other countries also need to be tidied up. There are treaties already negotiated and awaiting approval with the United States on tax relations, and with Japan, Germany and Sweden. Action should be taken on these as soon as possible, and in accordance with the will of Congress.

As a last measure in the field of international economic relations, we must increase our international bargaining power. Alone, we are economically weak against the industrial giants of the world; in union with similar countries in the Southeast Asian region, we can carry a little more weight. Our relations with these countries will be examined; we are particularly interested in the idea of a regional payments union.

Incentives for Exporters. On the domestic front, our own exporters are in need of more incentives. They must be encouraged to export more, and differ­ent things, to different markets. In this way, we protect ourselves from the uncertainty of being tied to a few buyers of a few products. In addition to the encouragement provided by the Investment Incentives Act, we should therefore like to see a special incentives act for exporters, in which additional tax ex­emptions are granted in proportion to the degree of domestic processing. A particularly attractive measure is the creation of an export processing zone. All activities within this zone would be tax-exempt; but taxes and duties would be levied if goods manufactured therein were to enter the domestic market.

Other measures are needed as well, to increase productivity and efficiency in our traditional export industries, especially sugar, coconut products and mineral production. And we must continue to attempt the restriction of non-essential imports. The measures currently in force have achieved some success; and there is hope that more restrictive measures will not be necessary.

By these and similar measures, of which I shall submit full particulars as the session progresses, our balance of payments may be improved to the extent and measure necessary.

Conclusion: Appeal for Moratorium on Politics. Politics is the art of decision through the will of the majority. Supposedly, both the majority and minority parties are mere instruments of the people for the enforcement of their will.

The record of performance as well as its criticism have been submitted to the sovereign people.

The popular mandate in the last elections was clear: it was a mandate for the vigorous pursuit of a policy of performance—directed to the improvement of the lives of the people, but especially in terms of their basic needs—food, clothing, shelter and education.

This was not only a mandate for performance, but a verdict against excessive politics. On this point there can be no mistaking the popular will and temper.

The election of 1967 has just occupied our nation. Now the signs indicate excessive political activity for 1969.

I ask you to unite with us now in a concerted effort to promote our develop­ment efforts because this year should afford us a respite from politics and parti­sanship. This is our last year for constructive legislation. The 1969 elections should not be allowed to engage our thoughts and energies now and deflect us from the more urgent tasks demanded by the welfare of our people.

Those who persist in politicking at so late or so early an hour deserve the re­proach and censure of the whole nation.

This is one of the tragedies of our democracy. But under my administration all parties have agreed by law to limit the period of political activity to three months for the local level and five months for the national level. This decision we all welcome as a guaranty against either majority or minority party members being guided by narrow selfish interest, their eyes dimmed by the prospect of the next election no matter how distant it may be, to the prejudice of the entire nation.

The need of me hour is to have men whose perceptions are clear. We must break from the crippling habits of the past. Lei us cultivate only those ways and customs that will make us an effective and progressive people.

I appeal to all, whatever be your party or whether party man or not, to discard politics, at least this year. There will be enough lime for the cruel, pitiless, exhausting, time consuming and often sterile and pointless pursuit of politics in 1969.

History may not record what we say. But it will record what we do. Let us now discard the pernicious habits of the past.

I hope and pray that the high-minded and noble responsibility of lawmaking will prevail over partisanship and personal ambition.

To change their lives men must first change themselves. The challenge of nation-building is first of all a call to character-building.

It is the business of a free people to develop habits proper to freedom to be purposeful, active, energetic and strong. We must at the very least, continue the pace that has been set in the past two years, the pace and tempo that mark a nation of achievers.

Thus may our people achieve their own development and write their own story of nation-building.

From a race despondent, weak, vacillating, resigned and helpless, groping for salvation to a nation confident, bold and resolute, seeking not survival alone but progress.

From a nation of the ningas-cogon to a nation of achievers.

Let this be our epic of nation-building.

Ferdinand E. Marcos