Manuel L. Quezon, First State of the Nation Address

Mr. Speaker, Gentlemen of the National Assembly:

Seven months ago this Commonwealth was inaugurated amidst the general rejoicing of our people, and with misgivings on the part of some timorous individuals. Today the Government of the Commonwealth counts with the confidence and respect of all. True, there are still a few prophets of disaster, but these need not seriously disturb us, for it is evident that it is only their wish that is father to their forebodings.

Our Relations with America

Under the provisions of the Independence Act incorporated into our Constitution, the Government of the United States retains direct control and supervision over our foreign affairs, as well as certain specific powers in a few cases of domestic character. These powers are vested in the President of the United States whose representative in the Islands is the United States High Commissioner. My personal and official relations with High Commissioner Frank Murphy have been most cordial, and the highest spirit of cooperation has characterized the transactions of our Government with the Washington Administration.

It was with a deep sense of loss that our people saw High Commissioner Murphy depart for the United States and it is their hope that he will soon return to the Philippines.

The Gold Reserve Funds and the Excise Tax on Oil

It is with regret that I have to inform you that the Senate of the United States has passed a bill repealing the Act recognizing the equity of the Philippine Government on the sum of P47,000,000 arising from the devaluation of the dollar as a reimbursement for the depreciation of our reserves deposited in the United States. Were this bill to pass Congress, our Government would be made to incur a loss or that American officials have done contrary to the recommendation of Filipino representatives. I have not, however, given up the hope that the House of Representatives will not follow the action of the Senate, for I cannot conceive that America, which in this case acted as the guardian of Filipino interests, should want to profit from the losses of her ward. I know that High Commissioner Murphy has done and is doing everything he can to secure this fund for the Philippines.

Again there are attempts to enact legislation reverting to the Treasury of the United States the proceeds of the excise tax on coconut oil imported from the Philippines. The amount of collections is now around P56,000,000 and is deposited in the United States Treasury. Payment to the Government of the Philippines in accordance with the law has been suspended in view of cases pending in the courts contesting the validity of the law. It is my earnest belief that Congress will not approve the proposed legislation above referred to. Heretofore, whenever the Congress of the United States has taxed goods or products imported into the United States from the Philippines, invariably it has provided the payment of all collections to our Government. It is, therefore, beyond my comprehension that at this stage of our relations with America that record of fair dealing and justice should be reversed. We are also counting upon the help of Commissioner Murphy and other friends in Congress to prevent the enactment of the said law.

Our Foreign Population

I am happy to be able to inform the Assembly that the foreign population of the Islands has, since the inauguration of the Commonwealth, shown a genuine desire to cooperate with our people to make this government a signal success.

Much has been printed in the local and foreign papers regarding the ownership of large tracts of land by Japanese subjects in Davao. There is an impression that Davao is actually owned by the Japanese. Such is not the case.

The total area owned, leased and/or cultivated by the Japanese in Davao is about 60,000 hectares out of almost two million hectares that constitute the total area of the public domain in that province. It is true that Japanese investments in Davao are considerable, and that there are doubts expressed as to the legality of some of the transactions entered into between Filipinos and Japanese regarding the public domain leased to Filipinos by the Government. In these cases the Government will act in accordance with law and equity. Before any course of action is finally decided upon by the Administration, I shall advise with the Assembly and take no step without your previous knowledge. There is nothing in the so-called Davao problem that should cause serious concern.

Peace and Order

The country has never been entirely free from armed bandits or outlaws as it has been during the last four months. At the beginning of the present administration there were two armed bands which had been marauding in the Provinces of Laguna and Tayabas for some time, and there was at large one notorious bandit in the Province of Lanao who for many years had been terrorizing that district with murders and robberies. Two hours after my inauguration as Chief Executive I had a conference with the governors of Laguna and Tayabas and the Chief of Constabulary, and I instructed them to spare no effort in the capture or extermination of these outlaws. Soon thereafter the Lanao bandit having resisted arrest was killed by the Constabulary and within two months every members of the armed bands in Laguna and Tayabas had been either captured or killed. However, there is still the danger of possible sporadic public disturbances like the uprising of the Sakdalistas which took place a year ago last May. Professional demagogues who make their living by exploiting the patriotism of the uninformed or the real or fancied grievances of the discontented, are exciting the masses with incendiary speeches and literature. Communism has also been active during the last few years and while its propaganda has not been particularly effective the forces of law and order have to be constantly on guard. There is not, of course, the slightest danger of any general uprising, but we cannot allow any serious disturbance of the public order to take place. One of the few cases which may give occasion for American intervention is the failure of the Government to preserve order and to protect life, property, and individual liberty. The world is watching this experiment in Filipino self-government, and the confidence and respect which in the future the nations may have in the Philippine Republic will depend in large measure upon our ability to maintain peace and order and to extend effective protection to all the residents of the Islands during the transition period. Knowing as I do the great superiority of the forces of the Government over any misguided group that may be induced to armed revolt, it causes me anguish to think that under my administration the armed forces of the government may be compelled to take such drastic measure as would exact a greater toll of life than during the Sakdalista uprising. From every point of view, therefore, it is better that preventive measures be taken, and it is my earnest hope that the National Assembly will not delay the enactment of appropriate legislation to this end.

Social Justice

While the Government cannot compromise with public disorder, it is equally its duty to right social injustices. That our laborers in the farm as well as in the factories still suffer from long-standing unfair practices, no one can successfully deny. These injustices, however, cannot be remedied by merely applying here legislation in force in other countries. For such legislation would not take into account local conditions, nor the incipient stage of our industrial life and the almost primitive state of our agriculture. Government administration is a practical question and statesmanship consists in the wise application of sound doctrines bearing in mind the actual conditions that have to be met with in each case. Even the most up-to-date progressive labor legislation, if not in keeping with the prevailing conditions here, may easily upset our existing industries, preventing the establishment of new ones, and retard the advance of our agriculture. I, therefore, advocate a policy of progressive conservatism based upon the recognition of the essential and fundamental rights of labor.

The Philippine Legislature has in the past enacted several measures for the protection of labor, but while they have improved somewhat the lot of the workingman to the extent that the Filipino laborer enjoys more rights and privileges than his brother in other Oriental countries, it is necessary that we should go further and give better and more effective protection to the rights and interests of our wage-earners. I would, therefore, urge the enactment of a law authorizing the creation of boards of arbitration to settle questions of labor, minimum wages, working conditions, and other matters affecting their relations.

With the passage of the Tenancy Law, it was believed that the relationship between the landowner and tenant could be maintained on a fair and satisfactory basis. Although the legislation has been in the statute book for several years, I do not know of a single locality which has put it into effect, as its enforcement in any province was made dependent on an affirmative resolution of the majority of the municipal councils of that province. There is now more discontent and social unrest among the farm laborers than among the industrial workers. I believe this situation will be materially improved by the enactment of the Arbitration Board Law to which I have referred.

The large landed estates or “haciendas” offer a different problem. This administration, by the Coalition platform, is committed to the policy favoring the acquisition of these estates at a fair and just price, so they may be sold in small lots to the tenants. I regret to state that after a careful study of this question, I have reached the conclusion that such a step would not remedy the situation nor could it be carried out without exposing the country to great financial losses.

Immediately after assuming office, I instructed the Department of Labor and the Department of Agriculture and Commerce to give me the necessary information so that I might recommend to the National Assembly at this regular session the purchase of these landed estates or “haciendas” and their subsequent sale to the tenants. Both Secretaries of said Departments have personally investigated some of the outstanding controversies between some of the “haciendas” and their tenants, and I have also taken part in one of those investigations. I have likewise studied the effects of the purchase of the so-called friar lands.

It is now my earnest conviction that the purchase of these “haciendas” by the Government will not solve the agrarian and social problems existing therein, but will only transfer to the Government the difficulties which the tenants now have with the present landowners.

The friar lands were acquired by the Government for the purpose of reselling them in small parcels to the men who were working on these lands; but, for several causes, the result has been that a large area of these “haciendas” is now in the hands of other people. The lot of the former tillers of these lands has not in the least improved. The investment, therefore, of several millions of pesos by the Government in the purchase of the friar lands has only been, with few exceptions, for the benefit of people not contemplated by the Government. The latest report I have is that in this transaction the Government lost heavily. If the Philippine Government lost then when the price paid for the friar lands was relatively low, it is evident that now, that the price asked for these “haciendas” is very much higher, the Government is bound to suffer a greater loss. There might be some justification in exposing the country to this financial loss if, through such purchase, the majority of the people working on them were to become the owners of the land which they are now cultivating. I am positive, however, that such will not be the case, any more than it was in the case of the friar lands, and I, for one, despite the commitment in the Coalition platform, do not wish to impose upon our people the burden of a national debt which our children will have to bear merely to give a few individuals the opportunity to acquire these particular areas at the expense of the people when there is so much available fertile and untouched public land in many regions of our country, particularly in Mindanao.

I realize the difficulty of convincing the men and their families who are now living in these “haciendas” to move out from their places of birth in order to settle in other provinces or islands, knowing as I do the attachment of the Filipino to his hometown. We must encourage our people to have a national outlook so that they may feel at home in whatever corner of the Philippines they may find themselves. We thus have an opportunity to induce the settlement of our sparsely populated areas by the tenants of these “haciendas,” and the money that the Government would surely lose with their purchase could be invested to better advantage in the construction of roads and improvement of health conditions in said uninhabited but rich sections of the Philippines.

In the meantime, I recommend the adoption of measures similar to those which were adopted in Ireland to solve agrarian problems there which have been existing from time immemorial. I also recommend the immediate passage of a law authorizing the expropriation of those portions of the large “haciendas” which are urban in character and are occupied by the houses of the tenants. With the opportunity to own their own homes thus assured, the settlement of the present difficulties of the tenants relative to their farm lands might no longer be of urgent necessity.

Previous Legislative Enactments

In your inaugural session, which lasted barely thirty days, you enacted the most important legislation pledged in the Coalition platform and urgently required by the nature of the new responsibilities of the present government. The record you have made has earned for you just commendation and constitutes the main reason for the prevailing confidence in our future. I now beg leave to report what has been done by Executive in compliance with your legislative enactments.

National Defense –Conscious of the fact that the prime duty of every government is to provide for national defense, the first measure you have enacted is the “National Defense Act” (Commonwealth Act No. 1).

This Act provides for the reorganization of a defensive system composed of the Regular Force and a trained citizen army, and contemplates a yearly appropriation of P16,000,000 for ten years, at the end of which the nation will be placed in a position of serene dignity amongst the powers of the world.

A comprehensive report of the steps taken in pursuance of the provisions of the National Defense Act has been submitted to be by the Military Adviser and it will be my pleasure to transmit it to you in a separate message. Suffice it for me to say now that the response of the country to the call of the Assembly has exceeded our fondest expectations. The number of Filipinos who enrolled on the date fixed for registration in accordance with the provisions of the National Defense Act was greatly in excess of what had been anticipated; in fact it was almost double our estimates. The school teachers who were given instructions in training camps to equip them with the knowledge necessary to carry out the work assigned to them in the schools under the provisions of the National Defense Act, conducted themselves so well and their training was so successful that they deserve from me a well-merited public recognition. It has been plainly demonstrated that our people are ready for the supreme sacrifice in defense of their motherland and their liberty.

I order to expedite the organization of the new Army, I made ad interim appointments to the positions of Chief and Deputy Chief of Staff, the Provost Marshal, and other high ranking officers. These appointments were made after a careful and impartial study of the record of every man and were made upon the recommendation of the Military Adviser of this Government.

No one better than I knows how essential it is to entirely disassociate the Army from politics and, as scrupulously in the rank and file as in the high command, to make merit as the one and only basis of promotion. The Army is a double-edged sword. It is the arm of the Government which is the last resort for the enforcement of the laws and so compel obedience to constituted authority, for the maintenance of peace and order, and for the defense of the national integrity and liberty. But as contemporary history proves to us, the army can also be a disturber of peace and the enemy of law and established government, and in many instances it has been the instrument for the overthrow of constitutional regime. In building up our national defense, and in organizing the regular armed forces of the Islands, these tragic lessons of history must be constantly borne in mind, and it behooves us, who are for the time being entrusted with the responsibility of leadership over our nation, to be forever watchful and vigilant lest we sow the seeds of a possible future misuse of our armed forces. A just and fair treatment for the Army and its rank and file, the upholding of civil authority over the military, insistence upon strict discipline within the organization, non-interference by outsiders, political or otherwise, and a rigid prohibition against the use of the organization or its members for political purposes –these are the basic principles that must be faithfully adhered to in order to make the Philippine Army the safeguard of our liberties and constitutional government, as well as the bulwark of our national integrity and independence.

During the brief period that I have been at the head of the Government, I have inspected most of the garrisons of the Philippine Army and Constabulary. I know and have known for years many of the officers of the organization and have had intimate relations with the high command. The discipline, the gentlemanly conduct, the devotion to duty, the patriotism and courage of the officers and men make me feel proud as a Filipino and as the Commander-in-Chief of these armed forces of the Commonwealth.

The National Economic Council –Another important legislation which you passed in your inaugural session is that which creates the National Economic Council to advise the Government on economic and financial questions, including the improvement and promotion of industries, diversification of crops and production, tariffs, taxation, and such other matters as may from time to time be submitted so its consideration by the President, and to formulate an economic program based on national independence.

In accordance with the provisions of said Act, I have appointed the Secretary of Finance, the Secretary of Agriculture and Commerce, the Chairman of the Board of Directors of the Philippine National Bank, the President of the National Development Company, the President of the Manila Railroad Company, Mr. Joaquin M. Elizalde, Hon. R.J. Fernandez, Mr. Wenceslao Trinidad, Mr. Vicente Madrigal, Hon. Francisco Varona, Mr. Ramon Soriano, Hon. Vicente Singson Encarnacion, Hon. Rafael R. Alunan and Dr. Manuel L. Roxas, as members of the National Economic Council and designated as Chairman thereof the Secretary of Finance. The Council was organized on February 14, 1936, and it commenced to function immediately thereafter.

As may be expected, considering the complex and highly technical character of the task entrusted to it, the National Economic Council has not so far submitted to the Government any economic program, nor has the Government sought the advice of the Council except on one question: namely, the advisability of creating the National Rice and Corn Corporation for the purpose of bringing about the stabilization of the price of rice, the most important staple food of our people, by protecting equally the producer and the consumer, and also to serve as an agency of the Government to meet local or national emergencies in cases of shortage of rice. It should be stated in all candor that it was only after a long debate inspired by honest differences of opinion that the National Economic Council gave its approval to this venture. Despite certain doubts expressed by some members of the Council, however, I am confident that the National Rice and Corn Corporation will ultimately solve the rice problem, one of the most serious national problems which for years has been confronting our country and which demanded immediate attention on account of its very serious implications.

The situation may be summarized as follows: The main food supply of the Filipinos, like that of most Orientals, is rice. For many years the country did not produce a sufficient quantity of rice for its consumption and the Government deemed it necessary even to borrow money for the purpose of establishing irrigation systems in order that the country may be self-sufficient in rice supply. Our yearly importation of this article amounted to many millions of pesos, reaching over P25,000,000 in one year. During the last two years we were able to produce practically all the rice needed for our consumption. But no sooner did we reach this stage than the price of rice went down, in fact so low that the rice farmer not only made no profit, but actually suffered considerable losses. As a consequence, there has been a growing discontent on the part of the rice growers, especially the tenants or kasamas, who are earning less than is required for the bare necessities of life. On the other hand, whenever, due to typhoons, drought, or floods there was a shortage of rice and prices reached high levels, either through the manipulations of a few conscienceless rice merchants or merely because of scarcity of supply, the consumer, especially the poor, became a victim of speculatory activities. To save them the Government had to intervene and take drastic measures at times in order to alleviate the crisis.

In spite of such a situation nothing has been attempted so far to remedy it, and this Administration felt that it was its duty, especially in view of the shortage of the last crop due to repeated typhoons and floods, to face the issue immediately and strive to solve the problem once and for all.

It is only natural that there should be some doubt or fear, and even resentment from some quarters, over the action of the Government; hence criticisms are being made in public and in private, and those who expected to make unreasonable profits from the rice crisis and were foiled in their anticipations, went so far as to see dishonest purposes in the creation of the Rice and Corn Corporation. All such doubts and criticisms, whether honest or malicious, did not deter the Administration from carrying out the plan that has been adopted, especially because no alternative had been suggested.

To meet the national emergency caused by the shortage of rice, I have designated the National Rice and Corn Corpation to act as the relief agency for the Government in place of the Bureau of Commerce which was in charge of this activity in the past. When the corporation started importing rice, the Collector of Customs, believing that the rice so imported must pay duties in view of the fact that it was being sold at some profit, informed the Secretary of Finance of his intention to collect such duties, and in fact did demand payment thereof by the Rice and Corn Corporation. After securing the legal opinion of the Secretary of Justice, I advised the Collector of Customs to desist from collecting any duties from the Rice and Corn Corporation on the rice imported so long as it was acting as the agent of the Government in meeting the emergency resulting from the rice shortage.

Heretofore, Government agencies disagreeing on the interpretation of the laws affecting their powers and rights, have been allowed to bring the case before the courts for adjudication. Such a policy, I think, is wrong, and in fact in one instance it has merited the criticism of our own Supreme Court. It makes both government agencies incur in unjustified expense and unnecessarily take up the time of the courts. Considered in its practical aspect, it only means taking money from one agency of the Government and giving it to another. If it had been a question of the Government on the one hand as against a purely private enterprise on the other, then it would have been not only proper but also necessary for the courts to have intervened.

The Court of Appeals –Commonwealth Act No. 3, enacted also during the inaugural session of the Assembly, created the Court of Appeals in order to expedite and improve the administration of justice.

In accordance with the provisions of said Act, I appointed the members of the Court who forthwith proceeded with its organization. These appointments were made after full information and careful consideration, with an eye single to the best interests of the administration of justice.

As soon as funds are available for the purpose, I shall recommend to the Assembly that the necessary appropriation be made for the creation of another division of the Court of Appeals to sit in one of the southern provinces and to authorize the various divisions of the Court of Appeals to sit in any of the provinces within their jurisdiction, to hear cases pending before the Court for decision. Such procedure would not only expedite but would also greatly reduce the cost of appeals to litigants, thus making this appellate Court more accessible to the poor.

Manila Railroad Company –A very important measure approved by the National Assembly is Commonwealth Act No. 4 providing funds to be loaned to the Manila Railroad Company for the purchase, before maturity, of certain outstanding bonds of the said Company. In accordance with the provisions of this Act, I directed the Insular Treasurer to loan to the Manila Railroad Company P9,900,000, and authorized the Philippine National Bank to use P3,360,000 og its funds in the purchase of said bonds.

On January 29, 1936, upon payment to the Manila Railway Company (1906) Ltd., through the Chase National Bank, New York City, of the sum of $6,698,631.41 covering the principal, interest and exchange premium, all of the Souther Lines 4 per cent gold bonds maturing May 1, 1939, held by the English Company, with par value of P16,340,000, were delivered to the order of the Bureau of Insular Affairs, Washington, D.C., acting as representative of the Commonwealth Government and the Manila Railroad Company.

The successful culmination of this exceedingly important transaction resulted in great financial advantages to the direct benefit of the Manila Railroad Company and indirectly of the Commonwealth Government, which is the sole owner of the property. The following estimates indicate in round figures the savings that will be effected between now and the maturity of the bonds:

Total face value of the bonds held by the Manila Railway Company (1906), Ltd.…………….. P16,340,000.00

Cost at 80 per cent of face value……………..13,072,000.00

Savings in principal……………..3,268,000.00

Less –premium……………..165,500.00

Net saving in principal	…………….. 3,102,500.00

Normal 4 per cent annual interest on English Company holdings	P653,600.00 Normal interest for 1936, 1937, 1938 and half of 1939	2,287,600.00 Premium for 3-1/2 years at P441,180 each year	1,544,130.00……………..3,831,730.00

Total……………..P6,934,230.00

Less- 2% on P13,350,000 for 3-1/2 years 934,500.00

Total savings in principal and interest	……………..P5,999,730.00

The above savings on the English Company holdings are based on the principal of the bonds being redeemed at maturity at their face value. However, both the principal and interest are subject, at the holders’ option, to payment in certain European currencies at the former gold equivalent, and if this option should be exercised covering the principal at the time of maturity, the amount necessary to redeem the bonds being held by the English Company would, on the present basis of exchange, represent a total sum of approximately P27,287,800. The purchase of these new bonds at this time for the sum of P13,072,000, therefore, means a saving in interest and principal of about P14,200,000 besides a savings in interest and premium amounting to about P2,900,000 after allowing for the two per cent interest on the loan from the Government, or a total saving of about P17,100,000.

The investment of the Government in the Manila Railroad Company including bonded indebtedness of the Company all told amounts to approximately P28,000,000. This is a respectable sum for any Government and doubly so for a Government whose yearly revenue at present is around P78,000,000 and at its highest peak only reached the total of P92,783,173.70.

Bus and truck transportation due to improved roads in the northern and central provinces of Luzon have caused a large decline in the income of the Manila Railroad Company. We cannot afford to allow this situation to continue and permit the Government to suffer tremendous losses in railroad operation, for the time might come when the Government would either be compelled to suspend the operation of the Railway or carry a yearly financial burden that sooner or later would bankrupt the National Treasury.

The Manila Railroad was acquired by the Insular Government in 1917 in order partly to withdraw from foreign hands the control of our most important means of transportation at that time. Soon after the Government assumed the administration of this property, the railroad began paying interest on the bonds from its revenue, and even extended some of its lines with its own resources. Only during the last two or three years has the income of the railroad begun to decline due, as already stated, to bus and truck competition. If it should be found advisable, I am prepared to authorize the Manila Railroad Company to purchase some of these competing bus transportation companies or else to have the Government establish and operate its own bus and truck services. The Constitution expressly authorizes the Government to establish and operate means of transportation and communication, and, upon payment of just compensation, transfer to public ownership utilities held by private individuals to be operated by the Government.

Another step that must be taken at once is the completion of the railroad line to the Bicol provinces. This, I am informed, will make the southern lines a paying enterprise. In pursuance of the authority vested in me by law, I have directed the Secretary of Finance to purchase P3,000,000 worth of stocks of the Manila Railroad to finance the completion of the Aloneros-Ragay line. It is my understanding that to complete the road the Government will have to invest only P700,000 more in addition to the P3,000,000 referred to above.

But this amount will have to be greatly increased if the Manila Railroad Company is not given permission to abandon the Legaspi-Tabaco, Las Pinas-Naic, Rosario-Montalban and Batangas-Bauan lines which are absolutely unnecessary from the point of view of public convenience and which, consequently, are causing an annual loss of about P100,000 to the Railroad Company. Once these lines are abandoned their materials and equipment will be used in the construction of the Aloneros-Ragay line.

I, therefore, earnestly recommend that a law be enacted authorizing the Manila Railroad Company to abandon the lines above mentioned.

Government Survey Board –In accordance with the provisions of Commonwealth Act No. 5, I appointed Hon. Miguel Unson, as Chairman, and Mr. Wenceslao Trinidad and Mr. Jose Paez, as members of the Government Survey Board on February 14, 1936. The Board has been devoting considerable time to the investigation of the Government bureaus and their activities and to the formulation of a plan whereby the Government may be simplified and made more economical as well as more efficient. The most important recommendation of this Board is the creation of the Budget Office, which I have approved, and in accordance therewith I have appointed the Auditor General and the Director of Civil Service, as members of the Commission and the Honorable Serafin Marabut, former Chairman of the Appropriations Committee of the National Assembly, as Undersecretary of Finance and Director of the Budget. The budget which I will soon submit to the Assembly has already been prepared by the Commission and approved by the Cabinet. The only other case in which I have exercised the authority granted me by Commonwealth Act No. 5, also upon the recommendation of the Survey Board, is the transfer of the coastguard and lighthouse service from the Department of Agriculture and Commerce to the Bureau of Customs.

At this time the Board is conducting a careful investigation and study of the activities of the Bureau of Lands, General Land Registration Office, Bureaus of Public Works, Science, Animal Industry, Plant Industry and Health, and of the University of the Philippines, with the end in view of avoiding duplication and simplifying procedure. Special attention is being given by the Board to the matter of cadastral surveys, homesteads, a general registration office, a central statistics office, and proper allocation on centralization of laboratories with the purpose of recommending the intensification of industrial researches, so essential to the economic development of our country. Preliminary survey of the provincial and municipal services is likewise under way.

Philippine National Bank –In accordance with the provisions of Commonwealth Act No. 6, the Philippine National Bank has written up certain assets, heretofore considered as losses, at their actual value. On January 17, 1936, the sum of P3,940,000 was thus written up and paid to the Government, and on May 18, 1936, the sum of P2,944,997 was also written up to be paid to the Government in due course.

National Loan and Investment Board –The National Loan and Investment Board created by Commonwealth Act No. 7 has been constituted by the appointment of Mr. Salvador Lagdameo, as chairman, and of Dr. Luther B. Bewley, Mr. Jose Bernardo, and Mr. Pedro M. Moncayo, as members.

The Board began functioning on February 29, 1936, by adopting measures to organize its office and at the same time granting loans from the different funds placed under its control and administration. Due to the natural delay encountered in making the delimitation of the powers of the National Loan and Investment Board and those of the different boards and offices originally controlling the several investible funds transferred to the former, as well as in transferring the personnel and appointing the necessary new employees, the Board has not as yet been able to completely organize its office and to function as properly as it should. The amount of investible funds, the investment of which has been placed under the administration of the National Loan and Investment Board, aggregates P45,000,000 as of December 31, 1935. The actual transfer of these funds to the National Loan and Investment Board has not yet been completed. It is, however, hoped that such transfer will soon be effected.

It has been found that certain amendments to Commonwealth Act No. 7 are immediately needed in order to clarify some of its provisions.

Construction of Roads in Mindanao –In the exercise of the powers vested in me by Commonwealth Act No. 18, I authorized the expenditure of P820,000 for the completion of the road connecting the Provinces of Lanao, Cotabato and Davao on the Island of Mindanao. As an initial step in the program of giving new impetus to the development of Mindanao, this work will be of incalculable value to the country, since it will not only provide an overland outlet for Davao but will also open to settlement immense unoccupied areas of that island.

The time has come when we should systematically proceed with and bring about the colonization and economic development of Mindanao. A vast and rich territory with its untapped natural resources is a temptation to enterprising nations that are looking for an outlet for their excess population. While no nation has the right to violate the territorial integrity of another nation, people that lack the energy, ability, or desire to make use of the resources which Divine Providence has placed in their hands, afford an excuse for a more energetic and willful people to deprive them of their lawful heritage. If, therefore, we are resolved to conserve Mindanao for ourselves and our posterity, we must bend all our efforts to occupy and develop it and guard against avarice and greed. Its colonization and development will require no little capital. But every cent spent for this purpose will mean increased national wealth and greater national security. The present income of the government is quite insufficient to even attempt to do more than carry on its present activities. Were there no other reasons for the creation of new sources of revenue, the need of developing Mindanao alone would make it an unavoidable duty for this Assembly, especially those who visited Mindanao recently with me, are conscious, I feel sure, of our grave responsibility to encourage settlement and develop Mindanao. There are provinces in Luzon and the Visayas that are already overpopulated. There are localities in some of those provinces where the people live on large estates without opportunity to earn a livelihood sufficient to meet the necessities of civilized life, much less to own the land wherein they live and which they cultivate. It is inconceivable that such a situation should exist in a country with extensive areas of fertile uncultivated lands. I invite you, therefore, to give this matter preferential consideration.

The so-called Moro problem is a thing of the past. We are giving our Mohammedan brethren the best government they have ever had and we are showing them our devoted interest in their welfare and advancement. In turn they are giving us their full cooperation. Let us reserve for them in their respective localities such land of the public domain as they may need for their well-being. Let us, at the same time, place in the unoccupied lands of that region industrious Filipinos from other provinces of the Archipelago, so that they may live together in perfect harmony and brotherhood.

Public Instruction

In order to comply with the provisions of the Constitution concerning public education I feel it my duty to see to it that a careful study be made of the fundamental problems brought about by the conditions now obtaining so that our educational policies and objectives may be re-defined. Our system of public education must be inspired in Filipino patriotism and consecrated to the formation of citizens of high moral character and civic virtues. It must equip our citizens with social and vocational efficiency not only for their own benefit but also so that they may the better serve the State. We must provide every child of school age the opportunity to receive primary instruction.

So that the Government may be advised as to the best method and the necessary means to carry out the reorganization and proper orientation of our public school system, I have created, by executive order, the Council of Education, composed of professional educators drawn from our own Bureau of Education and the Government University as well as from some of the best accredited private institutions of learning. Dr. Rafael Palma, former President of the University of the Philippines, is at the head of the Council. The members are: Hon. Gabriel Manalac, Dr. Francisco Benitez, Dr. Jorge Bocobo, Dr. Luther Bewley, Hon. Norberto Romualdez, Mrs. Sofia R. de Veyra, Dr. Mariano V. de los Santos, Dr. Nicanor Reyes, Dr. Manuel L. Carreon, and Mr. Segundo Infantado. I hope that during the present sessions some recommendations of the Council may be submitted to you for appropriate action.

Civil Service

During the last especial session I recommended the enactment of legislation that will make our Civil Service Law conform to the provisions of the Constitution. Lack of time prevented you from taking affirmative action on this subject, and I hereby renew my former recommendation.

The National Language

While it is my hope and conviction that the English language will remain one of the most generally spoken languages in the Philippines even after independence, nevertheless, we cannot ignore the injunction of the Constitution that we take steps for the formation of a national language based on one of the existing native languages. It is difficult to determine what practical measures may be adopted at this time to bring this about, but I wish to lay the problem before you so that you may give it your early and deliberate consideration. Perhaps a committee may be created to study the question and make recommendations.

New Taxes

In view of the new and greater responsibilities of the Commonwealth and the necessity of having at our disposal funds with which to carry out a comprehensive program for the economic development of the country, it will be necessary to create new taxes. The following are some of the tax measures which I recommend for your approval:

1.  The amendment of the Income Tax Law by reducing the personal tax exemption and increasing the rate of the tax on excess personal income and of the tax on corporate profits.

2.  The amendment of the Inheritance Tax Law by increasing the rate of the tax, particularly in the case of estates of decedents not leaving any forced heirs.

3.  The increase of the tax on mines.

4.  Taxes on luxuries and amusements.

5.  The creation of a school tax in an amount equal to the present cedula tax, which should be abolished.

6.  A tax on transportation and travel in an amount sufficient to take care of the maintenance and improvement of roads.

7.  A modification of the Land Tax Law, so as to provide for a progressively increasing rate of taxation based upon the area of the landholdings.

8.  Modifications of present tax laws to enable the Government to collect taxes more effectively.

The taxes I am recommending place the burden upon shoulders that can well afford to bear them and, if levied, the Commonwealth Government will be able to render our people new services so urgently needed for their welfare and progress. I feel confident that those who are called upon to pay these taxes will not grudge their added contribution to the public weal.

Until the National Assembly enacts the measure above referred to, it will be futile for me to present for your consideration a program of government activities or industrial development which the Government may initiate or help in part, for there will be no means with which to carry it it out.

Conclusion

From time to time, during your present session, I shall have occasion to present for your study and consideration matters that, in my opinion, deserve your attention. Meanwhile, may I express the hope that the cordial cooperation which as existed in the last session between the Executive and the Legislative Departments will continue to be keynote of our relations? The success of the Commonwealth will depend upon the ability of the executive and legislative departments to cooperate with each other.

In our day and generation democracy, as an effective system of government, is being challenged. Let this new democracy of ours show to the world that democracy can be as efficient as a dictatorship, without trespassing upon individual liberty and the sacred rights of the people.