The Foundation for Economic Freedom:
Role and Tasks in a Milieu of Protectionism
Paper presented by Professor Alexander R. Magno, president,
Foundation for Economic Freedom, at the fifth workshop of the
Economic Freedom Network, Jaipur, India, 25-28 September 2003
The Foundation for Economic Freedom (FEF) was established eight
years ago by individuals concerned over the low level of public
appreciation for the dynamism of a free market economy.
The FEF was designed specifically to be an advocacy
institution, operating on a low overhead budget, and engaging principally
in public diplomacy. At the core of this institution is the Council
of Fellows, composed of highly visible and respected business leaders,
retired bureaucrats and academic economists.
The Council of Fellows is led by former Prime
Minister Cesar Virata and former finance secretary Roberto de Ocampo.
The Council includes three former economic planning secretaries
--- Cayetano Paderangga, Felipe Medalla and Dante Canlas. The present
economic planning secretary, Romulo Neri, is likewise a fellow.
Presently, the President Gloria Macapagal Arroyo’s
Cabinet includes, apart from Neri, two other fellows of the FEF.
These are Budget Secretary Emilia Boncodin and Labor Secretary Patricia
Sto. Tomas. An FEF fellow heads the Philippine International Trade
Corporation and the Transmission Corporation, which is tasked with
privatizing the power sector. Three members of the FEF are with
the board of the Development Bank of the Philippines, including
the chairman of the board and the president.
The profile of the FEF Council of Fellows is
the institution’s main resource. That profile allows the FEF to
call government’s attention to urgent policy issues and commands
the public’s attention during vital policy debates.
Over the past 8 years, the FEF has stood as the
institution of reference on several policy issues touching on the
process of reinventing the Philippine economy from an inward-looking
to a trading one.
Liberalization of Oild Sectors
The initial stimulus for establishing the FEF
was the great oil price debate that happened during the 1994-95
At that time, the oil industry in the Philippines
was nationalized and oil pricing regulated. A levy was collected
on oil price sales and pooled into what was called the Oil Price
Stabilization Fund. The Fund was, theoretically, a means to moderate
sharp price movements in oil due either to currency realignments
or instability in the global markets.
In reality, the fund, which was constantly at
a deficit especially in the aftermath of the first Gulf War, became
a channel for subsidizing oil prices at great cost to public sector
finances. While the fund existed, oil pricing became highly politicized.
Every increase in pump price was met with large demonstrations and
paralyzing transport strikes. No political leader was willing to
accept the political cost of obeying market dictate on oil pricing.
Subsequently, oil pricing was dictated more by the political balance
of power rather than by market forces.
In the 1994-95 oil price debate, government actually
raised prices to reflect real world pricing. This was also a necessary
step leading to the eventual liberalization of the oil sector. Allowing
the artificially low prices to persist would have discouraged the
entry of competitive new players in the sector.
The oil price increase, however, provoked the
formation of a large coalition of political groups demanding a rollback.
The coalition was called Kilusang Rollback (Rollback Movement) and
included leftist organizations, trade unions, farmers groups and
a large number of prominent clergymen who declared that oil price
increases were “anti-poor.” The coalition mounted street protest
and called for paralyzing general strikes.
Facing midterm elections in May 1995, the Ramos
government buckled under the pressure from the streets. Oil prices
were rolled back. As a result, the public sector deficit spiked
up by P30 billion and oil imports increased abnormally by 30%. It
was clear that artificially priced oil produced not only massive
bleeding of public sector funds, it also led to imprudent consumption
of an imported and highly polluting commodity.
Through the oil price debate, no one stood up
to defend what was an overwhelmingly unpopular decision to allow
oil prices to seek their market level. No group confronted the highly
politicized pressure from the streets to argue that it was the oil
subsidies that were “anti-poor” because they diverted scarce public
funds from education and health services that served the lower income
groups more. Oil subsidies benefited richer Filipinos who consumed
as much as fifty times more gasoline per capita than lower income
Filipinos who relied on public mass transport.
It was during this period that the fellows of
the FEF decided that there was a need for an institution that would
dare take unpopular positions on issues where populism reared its
ugly head. There was need for an institution that would address
the broad public and insist on taking a longer view of the economic
policy issues at hand, a view beyond the short-term political contingencies
and beyond the normal public inclination for instant gratification.
Those of similar mind and concern for the quality
and reliability of our economic policies began meeting to discuss
the feasibility of establishing an advocacy institution. Because
such an institution would often stand against what was more popular
in the policy debates, it was necessary for this institution to
be composed of truly respected intellectuals and public servants.
It was also important for the institution to be constantly independent
of vested interests.
The Foundation for Economic Freedom was established
as a result of those consultations.
The Foundation began operations with a small
grant from the Philippine Business for Social Progress (PBSP). That
grant has since run out and the FEF has relied on occasional partnerships
with other institutions, using a miniscule backroom operation to
support the Council of Fellows.
The FEF played a major role in the passage of
two key pieces of legislation that helped liberalize the economy.
From 1998 to 2000, the FEF partnered with several
groups to assist in the passage of the Liberalization of the Retail
Trade Act. The 1954 law that nationalized the retail trade (reserved
it for enterprises that were owned by Filipinos) was highly symbolic
for the protectionists. A strong lobby funded by the existing retail
companies had prevented liberalization for years.
The FEF worked specifically at putting retail
liberalization in the Estrada administration’s priority legislative
agenda. The FEF’s research staff supported legislators with research
findings to help craft the liberalization law. At the same time,
the Foundation mounted a nationwide information campaign to convince
the people that an inefficient retail system was harming the poor
and that increased investments in the retail sector would help bring
drown prices through more efficient distribution of goods.
Although protectionist legislators did succeed
in inserting provisions that limited entry of foreign-owned retailers
through high capitalization barriers and a brief waiting period
before liberalization takes full effect, the passage of the law
in 2000 was a substantial as well as symbolic victory. It brought
new investments into retail despite the limitations and brought
down a previous law that was symbolic of the period of intense economic
nationalism in the country.
From 2000 to 2001, the FEF concentrated on the
passage of the Electricity Power Industry Reform Act. The reform
measure was not a popular one with a public that was used to a nationalized
system of power generation and distribution. Furthermore, although
the National Power Corporation was losing billions annually, the
process of privatizing it would require front-end costs for government.
Despite those considerations, President Gloria
Macapagal Arroyo kept the power reform act at the top of her priority
legislative agenda and the law was passed a few months after she
From 2001, the FEF has been concentrating on
governance reforms, specifically the re-engineering of the corruption-prone
Bureau of Internal Revenue (BIR). The Foundation provided both research
support to legislators and initiated a public information campaign
to win support for the restructuring of the BIR to make it more
efficient in its work and more resistant to the lure of corruption.
Although there was strong support for BIR reforms
from the present government, the enthusiasm of the legislators was
not sufficient to move this piece of legislation quickly enough
to pass it before election fever set in. Employees of the BIR, fearful
of being laid off en masse, opposed the restructuring. Politicians
associated with the influential networks of BIR collectors used
every technicality in the book to slow down movement of the proposed
reform law through the legislative mill.
The FEF continues to lend its weight to the effort
to reform our internal revenue system even if there is danger that
elections will freeze the process and a new Congress will shelve
the bill. The problem of uncollected revenues is a strategic one.
The Philippines has suffered a chronic budget deficit that has now
caused the public debt to balloon to unsustainable levels.
In between these major campaigns, the FEF has
issued public statements on other issues relating to Philippine
economic policy. Despite limitations on the institution’s resources,
we have tried to keep maintain a high visibility in the public debate
concerning the direction and pace of economic development in the
The Economic Freedom Index
As indicated be the preceding discussion, the
FEF is principally a public advocacy institution rather than a primarily
We collate and package information rather than
generate baseline data on our own. For our data needs, we rely on
existing economic research institutions as well as on information
available from like-minded institutions globally. Networking is
a very important component of the FEF’s work.
We have had, on several occasions, found great
use for the Economic Freedom Index. It is a valuable source of comparative
information that helps the FEF strengthen its case in the domestic
When the FEF mounted its campaign for the passage
of the Retail Liberalization Act, we relied extensively on comparative
economic data from collaborating foreign institutions. During this
campaign, we attempted to organize existing consumers groups and
build a coalition of consumers opposed to the inefficient retail
system that victimizers end-used of goods. In this effort, we received
significant support from Australian institutions supporting free
Last year, the FEF produced a detailed paper
critiquing the Index and advancing a number of suggestions. That
critique was well received and, at this moment, we have very little
to add to it.
But we are sure that the solidarity of free market
advocates will continue to be important to us.
We face a global situation characterized by a
backlash of sorts to the experience, thus far, of relaxed trade
and liberalized economies. In the Philippines, to be sure, there
continued to be organized political pressure to reverse the gains
made the last decade towards building a more liberal and more competitive
The FEF looks forward to more campaigns in the
near future, at the very least to conserve the gains of previous
liberalization measures and to stall the resurgent tide of protectionism
--- a tide that will compromise our ability to provide a better
future for our people.
We will seek out the support of our allies in
the Economic Freedom Network in this effort.