Of His Excellency Ferdinand E. Marcos President of the Philippines On the State of the Nation
[July 22, 1985]
Mr. Speaker, Mr. Pr ime Mini ster,
Distinguished members of the Bata sang Pambansa: In keeping with both tradition and duty, we meet today as trustees of our people to set anew th e annual agenda for the nation. We should perhaps take note that this tradition surround ing the opening of Parliament is as old as the nation itself, in the light of so much talk abroad about the alleged fragility of our democratic institutions. While the Batasang Pambansa is only one year old today, the declaration of partnership between the Presidency and Par liament dates back to the very birth of our First Repub lic. And if this Constitutional principle has survived intact after so many tidal changes in our national history, surely this is one sign that democracy has roots he re in our land. There are others, and I ha ve come here tonight to report that our democracy has prevailed over a year of crisis and un certainty, and to seek your support and collaboration in meeting a new turning point in national life. Highligh ts of the Year When we convened this assembly for the first time a year ago, we could feel within this chamber the fever of anxiety that gripped the nation. The economic cri sis was at its height . There was turbulence and confrontation on ou r streets. And insurgency and subversion took the moment as an opportunity to revive and regroup . The past year bears witness to our combined resolve and determination to be master of the crisis, and not its victim. We hav e decisively stopped the slide of our economic for tunes, and restored them to health and renewed activity. Against every forecast of collapse made by so many, w e have turned the odds in our favor and set a course towards recovery that is without parallel among nations similarly embattled. We have demonstrated the efficacy of our democratic in stitutions and processes, in ensuring national stability and in framing policies and programs to meet the tide of crisis in our midst. The elections that brought this Parliament into being and the inaugural session of this assembly exemplify our re sponse at this end. We have met the grave challenge of subversion and insurgency, which again sought to take advantage of our economic travails ' and political trials. In the measure of the challenge, we have confronted the enemy on every front, we have insti tuted reforms in our counter-insurgency program and our armed forces, and we have strengthened the bond between our soldiery and our citizenry which is so essential for success in this struggle. We have strengthened the mechanisms for dialogue and cooperation among all the sectors of our society, seeking relief for the plight of those who have been most adversely affected by the crisis and providing for fruitful partnership between the private sector and the government. A year ago the basis of social concord was . under grave challenge. Today, that is now largely recovered and strengthened . We have protected the gains and the reforms of the past decade in our response to the crisis, even though we have had to implement stringent measures of economy and prudence . No major social program of reform has been abrogated by our belt tightening efforts; rather savings have been generated in other areas so that the reform effort would continue . And in our relations with the rest of the world, we have the confidence of other nations and international institutions in our ability to surmount our problems and to meet our obligations and commitments. The seal of international 'credit worthiness handed us by the International Monetary Fund is only one aspect of this. As important and significant is the renewed vigor of our bilateral and multilateral diplomacy. Not all the adversities and challenges ate behind us. Our agenda remains heavy and difficult. But we have moved be yond .the arc of crisis into a new phase of struggle. At certain times in our history, the aspirations of our peo ple and the course of events converge at a single time to shape a turning point in national life. So it was in 1 896 when this land was rocked by th e tremor s of revolution. So it was in 1941 and 1972. So it is today. The crisis of the past two years and our efforts to surmount it have led us inexorably to t his decisive t urning point in our hi story when we either thrust our economy forward into full mo dernization or forever remain in th e shallows; when we either stop once .and for all the challenge of Communi sm in thi s country or be overrun by it; when we either attain the full promi se of democrac y or be l ed awa y into alter - native routes toward th e future. To meet thi s challenge, we must addre ss squarely those great issue s on which the future of the nation hangs . National Economic Recovery When we speak of national prioritie s today, the fir st on our minds is the econom y, and specifically the progress of the na tional economic recove ry program. To understand recent developments and directions in the economy mu st first under stand the nature of the cri sis that struck us in 198 3. To .simplify a rather comple x phenomenon, the crisis stem med from two factors: Our vulnerabilit y to the unexpected drop in access to international credit and high inte rest rates, and our difficulty in managing ou r balance of pa yments po sition with limited resources. These two factors were already constricting the growth of the economy when traged y struck former Senator Benigno Aqui no, Jr. in Augu st 1983. The tragic e vent, ho wever, triggered the financial crisis , making a tough situation suddenly critical . A debt moratorium had to be enforced on October 17, 1983. It was in these circum stances that we formulated the na tional economic recover y program. The program which began in 1984 stressed five main lines of action: - First, a financial package to modify the maturities of part of ou r external debt, to resume normal credit lines, and to commit fresh credits to finance import s, eliminate arrearages and build up our international reserves; - Second, a disciplined financial and budgetary program to stabilize our balance of payments posi tion, exercise g reater con trol on publi c spending and contain inflation; - Third, a structur al adjustment prog ram for the econo my, consisting of major tariff and agricultural reform s, libera lization of import restrictions, investme nt and e xport promotion and energy self-reliance; -Fourth, an economic priorities plan focu sed on the ba lanced development of both agriculture with industry; and -Fifth, the e xpansion of outreach programs in employ ment, health, nu trition, housing, education, and the improve ment in the quality of s ocial services to help our people, especially the most disadvantaged, to cope with the effect s of the economic cri sis and the impact of the stabilization program. These adjustments were ofte n criticized as too severe and pai nful, but these were necessary to put the econom y back on its feet. We did not flinch in biting the bullet as they s ay. With will and with imagination, we have ta ken the cour se to relief and recovery. And today , as we meet here in this chamber, we can proudl y say tha t we have passed the ini tial test. Economic reco very has begun. ' The fin ancial pack age for the period fro m October 17, 1983 to December 1 986 amounts to $13,760 million. Of thi s amount, about $3.6 billion represent "new money" principall y intended for the general requirements of the economy. The mo st critical component under the program is the stand by facility from t he IMF amounting to SDR 615 million or ap proximately $610 million. The Philippine request for this fa cility was approved by the IMF boa rd on December 14, 1984. ' We drew the first tranche of $ 80 million last December 28, 1984 and thi s was used to pay the bridge financing loa n extended by the go vernment s of the United States, Japan, and Korea subsequent draw downs will be contingent upon the achievement of cer tain qu arterly performance criteria outlined in the economic adju stment progr am. We expect the release of the second tranche of $107-million thi s July because we have met successfully the performance target a greed with the IMF last May 31, 19 85. The financial package likewise provides the country with $925 mi llion in new loans and a credit line of about $3 billion to finance import s, and re schedules ove r a period of 10 years maturiti es of $5.8 billion , falling due between 1983 and 1986. The pledge of n ew money by our commercial creditor s will enable us to service our external debt obligations on a current basis, including the e limination of arrears by the end of our IMF program period. The r estoration of the trade facility, on the other hand, will reo pen normal trade financing whose disruption had imposed a heav y cost burd en on dom estic producer s. It has been s uggested by some quarter s that th e government did not have to deal with the International Monetary Fund with respect to our debt paym ents. What, in fact, were our other options? We cou ld have follo wed the example of countries like Cuba, North Vietnam and North Korea, whic h did not keep up their payments. Or else we could have merely ignored ou r default without any regar d for the consequenc es to the creditors. Dealing with the IMF and other creditor s, however, was the only hono rable alternative, first, because we are a signatory to the Bre tton Woods Agreement of 1945 and cannot therefore renege on our debt payment s; and second, be cause we have to protect ou r external position in view of future requir ements for capital. With respect to the economic s tabilization program, we are meeting successfully the key objective of impro ving our bal ance of payments pos ition. The deficit in the current account was reduced to $ 1.3 billion in 198 4 from $2.7 billion in 1983, s urpassing the target of $ 1.5 billion set for the year. The large improvement in the curre nt accoun ts resulted in an overa ll balance of paymen t surplus of $ 243 million in 1984, reversing a deficit of $2 .1 billion in 1983. The result of the first four months of 1985 are eve n more positive with a cu rrent a ccount surplus of $165 mi llion as com pared to a deficit of $502 mi llion for the same period in 1984. This was, however, due to a mo re significant drop in imports b y 12.6 percent whil e expor ts fell by 11.4 percent over t he same period in 1984. By end of May , the trade deficit was narrowed down by 22 percent to $220 mi llion compared to $ 283 million for the same period in 1984. The dec line in export receipts was mainly due to unfavorable markets for our major traditional exports, like coconut, sugar, copper concentrates, logs, timber, offsetting the gains from nontraditional exports in chemicals, copper metal, textile yarns, handicrafts, nonme tallic mineral manufactures, garments, and nickel and fish products. On the other hand, non-merchandise trade improved im mensely from a deficit of $336 million during the first quarter of 1984 to a surplus of $210 million for the first four months this year. We have built-up in international reserves to $1 .06 billion as of June 1985 . Our total foreign liabilities at end-December 1984 amounted to $25 .4 billion. As of end-Ma rch 1985, this declined by $212 mil lion to the level of $25.2 billion. Developments in the external account, together with prudent monetary and fiscal policies , have stabilized the foreign exchange rate and stopped the depreciation of the peso. In the domestic sector, tl1e rapid acceleration of commodity prices has levelled off. The inflation rate has declined by a significant 7.34 percentage points from 34.99 percent in May to 27.65 percent in June this year. Even more gratifying is the mere increase of 1.5 percent in the inflation rate from January to June of this year. The same downward trend in inflation rates was observed in all areas of the country. Metro Manila's rate decreased even more significantly by 8 .72 pe rcentage points from 30.91 percent in May to only 22.19 percent in June. For areas outside Metro Manila, the inflation rate slid down further by 7.1 percentage points from 35.83 percent last month to 28.73 percent in June. Substantial decreases in food prices were observed in many areas of the country, notably in Metro Manila. From January to June this year, prices of vegetables and fruits declined by 4.32 percent fish by .50 percent, and eggs by 2.14 percent. Between May and June, there have been encouraging decreases in the prices of certain food items. At the same time, the interest rate (Manila reference rate, 90 days) has gradually tapered from a peak of 37 .4 percent in November 1984 to 23.6 pe rcent as of July 19 this year. For the first six months of this year, the interest rate averaged 25.6 percent. The deceler ation of the in flation rate was d ue to a number of policy measures , significant of w hich i s the effective management of liquidi ty by limiting the gr owth in reserve money thro ugh active open mark et operations and other credit instruments. Consequently, reserve mon ey expansion was limited to 1 3.6 percent in end-May 19 85, reaching P30.9 b illion and well within the P34 .4 billion targ et during the sa me peri od. You mu st realize how diff icult it i s to contain a budget deficit at such lo w levels but we were able to cut our o verall deficit to 1.8 percent of GNP in 1984, a nd to kee p it within the progr am target of 2 .0 percent of GNP. T his improvemen t was due to an austere spending policy, together with an increa sed revenue collection f rom im plement ation of new revenue mea sures and im proved tax collection . Certain ta xes were modified-to alleviate the burden on the taxpayers, p rovide bu siness opportunities and br oaden the ta x base. In particul ar, the tax base has been broadened mainly by withdrawing ta x exemptions from public and pri vate enterpri ses and by shifting from spec ific to an ad valorem m ade of tax levy. A uniform tax rate on interest earnings has been adopted, the method of inven tory valuation f or income and corporat e taxation ha s been modified , and a levy -of a one percent ta x on all foreign e xchange transactions i n lieu of the levy on selec ted transaction has been imposed. To reduce the cost of ra w material s and make our indu stries operate mo re efficiently , average nominal tariff ra tes were lowered to 2 8 percent in J anuary this year f rom the pretariff reform average ra te of 43 percent. A uniform mark -up of 25 per cent on imported good s has also been adop ted. Moreover, an addi tional 46 nonessential and unclassified consumer items can no w be freely imported without p rior approval from the Central Bank , bringing to 967 · the total num ber of liberalized item s. In the energy sector, our dependence on oil imports has gra dually declined due to a continu ous substitution of domest ic ener gy resources for impo rted ene rgy. The share of indigenous en ergy resources to our total energ y consumption has increased to 44 percent for the fir st four mon ths this year from la st year's 42 percent . Consequentl y, our oil import bill for th e same p eriod this year has gone down by 6 percent. By yearend, we will be 50 percent self-sufficient in energy requirements. Moreover, our government has veered away from the artifi cial pricing of electricity and petroleum products to reflect as close as possible the supply and demand for these products in the market. In particular, our government has narrowed down the price differential between close substitutes such as premium gas oline and diesel and has gradually reduced the level of subsidized consumption for residential customers. In the agricultural sector, pricing, marketing and other forms of administrative controls are being phased out in support of a balanced agro-industrial development. The retail ceiling pr ice of rice will be lifted in October this year, while that of corn has been lifted since October last year. Domestic trading of sugar has been returned to the private sector and the export marketing system for coconut products has been liberalized. I have ordered the preparation of rehabilitation and development plan for the sugar industry even as we provide food and other assistance to displaced workers. Furthermore, the importation of wheat and the distribution of ' flour have been opened to the private sector . These measures will give more incentives to the farm sector to produce more efficiently as agricultural product prices would now reflect competitive market conditions. I want to say a few words here on why we have had to im port rice recently. These importations are due to the production shortfalls caused by the combined effects of the prolonged drought in 1983 and 1984, typhoons, spiraling production costs, and standstill on credit. The current imports will beef up our buffer stocks for the lean months of July through September. This has become compelling because while palay production dec lined during the drought-stricken years, per capita consumption of rice rose. And it is imperative that the National Food Author ity holds enough rice in stock to stabilize the market when rice prices are deregulated in October l . Significantly, this year, we expect to harvest our largest rice crop ever. We foresee a harvest of 163 .9 million cavans of palay, equivalent to 5 .4 million MT of milled rice. This is 4.5 percent higher than last year's harvest, and 1 .2 percent higher than our 1982 record crop. Meanwhile, there have been some improvements in income distribution in our country. The share of the bottom 60 percent of families in the income ladder increased by 1 .2 percentage points from 21 .7 percent during the fourth quarter of 1981 to 22.9 dur ing the same period in 1983, based on quarterly integrated sur veys of households. Average annual incomes of both rural and urban households have increased over the years. The average rural household in come increased fivefold from P2,818 in 1971 to P14,646 in 1982, while average urban household income improved fourfold from P5,867 in 1971 to P23,637 in 1982. The improvement in the palay yield from an average of 30 cavans in 1972 to about 50 cavans in 1984 - has significantly con tributed to the increase in rural and agricultural household in comes. This was due to our government's continuing thrust on agriculture as the linchpin of economic growth. Furthermore, the current minimum wage for plantation and nonplantat ion agri cultural workers has been increased to P46.67 and P36.67, respec tively, from P4.75 in 1972. The average urban household income, on the other hand, has been positively affected by the series of minimum wage adjust ments . These have raised the present minimum wage of nonagri cultural workers in and outside Metro Manila to P57.08 and P56.00, respectively, from P8.00 in 1972. In the public sector, gov ernment employees were given a 10 percent salary adjustment beginning January this year. These adjustments were made to enable workers to cope with the price increases and improve the genera l standard of living. These encouraging developments in the economy come at a time when the economic recovery of the developed economies is slowing down. Despite the softening of international interest rates and world oil prices, commodity prices are similarly declining. The tight stabilization program and weak demand for our exports by our major trading partners have impaired our ability to restore economic growth. Nevertheless, the expansion of the agricultural se ctor by 2.1 percent as of the first quarter pre vented a larger fall in .real output. The improved income in agri culture will raise the purchasing power of two-thirds of our po pulation who live in the rural areas and eventually raise the demand for industries and re vive industrial activit y. The l atest statistics show that th e level of unemployment has levelled off. The fir st quarter data f or 1985 show ed an actual de crease in the unemployment rate t o 5.8 percent from 6. 3 percent and the underemployment rate to 24 percent from 36.5 percent, over the same period last ye ar. The number of laid-off worker s for the fi rst four mon ths of th is yea r also decreased by 43.7 pe rcent to 2 3,280 from 41,326 over t he same period l ast year. An e ven closer look at th e employment d ata showed that the num ber of self-emplo yed increased by 12.8 percent in the first quarter this year over t he same per iod last year. This offsets a decline in the number of wage an d salaried worker s, which fell by 1.6 percent over the same period last year. Thi s reflects the resiliency o f our peopl e when they venture into entrepreneurial activities as a matter of eco nomic adjustment and social p rotection. To a ssist the l aid-of f workers, an additional P45.6 million was released as unemployment a ssistance loans during the first semester. Industrial peace was promoted with the increased num ber of collecti ve bargaining agreements reaching a total of 1,9 31 as of Ma y covering some 255,000 workers. Sugar work ers who we re affected by the slump in the world price of sugar were gi ven assistance in the form of an emergen cy employment p rogram. U nder the program, displaced sugar plante rs and millers were encour aged to plant food and cash crop s in sugar land s rendered idle due to drastic production setbacks. In addition , I have recently imposed a sugar production qu ota of 1. 6 million tons to keep this co mmodity available in the dome stic market as well as to fulfill our coun try's export quot a requirement to the U.S. I have also di rected the Philippine Suga r Commi ssion to ensure that the domestic pric e of sugar b e maintain ed at P300 per picul to enable sugar producer s to gain re asonable profits. I have ordered the rele ase of funds to rehabilitate areas de vastated by the recent typhoons. I assure you, there are enough stock s of rice to meet any contingency. . Moreo ver, P1.4 million was disbursed in the form of long term soft loans to assi st distressed hospitals in upgrading their facilities and services in the fi rst five months of 1985. The pri mary health care approach has also been instituted in 37,705 ba rangays as of March 1985. M eanwhile , Pag-ibig housing loans availed by members reached P4,368.6 million in April 19 85, an in crease of 12.7 percent from the December 1984 level. Tasks for Economic Manag ement All these gains, t aken singly or toge ther, are a signpost telling us that the reco very program is working, and that the sacrifices and t asks we have bor ne with fortitude have not b een for naught. When we say that t he Cassandras of doom among us and in the forei gn media have been wrong in th eir prognosis on the countr y, these are the realities on which we b ase ou r claim. But we have only passed the f irst sta ge in the arduous road to recovery. We cannot linger on the road and risk a lapse to compla cency. What was true at t he onset of the crisis is still true today: our econom y, hence o ur recovery efforts, are challenged by circum stances b eyond our contr ol, by condition s beyond our shores. We are confronted by a s lowdown in world tr ade, by a growth recession in our m ajor trading p artner, the U.S ., by a fall in export pri ces and by a growing wa ve to pr otectionism in the developed econ omies of U.S., Jap an and Euro pe. These will hamper our p rospects for a higher export growth, but thi s should enc ourage us to f urther diversify our exports and search for other nontradition al markets for our product s. We mu st recognize that the emergence of a dynamic national economy will n ot be an accide nt of de velopment, but the product of a national effort animated by a vi sion of the fu ture. At lea st six areas of econom ic management ne ed to be subjected to further action and reform for the re st of 1985 a nd 1986. First, we shall con tinue to adhere to a disciplined financial and budgeta ry program to stabilize our balance of payment :, position , maint ain an enduring reduc tion in the inflation rate, and e xercise greater contr ol on public spending. We hope to maintain positive interest rates pri ncipally by keeping the infl ation rate as low as possible to en courage greater domestic produc tion and investment s. We expect the inflation rate to decelerat e further to ar ound 10 percent b y the end of this year and further down to a single digit level by 1988. Money supply e xpansion will be restricted to around 1 5 percent to further bring down the infl ation rate. Dome stic borro wings of the public sector will be regulated and the national governmen t budgetar y deficit will be further cut down this year. The stimulu s for growth w ill definitely come from the in vigorated rural and agricul tural sectors and an inten sified e xport activity in lieu of a slack on government spending and pri vate real investment s. Second, we shall strengthe n and where necessary, reh abilitate the financial system t o impr ove its efficienc y and to re store public confidence . In particula r, government f inancial i nstitutions will be reformed to avoid unn ecessary duplicati on of functions as well as e xcessive and une ssential com petition with the private sector. We shall acti vely assist mergers a nd consolida tions among bank s to encour age the m to b uild u p their resources and equity ba ses. We shall pursue the restructu ring of the legal and administrati ve framework f or priva te institutions. Al so, the Central Bank's role as a stabilizer a nd overse er of banks will be furthe r strengthened . Third, we shall limit g overnment sector in volvement to sociall y desirable activities and to those wherein the p rivate sector is unable or un willing to invest in due to unprofi tabilit y, high risks, and exorbitant co st inv olved but which activities are also of high social and economic p riority. Thi s would enable the pri vate sector to continue its dynam ic role in our economic recover y in the conte xt o f a free e nterprise econom y. Our go vernment can then utilize it s limit ed and critical resources more efficientl y, effec tively and economically as possible over the long run th rough th e judicious use and management of govern ment corporation s, among others. Towards this end, the coor dination, super vision and regu lation of go vernmen t corporat ions will be tigh tened to en sure public accountability. We shall subject government corporations to more rigorous performance criteria, based on their economic and social contributi on, actual output and producti vity and co st recovery record. In addition, pr ivate firms and assets which have been transferred or acquir ed by th e government due to fo reclosure, default or non fulfillment of contractual obligation s shall be rehabilit ated onl y after t hey have been p roven to be satisfactorily viable. O therwise , their divestiture to t he private sector at the best te rms available will be unde rtaken. Fourth, we shall step up the revenue gene rating capacity of the public sector through an upgrading of the ta x and non tax system and through more efficient re source utilization . Let me say at once, we do not propos e or contemplate any new taxes except where action is req uired to repeal and ch ange certain tax me asures in the interests of impro vement and fairness. To improve resource mob ilization, we will strive for a more efficient tax coll ection system to achieve a broader ta x base. Improve ment in the collection and utilization of tax resources shall be the focu s of our efforts . Vola tile international ta xes shall be replac ed by m ore desirable domestic tax es. The t ax and gross recei pts on foreign exchange tran sactions and the remaining five percent additiona l ad valorem import duty shall eventually be phased out i n favor of alternative and better tax measures. To ensure more efficient resource utiliz ation, public investments will be re gularly programmed. Due to our limited public funds, we have to curb any future spending. Priority shall be given to ongoing projects, t hose with the highest eco nomic and soci al rates of ret urn, and t hose w hich are financed from foreign sources. Fifth, we shall revitalize the agricultural sector, which i s envisioned to propel n ational recovery and su stain economic growth in the comin g years. In terms of out put, agricultural value added is expe cted to increa se owing to the implementa tion of various policy reforms in the agricultural sector. The reform s shall be built on the principles of liberalization, d eregulation and technological modernization. Policy deci sions will be aimed at de veloping a more buoyant and competiti ve agr icultural secto r and at improving the inc entives to small fa rmers . Finally, we mus t press o n structural refor ms to impro ve the efficiency of resource allocation, to make our indu stries internationally competiti ve and to dev elop and diversif y domestic sources of ene rgy. For such changes to be undertaken smoothly, ' it is impera tive that we have industrial peace. It is imperative that there be no disruption in the production process which will hamper our government's efforts to ensure price stability and a favor able financial environment to encourage more investments, the creation of livelihood opportunities and a rise in incomes and wages. Towards this end, I have recently created the Presidential Council for Economic Recovery. I have directed this body to address issues of importance to economic recovery and to study ways and means to promote a harmonious relationship among the tripartite sectors--government, workers and employers. Social Development When we appeal for industrial peace, we do not propose to make labor a scapegoat for the crisis that befell us or a sacrificial lamb on the altar of economic recovery. We are merely appealing for reason and sobriety in the approach to disputes and differences in our industries. And we make the same strong appeal to management never to make the climate of hard times a convenient club with which to frustrate the demands of labor. In sum, we need the energetic cooperation of al l in diffus ing the climate of confrontation on labor-management issues with voluntary steps on both sides to amicably discuss and settle issues. Let us take every effort to avoid factory shut downs as our ready recourse to attain social justice . For the productivity we seek simply will not be achieved if our factories and plants do not operate . All of us in this country will sink or swim together, and we shall swim above the water only if we will it . We have always stressed the important role of our most valued resource, the Filipino people, in the successful imple mentation of our recovery program . The other side of this is government's obligation and commitment to the improvement of the q uality of people's lives, especial ly of those in the disad vantaged groups. Accordingly, through more efficient and effective resource use, we will expand and improve the delivery of basic social services. In health and nu trition, the primary health care approach will conti nue to ensure the provision of e ssential h ealth services to th e most basic communiti es. Also, we will further strengthen th e herbal medicin e program to cut down reliance on importe d drug s and introduce acupun cture in various ho spitals to reduce th e costs of medical c are. Likewise, we are committed to fur ther impro ve and develop the health inf rastructure network, particularly ho spitals , to meet the needs of the growing po pulation. In education, the quality and equity in elem entary educa tion will be sustained through the Progr am for D ecentralized Education Dev elopment (PRODED). Through thi s program, the elementary cu rriculum i s gradually being revised to em phasize the 3Rs and the inculc ation of humani sm and Filipi nism. Improvements initiated by PRODED at the elementary level will be 'continue d onto the secondary education program . The study-now-pay-lat er plan will be further expanded to extend educ ational lo ans to poor but deserving tertiary stu dents. Likewi se, sch olarship programs will be broadened at both undergraduate and gradu ate levels . In hou sing, we will shift our shelter produc tion program to rural areas and make it more affo rdable to a greater num ber of people b y offering l ow cos t housing unit s. Moreo ver, no new massive housing units’ c onstruction will take place, except those already approved for production and those which are in the process of construc tion. We have a lso limited th e Pag-Ibig housing to P50,000 to ensure that the program benefits accrue to the lo w and middle income groups. Furthermore , an addition of three new housing loan benefits has been ap proved aimed at helping Pag-Ibig member s for their education al, medical and o ther needs, f or home improvement, and for organized labor and government employee organizations . The Rent C ontrol Law has also been implemented and rents have been programmed for adjustments on a staggered basis to help some one million hou se renters all over the land cope with the current economic crunch and to encourage more social and low-co st housing acti vities. We shall also step up local and overseas job placements to compensate for the de cline in employment opportunities due to the general slo wdown in industrial activity. Moreover, we will create more jobs through the Kilusang Kabuhayan at Kaunla ran (KKK) and the Kilusang Sariling Sikap (KSS) programs. The goals of our recovery program have always converged on the overriding goal of human resource development. Every measure of growth we have in the last analysis comes down to what it means for people. Peace and Securit y In pursuing these initiati ves for the economy and society, peace and security are impera tive to success. This administra tion has shown how much can be done to strengthen law and order in our social life , and to secure the Republic from every threat to overthrow it. As economic difficulties ha ve beset us during the last three years, however, those seeking the overthrow of . Government by force found the time opportune to expand and intensify their activities. And today the peace and security situation is of prior ity concern. Although stability has been attained with respect to the secessionist movement in the South, other elements now pose grave threats to our communities, the most critical of these be ing the Communist New People's Army. There has been a tendency, particularly on the part of foreign media and foreign observers, to exaggerate the extent of the Communist threat, so much so that we are now the sub ject of all kinds of scenarios on when and how the Communists will take over. This kind of "o veracting" on the part of those who do not know the situation first hand merely serves to con fuse the issues and do not help u s any in dealing with the realities of the problem. While the CPP/NPA has managed, since 1969, to increase its strength, improve its firepower, and expand its political in fluence, it is still far from being an immediate threat to gov ernment and overall national stability. But it does pose a serious threat to peace and order in some of our communities, and to life and welfare for several thousands of our people. Intelligence estimates today place NPA membership at between 10,000 to 12,000 men, and this armed force is potent enough to affect peace and order conditions in four percent of our 41,615 barangays where it has political and military organizations and in the additional nine percent which it occasionally visits. Likewise, it is significant that 70 perce nt of v iolent incidents perpetrated in the countryside and in some urban areas in recent years have be en ini tiated b y the NPA . Political bias should never cloud ou r perceptio ns of the se acts o f violence and terrorism. From J anuary 1985 to J une thi s year, t he NPA moun ted attack s on 27 municip al buildings and 29 integrated national I NP sta tions, causing an estimated damage o f P92 million. In the period from 19 81 to 1984, damage cau sed by NPA attacks amoun ted to P 330 million . In terms of lives lost, NP A violence and terrorism have taken the li ves of 600 c ivilians, including 46 government of ficials. . Our re sponse to the in surgency has been a dual strategy . In the short term, this strategy consis ts of the uncompromising utilization of military power and the application of national se curity laws against insurgent s. For the long term, however, our strategy seeks to achieve social, economic and political deve lopment as the la sting gua rantee for social peace. It is wo rth remembe ring that the Philippines stand unique in Asia in having succes sfully beaten a communi st insurgency twice, and without any help from foreign troops. The record of our current cam paign a ssures us that we will do so ag ain. For we ha ve not been standing still, re sting on pa st victories, in confronting the pre sent insurgency challenge . As the enemy has changed in tactic s and weaponry in recent year, so have we on our part sought t o make major adjustments in ou r counter - insurgency program, not lea st in terms of reforms within our armed forces. During the past year, the AFP undertook major reforms in its command structure, personnel training and retraining, unit logistics, and tactics. We have placed the highest prior ity on both troop discipline and morale. At the same time, we have l aunched a P1 billion civic action program to be implemented together with the military cam paigns in those areas whe re the NPA operates. Increased civil relations work has enabled our a rmed forces to mobilize local populations to help government in civic action programs, and in drawing up integrated securit y plans for the entire communi ties. As this twin-pronged strat egy is seeping into re bel-infested areas, we have come to see the softness of NP A support among our people. We see how much of its hold on communities is built on plain intimidation and terror, because government troops can only visit these areas from time to time. And we are more confident than ever that we can establish the kind of social and political infrastructure in these areas that will eliminate this presence in the countryside. To succeed at this, however, we need to be concerned about providing support to our armed forces, instead of denying it the wherewithal to fight the insurgency. Let us face the fact squarely that the reduction of the defense budget in 1983 and 1984 has done much to sap the potency of our programs. Let us remember that the structure of compensation under the military bases agreement was not a capricious decision, but an integral part of our defense program. We need likewise to rebuild anew the links between our military and our people, because upon those ties the final solu tion to communist insurgency can be forced. Let us recognize that while abuses have been committed by our men in uniform, our defense establishment is not passive before its shortcomings, It is striving today to weed out undesirables from its ranks and to ' institute greater professionalism and discipline in the corps. In human history, it has often been the fate of a nation's soldiery "to be neglected and ignored in times of calm, and to be trustingly looked to in moments of fright ." We must not make the mistake of moving to support our armed forces when the ene my is already at the gates. And let us remember that in the kind of world we live in today, moments of calm and peace are merely the cover under which insurgency and subversion fester. There is no specific time for us to be watchful in our vigil over the security of the nation. Every moment is a test of our watch. Strengthening our democratic institutions To say this is to underscore the fact that we must fight vi gorously also on another front: the battle of ideas. It has often seemed to me that it is on this front where our shortcomings . are greatest, because we have been complacent while the other side ~as been committed, obsessed, fanatical We have been oblivious to the transparency of radical ideas, while being hesitant in the advocacy of our own ideology. And many of our young have been seduced by the false promises of apocalyptic change. We need have no fear as we engaged in this struggle of ideas, in this test between our rival faiths and ideologies. But it is no longer enough to simply trust to the worn saw that our people will never be won over by communism or socialism, because of ideals and beliefs they were born to. Tradition is indeed on the side of democracy. But it i3 vain and illusory to imagine that this struggle can be won without renewing ourselves many times by an act of faith. It cannot be won without tapping anew the great resources of democratic ideology and tradition. It cannot be won if we do not carry the struggle also to the citadels of the enemy, and under- score the sour fruit of communist and socialist experience. This is the reason why I have not stopped insisting that we must develop and nurture our own democratic ideology, one rooted in our experience and needs. This is why I believe it is not enough that we parrot the beliefs of others in democratic processes and institutions. We must understand their practical import to society, and why they must be defended. So much of political life is dominated by cliches and empty slogans. Yet the point of politics and government is exceedingly practical and concrete. This is the lesson we have been learning in our long education in the ways of democracy. Thus, we know now that for a democratic political system to be truly effective, a sufficient foundation must be laid in terms of the people's control over their own affairs. It is not enough that citizens vote periodically in elections. They must participate actively in making decisions that affect their economic and social lives. This is the reason why we have sought to introduce barangay into the basic unit of our society and why we now diffuse political power to some 240,000 elective officials, where before our people only had some 15,000 elected. We know too that in spite of all the hectoring from others about how democracy should develop in our land, we can only trust and listen to our e xperience s and our needs . Our institu tions must be in the image of our need s, other wise they will not serve us well. I believe this is what we have at last found, after many pit falls and starts, after many trials and errors; a democratic ideo logy that can serve our aspiration s as a people. This Parliament no le ss than the Presidenc y is a reflection of that faith. The stability of go vernmen t today, the strength of le adership, is a funct ion of ou r experience of go vernments paralyzed by check and balance and domina ted by faction and division. Clearly there are still many a reas, in which our political system and processes require improvement and modification, but the basic edifice is alread y in place and we ha ve all a stake in defending it; Similarly , the task of imp roving political proce ss and insti tutions in our count ry must be an abidin g concern, and this assembly is the seat fo r deliber ation on such initiati ves. At this crucial time in national life, we must stre ss anew the need for further reform in the machinery of government. There are three areas in which we should move for improvement: First, greater economy in go vernment operations in order to generate more sa vings but without diluting go vernment services. Second, reorganization of the bureaucracy to ma ke pos sible mor e effecti ve and efficien t governmen t. Third, strengthening of the administration and manage ment of government programs from national to regional to local level of the government bureaucracy. It was once said: " Government is personal. It is as com passionate and vibrant—or as ineffectual and spiritless—a s the men and women who shape the la ws, who make the decisions , and who translate program s into action. " I believe the re is much that we can do to improve the quality of government itself—its machinery, its manpower and its me thods― so that our programs ma y truly touch the lives of our people and our communities. Legislative P rogram In all these in itiatives I have proposed, we need the support a nd collaborat ion of th is assembly. In some are as, we shall look to you for action that requires the ma king of specific law and po licy. High on your legislative agenda, I urge the honorable mem bers of the Batasa n to support the 1986 budget proposa l which is the lifeblood of t he government's action program for the nation. In line with strength ening the po litical process, we urge the speedy p assage of electora l reforms w hich are vital for the holding of free elections next year . In support of agr iculture as the linchpin of the nat ional economy, we shall seek legislation providing for incentives to agricultural d evelopment. To rationalize the ro le of pr ivate corporations in a free enterprise econo my, we shal l seek guidance from the Batasan to improve the int ernal structure and operation s of public c orporations, and to ef fectively supervise and regulate corporate activities. In support of every initiative, we take in th e sphere of social equity , government reform, and peace and security; we shall as ever seek the counsel and assistance of this assembly. Conclusion This is the course we ask the nation t o take. These are the policies and programs we co mmend to the support and coll aboration of the Batasan. We ha ve no ill usions that these proposed p olicies and programs will re solve overnight every problem before us, or fulfill in a f ortnight every a spiration we nurture. We know rath er that each step in this difficult agenda, each in itiative we propose, calls for effort, for dedication, and above all for collabor ation among us and with all sectors of societ y. The reco very a nd growth of the national economy, the wellbeing and welfare of our fifty-four million peopl e', the campaign against communist in surgency and for civility and law in our social life, the revitalization of our armed f orces and of the bonds between our soldie ry and our people, the strengthening of our dem ocratic insti tutions and of t he appa ratus of government-all these tasks are to be hurdled step by s tep, with patience if nece ssary but al ways with the de termina tion t o see them through to their fulfillment. All these ta sks are surely not for this leade rship alone, not for our sympathizer s alone, to pursue and bring to frui tion. Surel y this business of making our nation strong and pros perous is above partis anship. I cannot believe th at any Filipino, any of our leaders re gardless of party, woul d wish us to fail in these labor s in the petty hope that on ou r failure they may then rise to power . I cannot believe th at any countryman of ours ―the heir of so many historic st ruggles by our father s for nati onal indepen dence ―would invite upon t his land the rene wed intervention of foreigner s. . Let us, if we mu st, co ntend in the political arena . But when the is sue is the welfare, the hono r, and the future of the nation, let u s be one and undivided. Let u s remembe r the words sa id so long ago, but which today are still fresh an d full of mean ing: "Let our object b e our country, our whole count ry, and nothing but our c ountry." Ladies · and gen tlemen of thi s ass embly, when I came here a year ago , it was to forge our partne rship at a time of trial for the nation. I return today at a moment of resurgent hope and pride in our land. I spoke with no little apprehension then. I sp eak with confidence and optimism no w. For this turning point in n ational life is also a moment of opportunity for the n ation. Let us seize the moment toget her. Let us m ake common cause, whatever party we ma y belong to, in strengthening our one and only family -our people and our country. Thank you and good da y.