Assessing the Impacts and Policy Alternatives
Edited by Gerald A. Epstein and A. Erinc Yeldan
Chapter 13: Towards an Alternative Monetary Policy in the Philippines
Joseph Anthony Lim1 INTRODUCTION 13.1 The modern macroeconomic history of the Philippines had been marked by periodic balance of payment crises with massive devaluations that resulted in high inflation. These crises were followed by drastic monetary and fiscal recessionary programs implemented by the International Monetary Fund (IMF), as a precondition for the release of emergency funds. Monetary targeting was implemented in the Philippines from the 1980s to the 1990s under IMF sponsorship. It is generally accepted as contributing to the depth of recessions in the Philippines in the last 25 years. Since it was replaced by inflation targeting only in 2002, it is difficult not to include in this chapter a discussion of the experience with monetary targeting. The next section describes the monetary targeting experience of the Philippines. Section 13.3 discusses the shift from the monetary targeting regime to the inflation targeting regime starting 2002. Section 13.4 places monetary policy in the context of the complex macro situation and development needs of the Philippines. The last section gives detailed recommendations for an alternative monetary policy. 13.2 MONETARIST TARGETING AND POLICY IN THE PHILIPPINES: CRITICIZING THE DEMAND-SIDE CURE FOR INFLATION AND CURRENT ACCOUNT DEFICITS The economic crises which occurred from the late 1940s to the present had been connected with balance of payment and foreign exchange crises. These have led to some very sharp recessions – especially the economic collapse in 1984–85 – that destroyed any chance of the Philippines becoming an East Asian success story. Carrying a strong belief that...
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