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Perfect Competition - refers to the ideal market structure where we can find a
lot of buyers and sellers of a specific product
good.
For instance, products X and Y are substitute goods and both are
sold by companies A and B respectively. If company A decides to
lower the selling price for product X, consumers of product Y would
tend to buy product X instead because of its lower price. Company B
would also decide how to react in the given situation.
# It
is also characterized by intense competition where both price and
non-price methods of competition are used such as commercials or
bandwagon.
#·They compete by offering warranties and friendly. The usually
organize helpful customer service.
# Firms in oligopolies are said to be mutually interdependent. If one firm
changes its prices, this will have an effect on the sales of all other firms
in the market.
§ Example: Petroleum Company
N0. 0f Part 0f
Pr0ducers and Ec0n0my Firms Degree Meth0ds 0f
Structure Degree 0f Where 0f C0ntr0l 0ver Marketing
Pr0ducts Prevalent Price
Differentiati0n
Many Financial
Perfect pr0ducers; markets and Market
C0mpetiti0n identical s0me N0ne exchange 0r
pr0ducts agricultural aucti0n
pr0ducts
Imperfect
C0mpetiti0n
Many Retail trade
pr0ducers; such as Advertising &
M0n0p0listic many gas0line and quality rivalry;
real/perceived PC industry S0me administered
differences in prices
pr0duct
Few pr0ducers;
little 0r n0
difference in Advertising &
0lig0p0ly p0duct, few Steel, chemical, S0me quality rivalry;
pr0ducers; aut0s, airlines administered
s0me prices
differentiati0n
0f pr0ducts
Single L0cal
pr0ducer; teleph0ne, C0nsiderable, Advertising and
M0n0p0ly pr0duct with0ut electricity & but usually service
cl0se substitute s0me patented regulated. pr0m0ti0n
pr0ducts
Forms of Organizations
Advantages:
Easy to start. Anyone with a good idea and the willingness to accept
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Profits stay with owner. Owner does not have to share money from
the business with anyone else
Pride of ownership. The owner can see the progress of the business
and feel proud to run it.
Lower taxes. The tax is the same as the personal income of the
proprietor.
Disadvantages:
Limited life of the business. If the owner dies, the business ceases
to exist.
Advantages:
Easy to start. Partners need only to agree on how they will share
both responsibilities and rewards.
Disadvantages
Limited life of the business. Business stops when any one of the
partners dies or is unable to participate. Thus, a successful
business may have to be ended even though other partners may
want to continue it. A new partnership can be formed to continue
the business. Part of the firm’s assets may have to be sold to pay
off the deceased partner’s share.
Disagreements. They may have the same plan but they may
differ in carrying out these plans. Disagreements could lead to
inefficient operations and even to the end of partnership.
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Corporation. A legal entity that is separate from its owners, the shareholders. No
shareholder of a corporation is personally liable for the debts, obligations or acts
of the corporation. Directors, officers and insiders can bear some liability for their
involvement with the corporation. A corporation is identified by the terms
"Limited", (Ltd.), "Incorporated", (Inc.) and "Corporation" (Corp.). Whatever the
term is, it must appear with the corporate name on all documents, stationery, and
so on, as it appears in the incorporation document.
Advantages:
Unlimited life. Even if all the owners of stock died, the corporation will
continue.
Risks are shared. Each stockholder takes some risk. However, it is not
necessary for the stockholders to accept all the risk.
Disadvantages:
Less direct control. Professional managers run the business and are in
charge of the firm’s operations. owners are usually far from the day-to-day
operation of the business.
Cooperatives
These are registered associations or corporations of at least fifteen (15)
persons who voluntarily pool their resources which consist of money, labor or
talent to build capital and work together to raise incomes.
All members have an equal say (one vote per member, regardless of the
number of shares held).
First objective is to maximize the benefits or profits that its members can
earn from their transactions with the cooperative.
Functions
Marketing. Extended control of members’ products through processing,
distribution and sale.
Manufacture
Buy In Bulk
Deliver
Unique Principle
User-owner. The members own and use the cooperative; thus, they are
responsible for the growth and development of the cooperative through
adequate financing and patronage.
User-benefit. The members earn benefits from their actual use of the
cooperative.
Practices
Geographical Structure
Sources of Funds
The Food and Agricultural Organization of the United Nations used the
illustration below to present the different sources of cooperative funds.
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Potential Labor Force (PLF) - individuals whose age are fifteen years old
and
above.
Labor Force (LF) - part of PLF who wants to work, whether employed or
not.
LF
LFPR
PLF
number of employed
----------------------------
ER x 100 LF
number of unemployed
--------------------------------
UR = x 100 LF
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Wage and salary workers - individuals who receive salary and may be
employed at private or public firms. Contractual and casual workers are
also included in this classification.
Unpaid family workers - these are workers who help their parents or
relatives in their livelihood. Those who belong in this classification do
not receive regular compensation for their services. Working is seen as
a fulfillment of family obligations. Helping in the store or field of a
relative is an example.
Underemployed - individuals who are currently employed but still seek for
additional jobs. Underemployment has two types, to wit:
Visible- those who work for less than 40 hours a week. Service crew in
restaurants, factory workers under rotation and others are included in
this type.
Invisible - people who work for more than 40 hours a week but still look
for additional jobs. Also included in this type are highly- skilled workers
who are forced to accept jobs that require low levels of skill and with
lower wages because of job scarcity. Examples are messenger,
security guards, promo girls in groceries, department stores, etc
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The following are reasons for differences in wage rates among countries :
Demand for labor - in industrial countries, the level of demand for goods is
high, because of the high levels of per capita incomes—how much each
individual receives, in monetary terms, of the yearly income that is generated
in their country through productive activities. Therefore, if there is high
demand for goods there would also be a high demand for labor that will make
the goods. The high level of investment per labor accounts for a high
productivity of the labor employed compared to poor countries when
investment per labor is much lower.
International trade - if goods can move freely across countries, that is, if there
is complete free trade, including the absence of transport costs then, the
disparities in factor prices will vanish and therefore factor prices across
countries will equalize. The exchange of goods among countries will
substitute for the movements of the factors of production. Of course, this
does not happen, simply because there are barriers to trade. But countries
that take advantage of the benefits of international trade are likely to improve
their wage rates much more quickly than those that deny themselves the
advantage of free international trade.
Labor Supply
It refers to the number of hours that the population desires to work in gainful
activities in factories, farms, businesses, government, or non-profit organizations/
establishments. The three key elements are:
Hours worked. Some people have jobs with flexible hours; some do not have
any control on their working hours. A worker who has just been offered a
higher rate and is free to choose the number of hours to work will be tugged
in two different directions. He/she will be affected by the substitution effect,
which attempts him to work longer hours because each hour of work is now
better paid. Each hour of leisure has become more expensive, and he has an
incentive to substitute extra work for leisure. But acting against the
substitution effect is the income effect. With the higher wage, his income is
higher. With a higher income, he will want to buy more goods and services
and in addition he will also want more leisure time. Which will be more
attractive, the substitution or income effect? There is no single correct
answer; it depends upon the individual. In the case shown below, for all wage
rates up to point C (the critical point) labor supplied increases with a higher
wage: the substitution effect outweighs the income effect. But from point C
upward, the income effect outweighs the substitution effect, and labor
supplied declines as wage rates climb higher.
By Highest Educational
Attainment
No Grade Completed 92.7 92.5
Pre-School 3.1 2.8
Elementary 0.1 0.1
Secondary 39.2 42.3
Post Secondary 34.3 33.5
College Graduate and 16.7 16.5
Higher 6.5 4.7
Labor Force Participation Rate
Labor Union
the employer.
Reduce the supply labor. In a country with a large supply, such as the
Philippines, reducing the supply of labor is a difficult proposition to achieve
through union action. By organizing labor unions, its membership expands. It
is in the interest of the labor union to maintain a closed-shop arrangement
with a company. This means that only union members can be employed by
the company. By doing this, the union restricts non-union member for
employment. So we can see that sometimes its interest can come in conflict
with those of the non-unionized labor force as opposed to protecting its
members, which may be in need of good jobs. When labor unions control
membership, they can force requirements that may then be unduly designed
to exclude persons willing to find work.
Contractualization. Workers are hired for a particular job lasting for five to
six
months. The contract ends after such period when the workers are
supposed to be due for regularization. Business owners resort to this
practice to cut cost on workers’ wages and avoid giving benefits that regular
workers enjoy. These workers cannot even form or join unions because only
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Job sharing. Where 2 to 3 workers share the same job. They do not go to
work regularly and receive meager compensation.
Time rating and piece rating. Workers are paid according to the number
of
hours they worked or according to the number of goods they produced.
Low wages. Aside from the problems already mentioned, workers are also
receiving meager compensation. Unlike before when it is being determined
in national level, the minimum wage is now ascertained on a regional basis
by the Regional Tripartite Wages and Productivity Board. Daily
minimum wage is based on the provision that it is for the family of 6
members but if we are to compare a worker’s daily wage to the actual
amount of a family of six needs to live decently, we will find that the salary is
almost a half short. How can an ordinary Metro Manila workers’ wage of
P350 (refer to the table below) meet the daily cost of living? And some of our
Filipino workers are working below the minimum wage especially the
construction workers, market sellers, and other of the same kind.
C0ntinue 0n page 6
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Wk 11 BUSINESS CYCLE
Business Fluctuations
Basic Concept
o International Factors
The extent of dependence on international trade determines the
importance of this factor. Export industries are dependent on foreign
markets. When foreign demand is rising, domestic production
rises. Secondary industries and activities arising out of exports also
improve their output. These are the raw material industries based
on local sources. Therefore, employment also rises. Further, the rise of
exports signals the rise of imports.
o Climactic Factors
Internal Factors
The death of Benigno Aquino Jr. sparked the 1986 People Power
Revolution.
UNEMPLOYMENT
Basic Concepts
A person is unemployed if he or she is not working and (1) has made
specific efforts to find a job during the last four weeks, (2) is laid off from a
job and is waiting to be recalled or, (3) is waiting to report to a job in the
succeeding months. To be counted as unemployed, for example,
contemplate the possibility of making a movie or being a rock star. A person
must report specific efforts (like visiting local firms or answering ads) to find
a job.”
Okun’s Law states that for every two percent that GDP falls relative to
potential GDP, the unemployment rate rises at one percentage point. For
instance, if GDP begins at one hundred percent of its potential and falls to
ninety eight percent of potential, the unemployment rate rises by one
percent point; let us say from six to seven percent.
T he Classical View of Unemployment. This view, on the other hand, claims
that unemployment is a job search. People who are engaged in the
productive work of looking for a better match between the worker and then
employer.
Kinds of Unemployment
Examples
A fresh graduate who is looking for a job may lack the resources or
efficiency in finding the company that offers a position that is available
and suitable for him/her. As a result, the fresh grad does not take other
work, temporarily holding out for the better-paying job.
When a company is not hiring new recruits because of its belief that
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Example
The increase in the demand for caregivers abroad that causes other
professionals to leave their work and study care giving.
Cyclical Unemployment. This exists when the overall demand for labor
is low.
As total spending and output fall, unemployment rises virtually everywhere. It
also occurs when there is a recession in the economy, when unemployment
rate rises as a result of imbalance between the aggregate supply and
aggregate demand.
Impact of Unemployment
Economic Impact. When the unemployment rate goes up, the economy is in
effect throwing away all the goods and services that the unemployed workers
could have produced. During recessions, it is as if vast quantities of automobiles,
housing, clothing, and other commodities were simply dumped into the ocean.
The losses during periods of high unemployment are the greatest documented
wastes in a modern economy. They are many times larger than the estimated
inefficiencies from microeconomic waste due to monopoly or than the waste
induced by tariffs and quotas.
Social Impact. The social cost of unemployment is certainly larger than the
economic cost. No amount of money/ materials can show the effect of long
periods of involuntary unemployment socially and psychologically. An
unemployed person experiences psychological deterioration due to anxiety
and worry of not being able to find work and provide financial support for his/her
family and for himself/herself. Sometimes it even causes separation of family
members. Unemployment could also result to employing their offspring at an
early age as maid/house helpers to rich families for they have insufficient means
to pay their debts due to unemployment. Another is that they could not find a
good-paying job because positions entail higher requirements such as being a
college graduate. Moreover, Samuelson and Nordhaus stated that according to
psychological studies, being fired from a job is generally as traumatic as the
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PRICE STABILITY
Inflation
It refers to the increase in the average price level in the economy.
Inflation rate is the percentage of annual increase in the general price
level measured by price indexes such as the Consumer Price Index, and
GDP Deflator.
GDP Deflator. It measures the average price of all the GNP. That is,
the weights for the GDP deflator reflect the share of each good in the
GDP. We can use this if we need to compute the purchasing power of
the peso for all sorts of goods and services, including investment
goods.
Types of Inflation
Causes of Inflation
The following are some of the causes of inflation. Among these are:
Oil Shocks. The increase in the price of oil in the international market
increases the price of commodities in a specific country like the Philippines.
As a country that is dependent on imports for its energy needs, the
Philippines suffers major shocks in the internal structure of prices such as
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Political Crisis. The martial law up to EDSA Revolution I and also the
EDSA 2 and 3 caused an increase in prices in our country because a lot of
investors went out of the country. Political tension would also lessen the
confidence of both local and foreign investors to put up their businesses in
the Philippines (because of loss of confidence in the government).
Cost Push Inflation. When the cost of producing a certain good increases,
the supply of that good will in turn decrease (other things held constant).
The increase in production cost “pushes” the price of the good to increase
as well.
Impact of Inflation
As the purchasing power of the monetary unit becomes less predictable,
people resort to other means to carry out their business, means
which use
up resources and are inefficient.
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WK 12 MONEY
Functions of Money
A
specific weight, or measure, or size to be
verifiably countable
- For instance, coins are often made with ridges around the
edges, so that any removal of material from the coin (lowering
its commodity value) will be easy to detect.
Types of Money
The pieces of paper money that we have in our pockets and wallets are all
fiat. They are just called money because the government declared it by a
decree or fiat.
setting that
intends to increase the level of liquidity/money supply in the economy.
Examples of such policy include lowering of policy interest rates and
the reduction in reserve requirements. Further, expansionary
monetary policy tends to encourage economic activity as more funds
are made available for lending by banks.
The primary way in which the BSP controls the supply of money is
through open -market operations, that is, the purchase and sale of
government bonds. When the BSP wants to increase the money
supply, it uses some of its monetary resources to buy government
bonds from the public. Because these resources leave the BSP and
enter into the hands of the public, the purchase increases the quantity
of money in circulation. On the other hand, when BSP wants to
decrease the money supply, it sells some government bonds from its
own portfolio. This open-market sale of bonds takes some peso out
of the hands of the public and decreases the quantity of money in
circulation.
FINANCIAL SYSTEM
Basic Concepts
Financial System
Financial Institutions
Commercial Banks
Government Banks
Philippine National Bank. This bank is considered to be
the dominant commercial bank in the country.
Furthermore, PNB facilitates the financial needs of
industry and commerce as well as a recipient of
government deposits.
Investment houses
Insurance companies
Pawnshops, money brokers, stock brokers and other non-bank
financial intermediaries.
Government financial institutions such as GSIS, SSS, Pag-IBIG
Fund, PhilHealth and NMHFC
Financial Intermediaries
35
Savings
Pertain to the stock of monetary assets like bank deposits, cash not spent,
investment in securities, etc.
Types
Dividend
Charging Interest on Loans. The money that the banks lend to
the
borrowers comes from the savings and time deposits from the
depositors. They pay interest to depositors but charge a higher
rate on money they lend out. For example, a bank may pay 3% on
a savings account but charge 9.5% in interest on a loan. In the
case of money borrowed from the Central Bank, banks pay a
percentage rate on money they borrow, called the discount rate.
Banks then loan that money and charge a higher rate on the loan
than the rate that they paid.
Services
According to Tullao, these are products that are produced and consumed
simultaneously.
Private Services. These are services that answer our private needs and
wants such as haircuts, tourist and recreational activities, private education,
private lawsuits, private medical consultations, and hotel and restaurant
services.
flexibility,
allowing people to enter and exit economic activities in
response to market demand;
simple and sometimes precarious facilities;
a tendency to locate smaller markets, out of the reach of the larger
firms
vehicle repair
radio repair
watch repair
refrigerator repair
manufacture of bricks and aggregates for building construction
money changing
blacksmithing
leather crafts
water pump manufacture
herbal medicines
The strategy proposed by the Conference for the development of a 'more and
better protected' informal sector consists of:
These strategies have been broken down by C. Leonardos (1999) into four
piecemeal strategies as follows
facilitating producers within the informal sector to obtain credit on the same
terms as modern enterprises;
Definiti0n 0f Terms
Free Trade – it refers to a policy whereby the government does not intervene
in trading between nations by tariffs, quotas or other means.
Internati0nal trade began t0 assume its present form with the establishment
0f nati0n-states in the 17th and 18th centuries.
Ricardian M0del
Hecksher-0hlin M0del
lab0r and capital) are likely to have an opposing agenda when lobbying
for controls over immigration of labor. Conversely, both owners of
capital and lab0r profit in real terms from an increase in the capital
endowment.
This m0del is ideal f0r particular industries. Als0, this m0del is ideal f0r
understanding inc0me distributi0n but awkward f0r discussing the
pattern 0f trade.
Gravity M0del
The m0del mimics the Newt0nian law 0f gravity which als0 c0nsiders
distance and physical size between tw0 0bjects. The m0del has been
pr0ven t0 be empirically str0ng thr0ugh ec0n0metric analysis. 0ther
fact0rs such as inc0me level, dipl0matic relati0nships between
c0untries, and trade p0licies are als0 included in expanded versi0ns 0f
the m0del.
Kinds 0f Restricti0ns/Barriers
Imp0rt Qu0tas. 0ne meth0d of limiting imports is simply to close the p0rts
0f entry int0 a c0untry. M0re c0mm0nly, maximum all0wable imp0rt
quantities may be set f0r specific pr0ducts. Such quantity restricti0ns are
kn0wn as qu0tas. These may als0 be used t0 limit the am0unt 0f f0reign
0r d0mestic currency that is permitted t0 cr0ss nati0nal b0rders. Quotas
are imp0sed as the quickest means t0 st0p 0r even reverse a negative
trend in a c0untry’s balance 0f payments. They are used als0 as the m0st
effective means 0f pr0tecting d0mestic industry fr0m f0reign c0mpetiti0n.
BALANCE 0F PAYMENTS
Basic C0ncept
The balance 0f payment (B0P) is the meth0d c0untries use t0 m0nit0r all
internati0nal m0netary transacti0ns at a specific peri0d 0t time. Usually, the
B0P is calculated every quarter and every calendar year. All trades
c0nducted by b0th private and public sect0rs are acc0unted f0r in the B0P
in 0rder t0 determine h0w much m0ney is g0ing in and 0ut 0f a c0untry. If a
c0untry has received m0ney, this is kn0wn as a credit, and, if a c0untry has
paid 0r given m0ney, the transacti0n is c0unted as a debit. The0ritically, the
B0P sh0uld be zer0, meaning that assets(credits) and liabilities (debits)
sh0uld balance. But in practice this is rarely the case and, thus, the B0P can
tell the 0bserver if a c0untry has a deficit 0r a surplus and fr0m which part
0f the ec0n0my the discrepancies are stemming.
The B0P is divided int0 three parts, namely, current acc0unt, capital
acc0unt and financial acc0unt.
Current Acc0unt
This is called current acc0unt because it used t0 Mark the infl0w and
46
Capital Acc0unt
currencies.)
Kaingin
- a kind of system in which shrubs and bushes are burned to
clear the land. Afterwards, the land is ready to be planted by rice and
other crops.
Tillage
- a kind of system in which wooden plows and harrows are
drawn by carabaos. These instruments are used to cultivate the
soil. In some regions, irrigation ditches are used to increase farm
production, as manifested by the rice terraces in the Mountain
Province.
Landholding - lands that can be owned by private and public entities.
Public Pr0perty – lands that are less arable and th0se al0ng the mountain
sl0pes and c0uld be tilled by anyb0dy.
Private Property - these include fertile and cultivated lands. Such lands
are reserved for nobles and datus. Furthermore, privately-owned lands
can be bought, inherited or ascribed to them as gifts or rewards. The rich
and the datus also owned fishponds in rivers within their communities .
Fishing
Mining and blacksmithing - minerals obtained from these industries are
used for making body ornaments such as bracelets, necklaces, swords
and other tools.
Wine making - the likes of tuba (coconut wine) and lambanog (nipa
wine)
Weaving and embroidery - early Filipinos were fond of using abaca,
cotton and silk thread for weaving textiles.
Jewelry making, mat and basket making and hunting
Based on our history, the early Filipinos had already possessed a stable
economic system even before the Spanish colonizers conquered the
Philippines in the early part of the 14th century. The arrival of European
forces in the Philippines was expected to bring significant improvements
to the Philippines’ economic, social and political spheres. However,
instead of bringing the nation towards progress and modernity, the
colonizers only used the advantages, natural resources and strategic
location of its colony for their own profit.
Land Ownership
Encomenderos abused their power and forced the natives to pay tribute
(tribute) either in cash or kind which was beyond the amount required by
law.
49
The following are the four classifications of land ownership during the Spanish
period.
Spaniards wh0 ch0se t0 stay in the Philippines als0 acquired vast am0unt
0f pr0perty states.
Farmers were discouraged to improve their production for they did not
own a large portion of the agricultural land they were working on along
with the heavy imposition of taxes.
System of Taxation
Galleon Trade
The Galleon Trade started in 1600s until the 19 century. It limited the
commercial links between Manila and Acapulco to two hundred fifty
thousand pesos per year in exports and five hundred thousand pesos
each year in imports from Mexico. It also imposed restrictions on the
quantity and maximum size of ships to dock in the Manila trade ports.
Only two ships were allowed to trade each year and with a limit of three
hundred tons in weight. The last galleon left Manila in 1811 and the last
ship from Acapulco arrived in 1815.
Obras Pias
An organization which solicited funds from the rich to be used for
charitable activities. However, contrary to the real purpose of the
solicited funds, the large portion of the said funds was used as capital
for individuals who wanted to engage in the galleon trade. The
interest rate that was charged to the loaner varies on the destination
of the trading ship:
It also rewarded farmers who were judged for efficiency and
the use of modern planting techniques of cotton, sugarcane, and
other crops.
It introduced the planting of mulberry trees for the worms that
produce silk threads.
A treaty that ended the war between Spain and the United States and
transferred the control of the archipelago to the Americans at the price of
$20 million.
Americans at that time wanted to have a colony in Asia as a base for its
goal of partaking in the huge market of China. But the Filipino
revolutionaries fought against the American colonialists and the Filipino-
American war took years. In addition, a number of economic structures
were destroyed before the Americans were able to pacify the
revolutionaries. An American economist named Henry Parker Willis
(1904) described the state of the Philippine economy during the first years
of American occupation in his report:
Examples of products that could not be freely traded are the goods
that are manufactured in the Philippines but had used at least 20%
of imported raw materials. In the end, the only things that the
Philippines can export are mostly raw materials; on the other hand,
any American product can enter the country.
Japanese Occupation
The Second World War and the Japanese Occupation brought negative
effects in the Philippine economy. During that time, the country’s economy
was experiencing high inflation, rationing of prime commodities, imposition
of heavy taxes, devastation of natural resources, and stagnation of the
economy.
Roxas Administration
In
exchange for all these things, the American government gave a
$620 million financial assistance for our rehabilitation programs.
RehabilitationandFinanceCorporation(RFC).Established to
manage
the distribution of loans and financial assistance from the United
States for the rehabilitation of our country.
Quirino Administration
Import Substitution. An economic policy that aims to curb the increasing
deficit of the balance of payments. This is because we are running out of
foreign currencies due to importation of products.
Magsaysay Administration
Land Reform Act of 1955. This aims to resolve the growing feud
between farmers and landowners.
National Resettlement and Rehabilitation Administration
(NARRA) –
aims to give land to landless, improve the quality of the farmers’
harvests and extend credit assistance to them.
Garcia Administration
Filipino First Policy. It restricted imports and foreign exchange.
Furthermore, it provided priority to Filipino industries.
Macapagal Administration
Decontrol and Import Liberalization. Liberalized the importation of
goods
and relaxed foreign exchange policies.
Marcos Administration
Aquino Administration
Ramos Administration
Estrada Administration
Macapagal-Arroyo Administration
Strong Republic
The financial system in the Philippines developed slowly during the Spanish
colonial period. Afterwards, the arrival of American forces brought rapid and
unprecedented changes in the economic sphere of the Philippines. These
developments are manifested by the proliferation of financial developments and
establishment of different financial institutions.
Spanish Period
Banco Español Filipino de Isabel II. Refers to the very first bank in the
Philippines. This was engaged in banking and limited foreign trade
financing.
Chartered Bank of India, Australia and China (Hongkong and
Shanghai
Bank). The first two British banks that were set-up in the Philippines
during the opening of the Suez Canal in 1867.
57
American Period
Branches of American banks were established like the international Bank,
Guaranty Trust and the American Bank later on will merge with each other
and succeeded by the Bank of America and First National City Bank of New
York.
Postal Savings Bank - established in 1906.
Japanese Period
Issues
Currency and Acts as the Ultimate Source of
Money. The central
bank prints the paper money and mints the coinage and provides all the
money that the government requires.
Banker’s
Bank. When banks are in need of additional resources to cover
temporary situations, the Central Bank can help them. It provides
services to other banks such as maintaining of accounts for other
commercial banks. Furthermore, the Central Bank assumes the duty as
a bank of settlement or a clearinghouse for other banks.
Lender
of Last Resort. The Central Bank provides loans to banks when
they are short of cash, this is to protect financial institutions from failures
and bank runs—situation wherein an abnormal number of deposits
withdraw their deposits, normally caused by a lack of confidence in the
bank. But the assistance provided by the central bank is not for free, it is
with a cost—interest. In the Philippines, the BSP is also a lender of last
resort to investment houses—performs near-banking functions,
licensed by the BSP to take deposits and invest these for the depositors.
SDRs are relatively small for all central banks that are members of IMF,
although they represent resources of last resort for them to use when
they themselves are short of reserves.
TAXATION
Principles of Taxation
One concrete example is the road user’s tax. This is a type of tax
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paid for using the road. It is integrated in the price of cars and in
the registration of vehicles.
Ability to Pay Principle. The amount of taxes people pay should be related
to
their income or wealth. The higher the income 0r wealth, the higher the
taxes.
Horizontal Equity. This principle states that those who are essentially
equal
in income or receives equal benefit from the government should be taxed
equally.
Vertical Equity. Tax treatment of people with different levels of income. This has
the idea that people with a greater ability to pay taxes should pay more.
Classifications of Taxes
Direct Tax. Imposed on people who are expected to pay the tax .
Indirect Tax. Imposed on the value of products and services which are
shouldered by the end users.
According to Purpose
Community Tax. This tax is under the Commonwealth Act No. 465. It
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Specific Tax. It refers to the value of the tax that is based on the
measure of weight of the product.
Examples: Tariff
The following illustrates the process on how to compute the income tax:
Since Mr. dela Cruz has an additional exemption being the head of the family (P
25,000), his tax due is computed using the taxable income, not the gross
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compensation income. To compute for the tax due, refer to the tax table in BIR
Form 1700 which is also shown in the table above.
VAT is placed on the value that is added at each stage of production. To illustrate,
let us assume that a piece of chicken is sold in the market. The sold chicken has
no VAT at the initial stage of the trade process. If it is processed as chicken
tocino or charboiled chicken, VAT is levied at every step of the production
process. The VALUE ADDED TAX took effect on January 1, 1988 through the
Executive Order No.273 signed by President Corazon Aquino. The following are
the advantages of implementing this tax reform:
It is hard for people or companies to avoid paying tax because the
tax collector simply levies it on the total amount of sales – meaning,
the tax due is included in the good’s market price
Tax is not visible to the final consumer. It has been added into the
price before the purchase is made.
VAT is being levied on businesses that earn a maximum of two
thousand pesos daily or five hundred thousand pesos yearly.
Here is the process on how to compute for the Value Added Tax:
If Mr. Santos has a receipt of all his expenditures in producing processed foods,
he can deduct the input VAT from the output VAT. Thus:
The amount of VAT that Mr. Santos should pay is P40,000. The ten percent VAT
may be produced in two ways: first, the business can shoulder the payment of
the VALUE ADDED TAX or second, he/she may charge it the consumer but
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should not be more than ten percent. Businessmen can only charge one to two
percent to the consumers so that the prices of commodities will not be affected.
On May 5, 1994, President Ramos signed into law the Republic Act No. 7716,
otherwise known as the Expanded Value Added Tax (E-VAT). It aims to gain
P18B every year by including products not covered by VAT. However, primary
products and services will not be subjected to E-VAT. Agricultural and aquatic
products in their original state like rice, vegetables, poultry, petroleum,
transportation fares, medical and dental services, water, electricity, tuition fees,
school supplies, low cost and socialized housing, and business that do not earn
more than half a million pesos every year are not included in the expanded VAT.
With the implementation of E-VAT, both the rich and the poor have to pay ten
percent in all products that are included to be taxed on such policy.
Just a few years back, President Gloria Macapagal-Arroyo signed R.A. No. 9337
or the New E-VAT Law or the RVAT (Reformed VAT) that will increase the 10%
tax to 12% to increase the government revenues that purports to solve our fiscal
woes. However, some sectors of the society opposed such move because
petroleum and electricity are included in E-VAT. It will add to the burdens of many
Filipinos who live below poverty line.
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WK 17 AGRICULTURAL SECTOR
Basic Concepts
Definition
It comes from the Latin phrase “ager cultura” which means cultivation of
fields. Agriculture, art, science, and industry of managing the growth of
plants and animals for human use. In a broad sense, agriculture includes
cultivation of the soil, growing and harvesting crops, breeding and raising
livestock, dairying, and forestry.
Importance of Agriculture
Full Owners. Those who own the land which they work on.
Part Owners. Farm operators who own part of the land they work on
while they hold the remaining portion as tenants.
Tenants. Farm operators who rent or lease from others the land they
cultivate.
Cash Tenants. These farmers pay cash as rent for their use of
the land. The rent is usually computed per hectare.
Farm Operators. They operate the farms under the conditions other than
those previously mentioned.
Lack of capital. Subsidies from the government are not enough to develop
the agricultural sector and sometimes the budget for agriculture is not
enough to fulfill the needs of some poor farmers. Sufficient capital is
needed to increase the production and also in buying modern machineries
and equipment for farming and fishing.
No concrete program for land ownership. Most farmers do not have their
own land. They till the land for the landlord. In most cases, farmers lose the
initiative to improve and increase their production because they are aware
that the landlord profits more. Low prices. The harvested crops of farmers
are sold at very low prices and it is difficult for them to increase the price
and even the crops’ supply.
Competition from foreign products. As a result of import liberalization, foreign
commodities like chocolates, soap, and ponkan can be found everywhere
and compete with our local products. It is difficult for local products to sell
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Land Reform. It refers to the full range of measures that may or should be
taken to improve or remedy the defects in the relations among men (i.e.,
between the tiller and owner of land, employee and employer in a farm) with
respect to their rights in land and involves the transformation of agrarian
structure.
The following are the six-fold land reform program of the Philippine
government:
To achieve dignified existence for small farmers and free them
from harmful institutional restraints and practices.
To apply all labor laws without discrimination to both industrial and
agricultural wage earners.
Pre-Spanish Period
“This land is Ours and God gave this land to us.”
Spanish Period
When the First Philippine Republic was established in 1899, Gen. Emilio Aguinaldo
declared in the Malolos Constitution his intention to confiscate large estates,
especially the so-called Friar lands. However, as the Republic was short-lived,
Aguinaldo’s plan was never implemented.
Land Registration Act of 1902 (Act No. 496). This act provided for a
comprehensive registration of land titles under the Torrens system.
Public Land Act of 1903. This introduced the homestead system in the
Philippines.
Tenancy Act of 1933 (Act No. 4054 and 4113). This act regulated
relationships between landowners and tenants of rice (50-50 sharing)
and sugar cane lands.
Commonwealth Period
Commonwealth Act No. 441. This act was enacted on June 3, 1939
hich
provided for the creation of the National Settlement Administration
with a
capital stock of twenty million pesos.
Japanese Occupation
The Second World War II started in Europe in 1939 and in the Pacific in
1941. Hukbalahap controlled the entire area of Central Luzon. Landlords
who supported the Japanese lost their lands to peasants while those who
supported the Huks earned fixed rentals in favor of the tenants.
Unfortunately, the end of war also signaled the end of gains acquired by
the peasants.
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Upon the arrival of the Japanese in the Philippines in 1942, peasants and
workers organizations grew strength. Many peasants took up arms and
identified themselves with the anti-Japanese group, the HUKBALAHAP
(Hukbo ng Bayan Laban sa Hapon).
Republic Act No. 34. This law established the 70-30 sharing
arrangements and regulated share-tenancy contracts.
Republic
Act No. 55. This law provided for a more effective
safeguard against arbitrary ejection of tenants.
Republic Act No. 1160 of 1954. This law abolished the LASEDECO and
established the National Resettlement and Rehabilitation Administration
(NARRA) to resettle dissidents and landless farmers. It was particularly
aimed at rebel eturnees providing home lots and farmlands in Palawan and
Mindanao.
Republic Act No. 1400 or the Land Reform Act of 1955. Under this
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law, the
Land Tenure Administration (LTA) was created which was responsible for
the acquisition and distribution of large tenanted rice and corn lands over
200 hectares for individuals and 600 hectares for corporations.
Republic
Act No. 821 or the Creation of Agricultural Credit
Cooperative Financing Administration. This act provided mall
farmers and share tenants loans with low interest rates of six to
eight percent.
President Carlos P. Garcia (1957-1961) only continued the land and
agricultural programs of President Ramon Magsaysay. No new
legislation passed.
Presidential
Decree No. 2. This was enacted on September 26,
1972 which declared the country under land reform program. It
enjoined all agencies and offices of the government to extend
full cooperation and assistance to the DAR. It also activated
the Agrarian Reform Coordinating Council.
Presidential
Decree No. 27. This was enacted on October 21,
1972 which restricted land reform scope to tenanted rice and
corn lands and set the retention limit at 7 hectares.
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Executive
Order No. 405, which was signed on June 14,
1990, vested in the Land Bank of the Philippines the
responsibility to determine land valuation and compensation
for all lands covered by CARP.
Executive
Order No. 407 accelerated the acquisition and
distribution of agricultural lands, pasture lands, fishponds,
agro-forestry lands and other lands of the public domain
Republic
Act No. 7905 of 1995 which strengthened the
implementation of the CARP.
Executive Order No. 363 of 1997 which limits the type of lands
that
may be converted by setting conditions under which specific
categories of agricultural land are either absolutely non-negotiable
for conversion or highly restricted for conversion.
Republic Act No. 8435 of 1997 or the Agriculture and
Fisheries
Modernization Act (AFMA) which plugged the legal loopholes
in
land use conversion.
“ERAP PARA SA MAHIRAP”. This was the battle cry that endeared
President Joseph Estrada (1998-2000) and made him very popular
during the 1998 presidential election. President Joseph E. Estrada
initiated the enactment of the Executive Order N0. 151 or the
Farmer’s Trust Fund. This law allowed the voluntary consolidation
of
small farm operation into medium and large scale integrated
enterprise that can access long-term capital. During his
administration, President Estrada launched the Magkabalikat Para
sa Kaunlarang Agraryo or MAGKASAKA. The DAR forged into
joint
ventures with private investors into agrarian sector to make FBs
competitive. However, the Estrada Administration was short lived.
The masses who put him into office demanded for his ouster.
Provision
of Support Service - CARP is not only involved in the
distribution of lands but also included package of support
services which includes: credit assistance, extension services,
irrigation facilities, roads and bridges, marketing facilities and
training and technical support programs.
Of all these laws, why do we still have landless farmers and a lot
Of farmers are still demonstrating against the landowners? We
just hope, that in due time, the laws that were passed for many
years will be fairly implemented to give land to the landless
Filipino farmers.
The land reform law was expanded in 1988 to cover a wider range of lands
during the Corazon Aquino presidency and it was known as the Comprehensive
Agrarian Reform Law (CARL) or the R.A. 6657. It initially envisioned covering
around 8.2million hectares of land, regardless of crops planted and tenure
arrangements, including all public lands considered alienable and disposable. In
many ways, the land reform law was a setback. The land valuation process, for
example, was revised and made more favorable to landowners.
Addresses the age-old issue of social injustice arising from the inequitable
distribution of ownership of agricultural lands.
Provides for the security of tenure of landless farmers and team workers
over the land they till.
Creates the Agrarian Reform Fund as the source of funding for CARP.
Core Targets
Land acquisition and distribution of about 5.28 million hectares
of agricultural lands (including all ARMM provinces) for DAR and
3.77 million hectares for DENR.
Judging from the status of land distribution, the objectives of the land reform
program are far from accomplished. Looking at the rice and corn lands alone, the
farmer-beneficiaries are in possession only of either an emancipation patent (EP)
or a Certificate of Land Ownership Award (CLOA). Under the previous agrarian
reform programs, the beneficiaries of land settlements were issued homestead
patents and beneficiaries of landed estates were given Deeds of Sale.
Emancipation Patent (EP) is the document given to the tenant upon fulfillment
of all the requirements of the land reform law. It represents the farmer’s full
emancipation from tenancy. As of 1996, according to DAR records, agrarian
reform beneficiaries (ARBs) have been issued EPs. Many of the recipients were
made beneficiaries of lands that had not yet been fully compensated. Some of
the EP holders, who were beneficiaries of Presidential Decree 27, had been
initially issued a certificate of land transfer (CLT). Possession of a CLT indicated
the farmer’s status as an amortizing landowner, meaning that he had started
paying the taxes and amortization on the land covered by the CLT.
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Land Valuation refers to the process of knowing the value of the land and how
compensation of the landowner is to be paid. It is governed by 3 major factors:
Land Value (LV), on the other hand, refers to the weighted average (Ws,
weights or fractions indicating the proportional weight attached to each of the
components) of comparable sales (CS), capitalized net income (CNI) and market
value based on tax declaration (MV).
Land Value = weighted sum of comparable sales + capitalized net income and market
value
In symbols:
Land valuation per hectare under the CARL jacked up the price for the farmer
and benefited the landowner. Using the formula in which the component weights
were more evenly distributed (i.e., 0.3 for CS, 0.4 for CNI, and 0.3 for MV), the
price of land per hectare is 14, 201 pesos. But changing the weights so that the
weight for MV becomes 0.1 and that for CNI becomes 0.6, the land value rises by
another 50%. Since the farmers will in effect buy the land and they have to
amortize the value of this land over time, the added cost of the land raises the
amortization rate and of course, including the period of amortization.
This therefore serves to negate the rationale of the land reform program which is
to transfer the lands at values that the farmers can afford to pay .
Medium-Term Goal
The plan goal is to “transform the landless farmer and farm workers into a
new class of responsible, progressive, asset-owning farmer-rural
entrepreneurs, creating millions of jobs for the rapidly growing rural labor
force, trail blazing the equitable distribution of income and contributing
significantly to national economic growth.”
Thrusts and Priorities