Japan and the Philippines' Lost Decade: Foreign Direct Investments and International Relations (original) (raw)
The 1980s witnessed the economic transformation of many Southeast Asian economies but for the Philippines they were a lost decade in terms of economic growth. Arguably, external finance played a major differential role especially after the 1985 Plaza Accord when vast sums of foreign direct investments (FDI) flowed to Southeast Asia. In the case of the Philippines, external finance had been critical; to a large extent, her economic performance depended on funds from abroad. This dependence raises the importance of international relations to the country’s economic growth and sustenance. This study explores how international relations have affected financial flows, including Japanese FDI, to the Philippines during the1980s. It examines the period 1979-83 as a decisive period for the later distribution pattern of FDI flows. The argument is that FDI avoided the Philippines because 1) the domestic investment climate under the Marcos regime increasingly became inhospitable since 1979 and 2) Japan’s foreign policy and relations with other countries created a basis for Japanese FDI locational preferences later in the decade. The study revisits the 1983 balance-of-payments (BOP) crisis, which was a critical juncture in Philippine economic performance of the 1980s, if not of her long-term performance record. It proposes that the crisis represented the loss of international support to the Marcos regime. This loss of support produced serious complications that later resulted in the steep decline of the Philippine economy. The periods surrounding the 1983 crisis reflected conditions that made the country less attractive to FDI. Japan’s active involvement in Southeast Asia also became notable in the early 1980s. Japan’s foreign policy has been shaped by economic security considerations, which around 1980 included the economic and political stability of Southeast Asian countries. Particularly, world and regional events raised the strategic importance of countries along the Malacca Straits. The comprehensive security policy adopted meant that the “trilogy” of aid, trade, and FDI be stepped up in favour of these countries. Initial investments placed made these countries more attractive to Japanese FDI, particularly after the 1985 Plaza Accord.
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