Manuel L. Quezon, Seventh State of the Nation Address, January 31, 1941

His Excellency Manuel L. Quezon
President of the Philippines
To the Second National Assembly
On the State of the Nation

[Delivered at the Opening of the Third Session in the Assembly Hall, Legislative Building, Manila on January 31, 1941]


This session of the Second National Assembly is of unusual significance. It is not only held at a time when momentous events are vitally affecting the destiny of nations, but it marks the culmination of a legislative epoch which commenced with the inauguration of the Commonwealth. During these five years constructive measures were passed by the National Assembly which have enabled the new government to function smoothly and to render invaluable service to the country. But more has been done. You have initiated amendments to our Constitution designed to strengthen the foundation of our democratic institutions and to insure their stability and permanence. And because of such a splendid record the members of the National Assembly have merited the lasting gratitude of our people.

As this body is about to pass into history by reason of the recent amendments to the Constitution creating a new bicameral legislature to be known as the Congress of the Philippines, I desire to express my deep gratification at the manner in which the members of this Assembly have dealt with the many important public questions requiring their attention. I take particular pleasure in acknowledging the valuable cooperation which you have accorded me in the administration of the affairs of the Commonwealth. Fortunately, we are still free from the armed conflicts now raging in several parts of the world, and let us hope that we may be spared the destructive effects of such conflicts. But our fate in this respect is linked with that of the United States. We are placed in that position not only by the very nature of our political relationship with that great nation, but by our common faith in democracy and by every noble impulse that animates our people.

In these times of stress, our national security is naturally the greatest concern of our government, and we are doing all we can in this respect. But it must be admitted that with our own resources alone we are not now in a position to defend ourselves.

The Government of the United States has embarked upon a program of national defense which, we earnestly hope, includes the Philippines; for, under the terms of the Tydings-McDuffie Act, the defense of our country remains primarily the responsibility of the United States. This is as it should be, because so long as we are under the American flag it rests exclusively with the United States, and not with us, to determine whether we shall be at peace or at war. The Filipino people, desirous of cooperating with the United States in the execution of this defense program, are ready to bear their full share of that responsibility. To this end, I have assured the Government of the United States, in behalf of the Commonwealth, that the entire Philippines—its man power and material resources— are at the disposal of the United States in the present I emergency.

In my eagerness to expedite the organization of our national defense in cooperation with the United States and in the absence of available funds in the public treasury for that purpose, I have made representations to the Washington authorities requesting that the funds, declared by the Congress of the United States to be payable to the Philippine Commonwealth from the sugar excise tax collections and from profits derived from the devaluation of the American dollar, be appropriated to be spent exclusively for our national defense under the direction of the United States. I have assurances that this matter is being given serious consideration.

As you already know, the people of the United States have reelected President Franklin Delano Roosevelt for another term of four years. This outcome of the presidential election has brought joy to the people of the Philippines because the Filipino people are confident that the United States will pursue a policy which will insure for that country and for ours the continued enjoyment of peace under a regime of liberty and democracy. I wish, on this solemn occasion, to reiterate our loyalty to America and our unswerving faith in the leadership of her great President.

The constitutional amendments initiated by this body and ratified by our people, which have for their object the broadening of the democratic base of our government, have received the unqualified approval of the President of the United States. The sympathetic consideration given to these amendments by President Roosevelt could not but arouse a deep feeling of gratitude on the part of our people. By the same token, our faith in, and loyalty to, the United States have been strengthened even more.

The approval of the amendments constitutes another recognition of the principle that, in matters purely domestic, the will of our people should prevail. This principle, which we have always maintained, had been gradually accepted by the Government of the United States and fully embodied in the Tydings-McDuffie Act. It is now the basic foundation upon which American-Philippine relations rest.

I want to take advantage of this opportunity to congratulate your distinguished Speaker upon the successful outcome of his recent mission to the United States. Speaker Yulo has completely justified the confidence of our people in his patriotism and in his ability to perform this most important and delicate task. The unusually warm reception accorded him upon his return shows that the country fully appreciates the value of the work done by him.

Since the establishment of the Commonwealth Government, we have pursued a definite program designed to prepare our country for independence. This program was well under way at the outbreak of hostilities in Europe.

We completed the organization of the Commonwealth Government as contemplated by the Constitution. The new government has been functioning satisfactorily, and `its varied activities have been extended in order better to serve the needs of the people.

We have adopted a plan of national defense for an independent Philippines. This plan is being carried out. Preparatory military training has been introduced in all elementary and high schools. In colleges and universities, instruction in military science for the training of reserve officers has been made compulsory. We have today a regular force consisting of 466 officers and 3,666 enlisted men excluding the Constabulary. This force has been organized to undertake the training of the annual levies of trainees and to engage in the study and planning of the most effective employment of our trained man-power in an emergency. Our total reserve force numbers 132,000 men organized into approximately 13 tactical divisions. The army and other national defense activities have been placed under the Department of National Defense, which was organized last year.

Steps have been taken for the promotion and encouragement of civil aviation and the safety of air navigation. The Government has either acquired or constructed airports and landing fields. We have also established a network of aeronautical radio and weather observation stations which has greatly facilitated air travel in this country.

The judicial branch of our government has undergone important changes designed to insure an efficient and speedy administration of justice.

The creation and organization of the Court of Appeals in 1936 relieved the Supreme Court of the task of attending to a large number of appealed cases, thus enabling it to devote more time to the consideration of cases involving important questions of law.

As a result of the work of the Court of Appeals, the A determination of appealed cases has been greatly expedited. The dockets of both the Supreme Court and the Court of Appeals are up-to-date.

In the exercise of its rule-making power and with a view to simplifying court procedure and reducing the cost of litigation, the Supreme Court has adopted new rules for all the courts in the Philippines.

In order to meet the increasing amount of court litigation brought about by the ever—expanding field of the law, the complexity of modern life, and the natural growth of population, the number of judges of first instance and of justices of the peace has been increased.

Our courts have been placed within the reach of the humblest citizen through the establishment of free legal aid services.

The masses of our population are more and more becoming aware that our courts are administering justice to the rich and the poor alike.

There has been a long-felt need of revising and codifying our substantive laws in order to make them conform to the customs, traditions and idiosyncrasies of our people and to adapt them to present day conditions. A Code Committee has been appointed to carry out that important task.

In order to improve the administration of our criminal laws, the provincial fiscal service has been reorganized and the Office of District Attorneys has been created for each of the nine judicial districts, excepting the city of Manila.

With a view to a better coordination of crime-investigation and prosecution, a Division of Investigation was created under the Department of Justice by Commonwealth Act No. 181. This Division is patterned after the Federal Bureau of Investigation of the United States Department of Justice. Its main duties are to help in the detection and prosecution of crimes and to acquire, collect, classify and preserve criminal identification records.

We have made reforms in our penal administration, the most significant of which have been the introduction of vocational training for our prisoners and the individualization of corrective treatment. A new insular penitentiary has been opened in Muntinglupa, Rizal, and this has afforded the insular prisoners greater opportunity for self-improvement.

The Public Service Commission has been instrumental in maintaining fair and reasonable rates for light, gas, and transportation services in Manila and in the provinces.

In order to regulate the issuance of, and trading in, securities, made necessary by the mining boom of 1935 and 1936, we created the Securities and Exchange Commission. Through its operation, investors are afforded protection in speculative ventures and against fraudulent schemes.

To reduce the evils resulting from the establishment and operation of certain kinds of amusement centers, I have promulgated rules and regulations in accordance with Commonwealth Act No. 601.

Social justice has been a major aim of our government during the last five years. To accomplish this objective, we have, among other things, set a minimum wage scale in public works, created the Court of Industrial Relations to settle labor-capital disputes, organized the National Land Settlement Administration to help the poorer classes transfer from congested districts to unoccupied areas, purchased haciendas to be subdivided and resold to the tenants, embarked on housing schemes for workers and low-salaried employees, intensified the campaign against usury, revised the system of taxation so that the tax burden would be borne by those best able to carry it, passed legislations to protect the rights of tenants, appointed officials to defend the poor, encouraged the organization of associations for marketing and purchasing among producers and consumers, and extended aid and credit to small farmers and businessmen.

Noteworthy progress has been made in the opening of settlement projects under the National Land Settlement Administration. Organized less than two years ago, the National Land Settlement Administration has established the Koronadal Valley Project in Cotabato, where some 14,000 people have settled, and has recently started the Mallig Plains Project in Isabela, covering 66,000 hectares of the Cagayan Valley.

To date, the National Land Settlement Administration has spent about P1,500,000 of the P20,000,000 capital authorized by Commonwealth Act No. 441 from the coconut oil excise tax funds. Of the amount disbursed, about half a million pesos has been given to the settlers as loans. The National Land Settlement Administration expects, within five years, to develop four or five other settlement projects along the broad lines of Koronadal, and to distribute land to about a hundred thousand settlers.

The Rural Progress Administration has been established to assist the landless in acquiring lands and homes of their own. It has already purchased several estates and homesites, among which are: the Bahay Pari Estate in Pampanga, the Marikina Homesite in Rizal, the Tunasan Homesite in Laguna, and the Dinalupihan Homesite in Bataan.

In addition to these haciendas and homesites, the Government has leased the Buenavista Estate in Bulacan. It is a matter of satisfaction to note that whereas before misapprehension and distrust prevailed among the tenants in that Estate, now there is harmony and better understanding. There is evident willingness on the part of these people to pay their rents and to cooperate with the Government in its efforts to ameliorate conditions. As the Estate progresses, it approaches the status of an independent cooperative farm.

To provide suitable homes for our working population, we have organized the People’s Homesite Corporation, with an initial capital of P2,000,000, which has taken over Diliman District bordering Manila in order to convert it into a model workers’ community. Hundreds of model houses for laborers and low-salaried employees have been constructed.

The eagerness with which the people have responded to the opportunity of acquiring their own houses has been very gratifying, and the People’s Homesite Corporation has plans for the construction of more houses.

Besides cash loans, the Government has extended loans in the form of rice to needy tenant farmers. This work of extending credit facilities to tenants and small farmers has been placed under the administration of the Philippine National Bank, and the amount of P1,000,000 has been released for this purpose from the emergency funds.

The organized efforts of the Government to give public assistance to victims of public disasters were exerted as early as 1934 with the creation of the Board of Relief under the provisions of Act No. 4160. To further promote the security of the masses, this Board was reorganized on August 19, 1940, with the creation of the National Social Security Administration. To this new agency have been entrusted wider functions so that, in addition to giving relief to victims of public disasters, it is rendering assistance to the unemployed and studying the whole problem of unemployment in the Philippines.

Since public works projects offer at present the most practicable means of aiding the unemployed, I have issued Executive Order No. 307 requiring that the only criterion for obtaining work in these projects shall be the need of employment and fitness for it and that no regard shall be paid whatsoever to political affiliation or religious creed.

From January 1, 1934, to June 20, 1940, a total of P3,591,008.81 was spent for relief in the forms of food, clothing, medicines, building materials, and seedlings.

The Philippine Rice Share Tenancy Act, enacted in 1933, was not put in operation until 1936, with such amendments as were necessary to hasten the solution of the tenancy conflicts arising out of the division of crops. As a result of the vigilant enforcement of this law, tenancy conflicts have been reduced, and there is growing disposition among landlords and tenants to settle their differences amicably.

Disputes between capital and labor have arisen now and then, but such disputes have been fortunately free from the sharp violence and bitter antagonisms that generally characterize such clashes in other places. We have helped labor fight for its rights and we have protected these rights against unjust encroachment. This has resulted in mutual respect and understanding between capital and labor, and has contributed to the promotion of social welfare.

The Court of Industrial Relations has been a potent factor in maintaining industrial peace. Its accomplishments are to a large extent identified with the substantial gains of labor, including the fixing of the scale of wages at fairer levels, the reduction of working hours, the recognition of the right of collective bargaining, and the payment for overtime work. These gains have been reflected in improved working and housing conditions, in better sanitary facilities, in better terms of employment, and, in general, in the material, physical and moral well-being of the working classes.

The functioning of the industrial court has shown that the interests of labor and capital are compatible with one another and that- conflicts between them can be adjusted without the necessity of resorting to strikes, lockouts, or other coercive measures.

Peace and order has been maintained. No disturbance of a serious nature has arisen to require drastic action by the authorities. Where municipal police forces proved inadequate to cope with a threatened situation, the constabulary has always been ready to maintain peace and order.

For the first time a general election for local officials was held last December under the direction and Supervision of the Commission on Elections. The efficient and orderly manner in which the election was conducted proved the wisdom of creating such an independent commission.

With the abolition of the Bureau of Non-Christian Tribes in 1936, the Office of the Commissioner for Mindanao and Sulu was created to assist the Secretary of the Interior in the development work in Mindanao, and to look after the interests of the special provinces. In the five specially organized provinces, we have, whenever possible, followed the policy of placing natives in responsible executive positions. Townsites have been established, and sites for agricultural colonies properly located. The construction of roads, waterworks, port works, and other public improvements has been extensively undertaken in Mindanao.

The benefits of sanitation have been extended to all parts of the country. Because of rigid sanitary and quarantine measures, the Philippines has been spared from the ravages of dreaded epidemic diseases, such as cholera, plague, and smallpox, which have been afflicting neighboring countries.

Medical aid has been increased, specially for the poor. Hospital, dispensary and other medical facilities have been substantially increased. Twelve new hospitals and 939 public dispensaries have been organized; and 500 charity clinic physicians and 95 charity clinic dentists have been employed to render free medical and dental services.

Greater stress has been given to safeguarding the health of infants and mothers. While in 1935 we had only 196, we now have 319 puericulture centers.

Measures for the protection of the health of industrial workers have also been adopted and enforced. The campaign against common diseases has been intensified. To reduce tuberculosis incidence, we have established the Quezon Institute. Malaria and other major diseases have also received attention. Seven malaria control units are today in operation.

Besides the leprosarium at Culion, funds have been provided for the establishment and operation of other leprosaria in different parts of the country. Of the new regional leprosaria, the largest, the Central Luzon Leprosarium, has already been opened.

A public health laboratory with modern facilities has been organized. An Institute of Hygiene has been established. The system of medical instruction in the University of the Philippines has been improved and funds for the establishment of postgraduate courses have been made available. The Philippine General Hospital has been reorganized and enlarged with the addition of several wards, including a unit for the treatment and study of cancer, for which a building is now being constructed.

A separate Department of Health and Welfare has been organized with a view to effecting a better coordination of public health and sanitation, welfare, and related services.

In the last six years, the Philippine. Charity Sweepstakes has distributed a total of P7,611,230.43 to charitable health and civic institutions and organizations such as the Philippine Tuberculosis Society, the Associated Charities, national and provincial hospitals, puericulture centers, charity clinics, the Philippine Amateur Athletic Federation, the National Federation of Women’s Clubs, the Boy and Girls Scout organizations—and for the maintenance of such activities as malaria control work and the repatriation of Filipinos from the war zones in China and Europe. Besides, it has distributed P939,102.42 to cities and provinces.

In our public schools now numbering 12,000, we have admitted about 800,000 additional pupils, so that today more than 2,000,000 pupils are in attendance. To insure proper support and a more rapid extension of elementary education, the National Government has assumed responsibility for the maintenance and operation of elementary schools. This reform has made possible a more efficient coordination of school finances and the full utilization of the services of teachers, and has offered increased opportunity for elementary education throughout the country.

The curricula have been revised. Character education and citizenship training have been stressed and special efforts made to develop a greater appreciation of Philippine culture. Attention was also focused on vocational education by establishing new vocational schools and by giving vocational courses in academic high schools. Considerable progress in athletics has been made as shown by a general improvement in the physique of our youth.

The needs and problems of the University of the Philippines have been surveyed by a committee of the Board of Regents with the advice of two outstanding educators from the United States. The recommendations of the committee are being considered, and some have been put into effect. The reorganization of the .University of the Philippines has been largely carried out. Commonwealth Act No. 442 was enacted directing the transfer of the University of the Philippines to a site outside of the City of Manila. Three buildings are nearing completion and the work on the plans for all the necessary buildings is proceeding as rapidly as circumstances permit.

With the extension in 1936 of government super- vision over all private educational institutions issuing diplomas or conferring degrees, as provided in Commonwealth Act No. 180, the quality of’ instruction in private schools has shown general improvement. The Government has encouraged private initiative in education, but at the same time, it has adopted the necessary safeguards to protect the public interest, and to carry out the educational aims enunciated in the Constitution. Through closer supervision by the Office of Private Education, the number of competent instructors has grown, school libraries have been expanded and laboratory equipment and facilities improved. The various government boards of examiners act as technical advisory committees to the Office of Private Education and cooperate with the various institutions to coordinate government licensing examinations with teaching.

We organized the Institute of National Language to evolve a common language for our people adopting Tagalog as the basis. The Institute has completed a grammar and is now preparing a dictionary. We are gradually introducing the teaching of the national language in the public and private schools.

We have established a system of adult education. During the past four years 6,069 adult schools have been opened with more than 50,000 volunteer citizens helping in the eradication of illiteracy and the teaching of citizenship and the stimulation of vocational competence. Up to December 31, 1940, these schools had an enrolment of 581,307 adults, men and women. Over 2,500,000 copies of publications on adult education have been distributed.

To supplement instruction in the schools, the facilities of public and school libraries have been expanded. The National Library has established branches in different provinces and its facilities have been made available to an increasing number of people. Its Filipiniana collection has been enriched. Recently we acquired the Blumentritt collection on the life and writings of Rizal. Letters of Rizal have been collected and published.

Roads with a combined length of 6,979 kilometers were built which increased the total length of roads to 22,959 kilometers. Particular attention was directed to the opening of new roads and highways in Mindanao to accelerate the economic development and settlement of that region. The important parts of the island are now linked by a network of roads with a total length of 3,878 kilometers, of which 1,811 kilometers were constructed during the Commonwealth period.

The construction of concrete pavements on national roads has been undertaken. We have today 362 kilometers of cement roads. Supplementing our road-building program, the sum of over P7,500,000 was spent for the construction of bridges. We have now 33 new bridges in process of construction costing more than P4,662,000.

Another important phase of our public works program was the construction of 2,362 buildings costing about P11,000,000.

During the last five years there were constructed in the provinces a total of 134 waterworks systems and 492 artesian wells at a total cost of P5,300,000. These water systems and artesian wells are serving some 876,292 people with potable water.

Projects for flood and river control costing P14,586,413 have been carried out in various provinces.

For the maintenance and improvement of our ports and the construction and expansion of port facilities, we have spent about P19,500,000. These improvements have gone far in promoting foreign and inter-island trade.

Impetus has been given to coastwise navigation which constitutes the principal means of communication between the different parts of the archipelago. Nine new steamers, 19 motor ships, and more than 1,000 sailing vessels and motor launches were put in operation. Most of these steamers and motor ships were built specially for tropical use and are provided with comfortable accommodations for all classes of passengers.

The Government has given special attention to the entry of Philippine shipping firms in the ocean-going trade. It has extended credit and other facilities to several Philippine firms which enabled them to acquire ten steamers and motor vessels with a total gross tonnage of 57,236. One of these companies also chartered twelve foreign vessels which, under Filipino management and control, carry a considerable portion of our overseas trade.

With the completion of the Tayabas-Legaspi section of its main Southern Line, the Manila Railroad Company has been enabled to maintain through train operation between Manila and Albay.

To avoid unnecessary duplication of services, the company has entered into joint passenger traffic arrangements with private bus companies so that today practically all important points of Luzon can be reached by the combined train and bus lines. Wherever necessary, the company maintains its own feeder bus service. In order to foster tourist trade and to accommodate its patrons and other travellers, the company has adopted plans for the establishment of a chain of hotels throughout the country. Two new hotels are now in operation: one in Tagaytay City and another in Legaspi, Albay.

The construction of radio stations at strategic and important points has received considerable attention. Eighteen stations have been erected at Ilagan, Isabela; Larap, Camarines Norte; Port Holland and Punta Flecha, Zamboanga; Brooke Point and Binalauan, Taytay, in the province of Palawan, and other places.

No efforts have been spared to protect and promote agriculture and commerce.

We have eliminated locust infestation and reduced destruction by other pests. The introduction of dangerous plant diseases into the country has been checked through a rigid plant quarantine service.

Control of animal diseases through quarantine and vaccination has, likewise, been effected. Since 1938 no case of rinderpest has been registered.

Fishing laws and regulations are more strictly enforced. Various fishery stations have been opened and adequate facilities have been provided, as well as personnel to study the propagation of needed fish varieties.

The survey and subdivision of public lands has been expedited to have lots ready for settlers and to insure the equitable distribution of public lands by preventing the acquisition of big landholdings.

Through an extensive soil and agronomical survey now being undertaken, we shall soon be in a position to determine the physical, chemical and biological properties of our agricultural areas and thus secure the data essential to scientific agricultural planning and land cultivation.

The production of gold and silver has been more than doubled and that of base metals has risen from almost nothing to about one—tenth of the total mineral production in 1940.

To insure a continuous supply of timber and help solve the problems of soil protection, water conservation and flood control, new forest reserves, communal forests and national parks have been established and barren watersheds reforested with economically valuable trees.

The Bureau of Science has successfully undertaken experiments on the utilization of the by-products of some of our industries. As a result of these researches, factories for the manufacture of paints, varnishes, roofing tiles and other industrial products from local raw materials have been established.

The National Research Council has stimulated comprehensive projects of scientific research. As an advisory body, the Council has drawn the attention of both the Government and private enterprises to important activities requiring technical knowledge. It has catalogued our scientific and technical resources for use in any intensive scientific work.

Our farmers have received assistance in the marketing of their products. Through the help of the National Produce Exchange, many producers in the different provinces, mostly small individual farmers and cooperative associations, have been able to dispose of their products without passing through middle-men, thus giving them better returns for their crops.

Activities for the promotion of foreign and domestic trade have been intensified. A new Foreign Trade Division in the Bureau of Commerce has been organized to develop foreign markets and promote the sale of Philippine products abroad. Since 1939 National Foreign Trade Week has been observed annually in order to arouse wider public interest both here and in the United States in Philippine-American trade. A direct cablegraphic price quotation service from New York has made possible the daily publication and broadcasting of price quotations on all important staple products of the Philippines. The Bureau of Commerce has also helped our businessmen in establishing new business connections locally and with foreign countries and in getting useful information.

Filipino participation in the retail trade of the country has increased from between 15 to 20 per cent at the time of the inauguration of the Commonwealth to approximately 37 per cent in 1939. Filipinos now outnumber the merchants of other nationalities in the local retail trade and control a greater number of retail stores.

In its desire to broaden the base of taxation and shift the tax load to those best able to pay, the Government has approved a series of measures, now embodied in the National Internal Revenue Code, to create new sources of income by increasing taxes on inheritance, income, and articles of luxury, and by imposing taxes on amusement and other activities. The code has established a more equitable tax system and provided a more adequate machinery against tax evasion or avoidance. Its adoption has resulted in a substantial increase in revenues, which, however, has been upset by present depressed business conditions. The loss of revenues occasioned by the abolition in 1937 of the cedula tax was more than offset by the new taxes.

The trend in public revenues during the last five years is shown by the following figures. The internal revenue collections rose from P46,971,774.93 in 1935 to P73,354,896.60 in 1937, the year of the mining boom; collections fell to P66,301,810.61 in 1938, but rose again to P69,331,641.20 in 1939, and, despite the beginning of hostilities in Europe, reached a peak of P74,858,920.31 for the fiscal year 1940, when the Internal Revenue Code went into effect. Customs collections showed a similar trend. Collections rose from P24,477,176.63 in 1935 to P32,125,389.93 in 1937, then declined to P28529,012.11 in 1938 and to P25,582,985.21 in 1939. Unlike internal revenue collections, however, which rose to a new high in 1940, customs collections for that fiscal year—which amounted only to P27,270,275.90, because of the paralyzation of our trade with some of the warring nations—fell below the 1937 level.

Provincial and municipal finances have been in sound condition. At the end of the fiscal year 1940, provincial governments had an unexpended surplus of P3,127,204.09 and the municipal governments, P1,104,524.04. Various laws such as the new municipal autonomy act, the new assessment law, and the Internal Revenue Code have further strengthened the financial position of the provinces and municipalities and enabled them to meet their obligations more adequately. The change in the supervision over the finances of our local governments, placing provincial, municipal and city treasurers and provincial and city assessors under the Department of Finance, has resulted in a unified collection service and greater efficiency.

In addition to the resources of the Philippine National Bank, we have made available to the public with the creation of the Agricultural and Industrial Bank P25,000,000 which constitutes its initial capital.

A direct result of the combined operation of these banks has been the scaling down of the rate of interest on loans, which has enabled the small farmer and industrialist to secure the needed protection and encouragement to carry on their operations under adverse conditions.

During the last five years there has been a steady increase in the resources of our banks due mainly to the growth of bank deposits which rose to about P30,000,000.

On the inauguration of the Commonwealth, the total indebtedness assumed by the new government from the old regime amounted to P154,364,700 against which a sinking fund reserve of P59,287,901.73 had been accumulated, thereby leaving a net indebtedness of P95,076,798.27. Since the establishment of the Commonwealth up to December 31, 1940, new bonds in the total par amount of P5,392,300 had been issued, but on August 1, 1939, Public Works bonds issued on August 1, 1909, amounting to P3,000,000, were retired, thereby leaving a net issue of P2,392,300. The sinking fund reserve increased from P59,287,901.73 in November, 1935, to P75,980,484.01 at the end of the calendar year 1940. The status of the public debt as of December 31, 1940, was as follows:

Bonds of the National Government (proper) ……………………………. P128,450,000.00

Collateral Bends of the National Government, secured

by bends of the Provincial, Municipal end City Gov-

ernments …………………………………….,…………………………………….. P17,387,000.00

Provincial, Municipal and city Government bends er

direct issue …………………………………………………………………………… P 2,920,000.00

Total bonded indebtedness of all classes ………………………… P148,757,000.000

Total sinking fund reserve ……,………………………………………………. P75,980,484.01

Net bonded indebtedness of all classes …………………………………… P 72,776,515.99

The above figures show that during the Commonwealth régime through December, 1940, the gross and net indebtedness of the Government were reduced by P5,607,700 and P22,300,282.28, respectively.

Besides these bonds of the Government proper, there were also sold P6,000,000 worth of bonds of the National Power Corporation created by Commonwealth Act No. 120, the principal and interest of which are guaranteed by the Government.

The Manila Railroad Company has also outstanding bonds amounting to P28,718,000.00. We have taken steps to enable this company to redeem its outstanding bonds upon maturity. For this purpose the National Assembly last year appropriated P7,000,000 from the Coconut Oil Excise Tax Fund. The present program of the Government contemplates further yearly appropriations from this same Fund until the total bonded debt of the Manila Railroad Company is fully covered.

The currency circulation of the Philippines during this period showed an upward tendency from 1935 to 1938, but began to decline thereafter as may be seen from the following figures:

1935 (Average from November 14 to December 31, 1935) P114,648,486.98

1936 (Average) 164,524,168.76

1937 (Average) 181,203,519.52

1938 (Average) 207,465,286.45

1939 (Average) 199,044,925.28

1940 (Average) 181,251,052.08

The decline in circulation began in 1939, when the present war in Europe started. Owing to the marked increase in freight and insurance rates, and to the prevailing low prices of our export commodities, there resulted a scarcity of export bills which are the main source of supply of the dollar balances abroad of local banks. To replenish depletion of said balances and to cover payments for Philippine imports, local banks had to resort to heavy purchases of exchange in Manila and New York. These sales of exchange affected the monetary circulation of the Philippines for the reason that, under the law, currency tendered for the purchase of said exchange had to be retired from circulation.

The legal minimum reserve requirement has been maintained since the establishment of the Commonwealth as shown in the following statement:

Year (December 31) Total Government Circulation 15 Per cent Minimum of Government Circulation 25 Per cent Maximum of Government Circulation Cash Balance of Fund Excess Over Minimum Limit Excess Over Maximum Limit
1935 125,521,489.49 18,828,223.42 31,380,372.37 47,807,462.00 28,979,238.58 16,427,089.63
1936 152,383,173.68 22,857,476.05 38,095,798.42 43,763,192.36 20,905,716.31 5,667,398.94
1937 167,791,600.05 25,168,740.01 41,947,900.01 45,614,302.17 20,445,562.16 3,666,402.16
1938 197,429,811.57 29,614,471.74 49,357,452.89 47,396,156.76 17,781,685.02 (1,961,296.13)
1939 196,371,784.86 29,455,767.73 49,092,496.22 49,708,288.80 20,252,521.07 615,342.58
1940 186,018,426.65 27,902,764.00 46,504,606.66 52,055,874.51 24,153,110.51 5,551,267.85

The Treasury Certificate Fund constitutes the reserve for the redemption at par of all outstanding treasury certificates. This fund is always maintained to the amount of 100 per cent of all treasury certificates issued and outstanding. The fund is constituted exclusively of Philippine silver pesos, half-silver pesos, and of dollar deposits in the United States. The status of this fund for the period covered by the Commonwealth régime to December 31, 1940, was as follows:

Year (Dec. 31) Total Treasury

Certificates Cash Balance

Outstanding of the Fund

1935 —————————————————— P106,369,706.00 P106,369,706.00

1936 —————————————————— 132,155,000.00 132,155,000.00

1937 —————————————————— 145,333,275.00 145,333,275.00

1938 —————————————————— 174,763,462.00 174,763,462.00

1939 —————————————————— 173,611,590.00 173,611,590.00

1940 —————————————————— 163,143,955.00 163,143,955.00

As early as 1937 efforts were made to readjust our trade relations with the United States through

a revision of the economic provisions of the Tydings-McDuffie Act. The Joint Preparatory Committee on Philippine Affairs was organized and after two years of continuous work, it submitted a comprehensive report which served as the basis for the Philippine Economic Adjustment Act.

To carry out the main recommendations of the Joint Preparatory Committee on Philippine Affairs, steps have been taken to reorganize the national economy by encouraging modern methods of production; by increasing the yield of land through scientific farming; by extending credit facilities to merchants and producers; by lessening the cost of distribution so as to increase the share of the producer; and by providing gainful occupations for farmers who would otherwise remain unproductive during the greater part of the year.

In the development of our agriculture, we have stressed crop diversification and the adjustment of farm production so as to bring about as much as possible self-sufficiency in articles of prime necessity, and the production of raw materials to develop domestic industries and of products that can be marketed abroad under competitive conditions.

The National Assembly passed Commonwealth Act No. 565 providing for the organization of cooperative associations. Pursuant to the provisions of this Act, all government activities of that nature were placed under the National Trading Corporation. Progress has been made in organizing cooperatives among producers, consumers, and small merchants throughout the country, with a view to improving the economic condition of the masses.

Realizing the need of drawing up a program for the readjustment and rehabilitation of the sugar industry, the Government has provided under Commonwealth Act No. 567 a new method of taxing centrifugal Sugar mills and owners of leased sugar lands. The Purpose of this law is to place the industry in a position to maintain itself despite the gradual loss of its preferential position in the American market; to read­just the benefits derived from it by redistributing them more equitably among the elements concerned; and to give laborers employed in the industry a living wage and improved living conditions. Research is being undertaken to increase the yield, reduce the cost of production, and propagate better varieties of sugar cane, and to utilize its by-products.

Since the retroactive imposition of the tax on leased lands would have caused hardships and dif­ficulties to the taxpayers, the operation of this pro­vision of the law was suspended for the 1939-40 agricultural year. Similarly, I decided to waive the imposition of the additional progressive tax on sugar mills for the same agricultural year, as upon inves­tigation it was shown that the exaction of such tax during that period, would be confiscatory and oppressive.

The National Development Company and its sub­sidiaries have continued developing new industries. The policy laid down for these companies is not to enter into those fields which could well be left to private capital and initiative.

The National Rice and Corn Corporation has been able to keep the price of rice within the reach of consumers, while at the same time stimulating continued production. In carrying out its activities, the National Rice and Corn Corporation has given preferential attention to regions where its services are most needed.

The National Rice and Corn Corporation has carried on research work on longer storage of rice and the utilization of by-products.

The National Warehousing Corporation has been organized. Warehouses have been built for rice, abaca, copra and hemp in different sections of the Philippines, and it is expected that these warehouses will give farmers an opportunity to store their crops while waiting for favorable prices.

The National Footwear Corporation was established to help the footwear industry. This corporation has entered into a financial agreement with the National Footwear Cooperative Association composed of shoemakers of Marikina and other towns of Rizal, as a result of which, shoemakers and laborers now receive higher wages and are supplied with materials at reasonable prices.

The Cebu Portland Cement Company has been operating profitably. This company had completed plans to establish a factory for the manufacture of cement-asbestos roofing to replace galvanized iron. This project, however, has been suspended in view of the offer made by a private company to establish and operate such a factory.

The National Development Company has also helped in the financing of a cellulose factory for the produc­tion of cellulose from sugar-cane bagasse. It is be­lieved that the successful operation of this factory will help in the readjustment of the sugar industry besides producing an article which now finds a ready market in many parts of the world.

The Cotton Textile Factory was established in 1939. At the beginning it operated 10,000 spindles and 104 looms. Recently, the factory has been expanded and is now operating 20,000 spindles and 500 looms, to­gether with a finishing plant for bleaching, dyeing, printing and finishing work.

The National Food Products Corporation has now under way the establishment of a cannery in Capiz, in addition to the cannery previously set up in Guagua. The Corporation is financing the construction of 5,000 hectares of fishponds under contract with private landowners.

In order to improve interisland shipping and to aid in the establishment of a Philippine ocean—going merchant marine, the National Development Company has financed the construction of a modern coastwise vessel and three ocean-going ships. These vessels are now in the service and the commitments of the operators concerning interest and amortizations of the money invested by the Government have been fully met.

One of the many activities of the National Development Company during the last two years has been to effect the exploration of mineral deposits in the Philippines in cooperation with the Bureau of Mines. With the aid of experienced geologists from the United States some known petroleum-bearing areas have been explored as well as areas containing strategic minerals and other minerals needed for our industrial requirements.

I have authorized the expenditure of P500,000 for the drilling for oil in several places.

The exploration of the Surigao iron deposit has been completed. In relation to this deposit, the National Development Company has had experiments made in the United States and Europe to determine the best process that should be adopted for the most economical utilization of the ore. Exploration of coal deposits has shown that several sections can be commercially operated. The Cebu Portland Cement Company is now exploiting the Uling coal mine in Cebu to its ad­vantage.

The National Development Company is working a coal mine in Malangas in the Province of Zamboanga. With the output of this mine and of the Uling mine, it is believed that all the requirements of the Cebu Portland Cement Company and the Manila Railroad Company would be met eventually.

To increase the local consumption of sugar and to stabilize the market for refined sugar in the Phil­ippines, the Government has acquired the refineries of the Insular Sugar Refining Corporation and the Ma­labon Sugar Company.

Pursuant to laws passed by the National Assembly, the National Abaca and Other Fibers Corporation, the National Coconut Corporation, and the National To­bacco Corporation have been duly organized and are now in operation.

With the increased appropriations authorized by you last year, the office of the Resident Commissioner in Washington has been reorganized and now counts with a competent staff to handle all matters affecting our interests in the United States. The work of Resident Commissioner Elizalde in reorganizing that office and in developing it to its present efficiency is worthy of commendation.

The consolidation of the auditing and accounting services of the National Government was effected under the General Auditing Office. Whether or not this arrangement is conducive to greater efficiency or economy and should be made permanent, is as yet difficult to determine. Supervision by the General Auditing Office has been extended to public service companies and charitable institutions, and this has redounded to the public good, since through its findings, the Public Service Commission was enabled to scale down public utility rates to fairer levels.

Since the inauguration of the Commonwealth, the constitutional precept requiring a civil service based on merit and fitness has been adhered to. This policy has been extended to embrace almost all positions in the public service.

To better insure uniformity of action, the determina­tion of administrative cases has been placed in the Bureau of Civil Service and the Civil Service Board of Appeals.

Although the work has not yet been completed, considerable headway has been made in the classifica­tion and standardization of positions in the civil service in accordance with Commonwealth Act No. 402.

To provide some measure of economic security for government employees, the Government Service In­surance System has been established.

The growth of the System may be seen from the increase in the total amount of insurance from P45,919,713 in 1937 to P69,150,418 in 1940. The in­come for the first year was P2,419,544.06 as against P3,891,574.15 in 1940. The reserves of the System have likewise grown from P2,108,136 in 1937 to P9,851,604 in 1940.

The System was able to declare and distribute among its members dividends in the total amount of P1,152,402, notwithstanding the fact that the reserves have been computed on the most conservative valua­tion standard known in actuarial science.

The creation of the Budget Commission as authorized by Commonwealth Act No. 5 has been justified by the results attained. The National Government has been able to maintain the principle underlying sound budgetary system that the ordinary operating expenses of the Government must be kept within its current income, except when a grave national emergency or a serious financial difficulty arises.

The Commission has been instrumental in effecting economy in the expenditure of authorized appropriations and special funds, in the coordination of various administrative services, and in avoiding the employment of unnecessary personnel.

The work of the Census Commission, for which the Assembly set aside a total of P3,600,000, is now almost completed. Some 35,000 persons cooperated in the task of compiling the data on the population of the Philippines. According to the result of the census, the population of the country on January 1, 1939, was 16,000,303. All reports on geography, agriculture, lands, forests, fisheries, mines, manufactures, construction, commerce, transportation, communication, and services are now in process of printing.

Control over immigration has been strengthened by the creation of an independent Bureau of Immigration, and the enactment of appropriate measures regulating the entry of aliens into the country. The port of Ma­nila is now the only unlimited port of entry in the Philippines.

To increase the water supply, the Metropolitan Water District added the Ipo Dam to the Angat System at cost of P800,000, and also the Bicti-Novaliches Siphon Aqueduct costing P467,550. The water service was extended to Las Pinas which necessitated the construction of a 200,000-gallon elevated tank at Paranaque, Rizal, costing P31,000.

The District has completed the construction of a high pressure reservoir which safeguards filtered water from pollution. With the new Santa Ana Steel bridge, the dangers of a subaqueous pipe under the Pasig River have been eliminated.

To improve fire protection in Tondo, Caloocan, and Malabon, a 30-inch feeder main from Pureza street, to Antipolo street, Manila, was laid at a cost of P178,518.

The sewage system has been improved with the initial execution of a ten-year program for the extension of pipes all over the city as far as Pasay, Rizal. The laying of a network of storm drains and the improvement of esteros have been undertaken with an appropriation of P2,000,000.

With the general reduction of the water and sewer rates and the elimination of the service maintenance charge, our rates are now among the lowest in the world.

The rapidly increasing population of the City of Manila-and the highly unsatisfactory conditions in the districts where the laborers live have constituted a problem which for a long time needed attention. To solve this problem, as well as to give an impetus to scientific community planning, Quezon City has been created, adjoining the City of Manila, and is now being developed as a model community.

The Government owns about one third of the 7335 hectares that comprise the City and can carry out this plan without the necessity of acquiring lands on a large scale for public purposes. Sites for parks, schools, markets, and other public buildings have been reserved and streets have been plotted wide enough to meet the needs of traffic. The new Capitol is now under construction at the end of a formal avenue 60 meters wide.

Government lands have been subdivided and are being sold to government employees and to the public for homesites on reasonable terms.

A zoning plan is in preparation under which busi­ness districts will be established in places planned for them, with adequate space for traffic and parking.

A new campus for the University of the Philippines has been laid out. It contains 490 hectares, large enough to meet the needs of the institution.

Buildings are now under construction in Quezon City for a proposed exposition. These buildings will serve to house agricultural and industrial exhibitions in the future.

A comprehensive study of the park and recreational problems of the Philippines is being made under the direction of the adviser on national parks assigned from the United States National Park Service. This study will include an inventory of the national scenic, historic and scientific resources of the country. From this inventory a selection will be made of those areas which offer the greatest recreational and inspirational values.

The national park office is cooperating with the Bureau of Forestry and the Bureau of Public Works in the preparation of master and layout plans to control the development of the park areas.

The national park office is encouraging provinces and municipalities to develop their own park and playground systems in order to take care of local recreational needs. All possible planning assistance will be offered to local authorities. Cooperative studies are now being made of a park and playground system for a greater Manila.

The economic repercussions of the present World War are being felt more and more acutely in the Philippines. Our trade with many nations has been reduced, prices for our export commodities have gone down, and freight and insurance rates have increased more than two hundred per cent. The result has been a decline in national income and purchasing power.

We are experiencing a marked decrease in our revenues, particularly in customs collections. But a drastic reduction of government expenditures at this time might not be advisable because it would tend to aggravate business conditions. It will be necessary, however, to readjust our expenditures and make use of our surplus reserves in order to prevent a deficit at the end of this fiscal year. I shall furnish you more de­tails on the subject when I submit the budget for your consideration.

The depressing effects of the war on our economic and social conditions have been aggravated by the failure of the rice crop due to the drought in many sections of the country. The Department of Agricul­ture and Commerce and the National Rice and Corn Corporation have estimated a fall of about 20 per cent in our normal rice harvest.

We are thus confronted with the necessity of insuring a sufficient supply of rice and of helping people in our agrarian areas to find work which will tide them over until the next harvest. While before we could import the rice needed from Indo-China, Burma, and Thailand, we now encounter difficulties in ob­taining rice from those countries. Fortunately, the National Rice and Corn Corporation has a carry-over stock of approximately 550,000 cavanes of rice which will be sufficient to cover the shortage in our stock for several months. I believe that any subsequent deficiency could well be filled by inducing our farmers to make a second planting of rice, particularly in those areas that can be irrigated.

Upon the recommendation of the Department of Agriculture and Commerce, I have authorized the expenditure from relief funds of the amount of P100,000 for the purchase of seeds to be loaned to farmers who want to plant rice, corn, mongo, and other food products. This plan, if it receives the cooperation of the people, will insure an adequate supply of rice and corn, and will provide tenants with work and means to carry on until next year. I have also authorized the granting of crop loans to these tenants from the emergency fund to defray the cost of planting and for the maintenance of their families until harvest time.

To give employment to those who have suffered from crop failures and to others who may need work, I have ordered the acceleration of public works projects already authorized. I feel that in times of stress, like the present, when private business and initiative are forced to limit the employment of laborers, the Government should take up the lag by expediting public works construction.

In order to reduce the harmful effects of droughts, I have directed the Department of Public Works and Communications to speed up irrigation projects.

Except for the adverse circumstances I have noted, the general conditions prevailing in the Philippines are satisfactory. We have been free from epidemics and other contagious diseases; peace and order has been maintained; litigations are being decided by the courts with greater speed; the school problem has been effec­tively met; and the relations between capital and labor are gradually being established on a more equitable basis. The people are showing confidence and faith in their Government and are making greater efforts to pay their taxes. We have, therefore, every reason to be gratified at the progress we have so far attained, in spite of the disturbing effects of the international situation.

In view of the present state of our revenues, I found it necessary to order the suspension of some projects not considered urgent. I have also approved the policy of restricting the filling of vacancies in the service and prohibiting increases in salary in the same position in the upper grades. I believe the time is not opportune for expanding the existing services or estab­lishing new ones. There are, however, some pressing needs which it is my duty to bring to your attention.

The frequent failure of crops resulting from droughts demands that we construct more irrigation systems. Such constructions will provide employment for laborers during this period of widespread economic stress. In order to improve our fishing industry, I again recommend that the present Division of Fisheries of the Department of Agriculture and Commerce be converted into a Bureau of Fisheries and that a school of fisheries be established under the bureau.

We are feeling more than ever the need of bringing science to the aid of industry. I desire to reiterate my recommendation made at your last session to consolidate all the scientific research activities of the Government into one research institute.

To effect a more equitable distribution of land, the Public Land Law should be amended so as to prohibit any owner of one or more parcels of land from acquiring lands by homestead and free patents the total area of which, added to that of his own land, shall exceed 144 hectares.

I believe that it would be conducive to greater efficiency and economy to place all credit institutions was a one supervisory agency in the Government. I, therefore, recommend that the duties now assigned to the Bureau of the Treasury relating to insurance companies, mutual aid associations, and trusts, be taken over by the Bureau of Banking and that you authorize the transfer to this Bureau of all the personnel of the Bureau of the Treasury assigned to those duties.

For some time we have been having difficulty in obtaining certain government supplies and materials from abroad at reasonable prices. In view of this, the Division of Purchase and Supply should be au­thorized, subject to the approval of the President, to purchase in advance of requisitions, supplies and materials that are regularly needed.

The Constitution provides that all educational in­stitutions shall be under the supervision of, and subject to regulation by, the State. Commonwealth Act No. 180 places under the supervision of the Office of Private Education only private schools granting di­plomas and certificates. I recommend that this Act be amended to conform fully to the provision of the Constitution by requiring that all private schools, ir­respective of whether or not they grant diplomas or certificates, be supervised by the Office of Private Education.

I am informed that the Commission on Elections will submit for your consideration a proposal for the amendment of our election laws. I ask you to give careful consideration to this proposal, particularly in relation to the appointment of election inspectors. The present system, whereby election inspectors are appointed upon the nomination of political parties, does not insure an impartial attitude on the part of the inspectors in the performance of their duties.

The constitutional amendments shortening the Presidential term from six to four years and prescribing the tenure of the members of the Congress—four years for Representatives and six years for Senators, with one-third of the members of the Senate to be elected every two years—require the setting of a definite schedule for the holding of elections so that, including the election for provincial and municipal officials, they may not occur more than once every two years. To this end, I recommend that the term of office for elective local officials be changed from three to four years, effective after the next election.

The constitutional amendments recently approved require executory legislation, which, I trust, you will pass in due course. In this connection, I desire to invite your attention to the provisions of Article VI, Section 17, and of Article VII, Section 11 (2), of the Constitution, which contains inhibitions affecting mem­bers of the Congress and certain officers of the Exec­utive Department. I recommend that proper legisla­tion be passed at this session to implement these constitutional provisions and provide sanction against their violation.

Conditions all over the world have changed since the outbreak of the present war. This change is bound to retard our progress towards some of the economic and social objectives that we have set. But we cannot abandon these objectives. We must pur­sue them with greater determination even if their achievement should entail added sacrifice.

We cannot now foretell the situation that will arise in the world after the war and it inadvisable to adopt economic plans based on future conditions that might never materialize. In the mean­time, we should continue to minister to the health and welfare of our masses, intensify our efforts to solve the unemployment problem, speed up the execution of our program of national defense, stimulate the in­crease of our national income, insure a sufficient supply of food and clothing for any eventuality, promote social justice, push forward the extension of our educational facilities and the advancement of our cultural life, and safeguard for all our people the proper exercise of individual rights.

Gentlemen of the National Assembly, these are fateful days in which we live. Vital forces are reshaping political and social institutions the world over. Fear and want are afflicting the human race. Men and women everywhere are scanning the future for security and a more promising life. In the midst of this great crisis, our duty is clear. By a solemn covenant with America, the advent of our national independence is assured. We must prepare for it; we must not procrastinate; we must not falter. Trusting in Divine Providence, we must move forward firmly and courageously to achieve our long-cherished ideal—the establishment of the Philippine Republic—and to secure for our people prosperity, happiness and freedom under the shelter of peace and democracy.