Carlos P. Garcia, Second State of the Nation Address, January 26, 1959

His Excellency Carlos P. Garcia
President of the Philippines
To the Congress
On the State of the Nation

[Delivered on January 26, 1959]

Mr. Senate President, Mr. Speaker, Members of Congress:

I address you today to sound a call for vital and bold decisions on the future of our national economy.

The eyes of our people are on us in this hall and their ears are cupped toward this lectern on which I stand, in anxious anticipation of what the national leadership, which you and I share by their will under the Constitution, will say and do in the way of meeting and overcoming the obstacles and difficulties of a trying situation and keeping the nation on an even keel.

I say, first of all, that I have full faith in the Filipino people’s capacity to emerge with flying colors out of any and all crises. We went through the hell of it under a ruthless military occupation government for four years and survived with a more sturdy and rugged national spirit. Once again with the determination of a united people deriving inspiration from our heroic past and our dream of a glorious tomorrow and with divine guidance and help we shall emerge triumphant out of the present predicament. But we must keep our equanimity. I am confident we shall be equal to the task. There is absolutely no cause for despair. At any rate, whatever problems may beset us—whether the national economy or any other—the can be solved only with calmness even as we have to deliberate, determines, and decisive in action. We cannot afford to indulge in defeatism or in negative or divisive thinking.

I shall be forthright. The need for fiscal and economic stabilization is urgent and must be met by the Government with the full support of all elements comprising the nation. On the part of the Government, the executive and legislative branches are especially called upon to formulate wisely and, more than that, to implement determinedly, once and for all, the most effective courses of action. On the part of the people, the most productive efforts, thrift, and consistently sustained willingness to contribute to the common weal must become a reality.

As head of the Executive Department, I hereby pledge that all its efforts shall be directed at conducting government affairs on the basis of strict economy, of worth public endeavors, and of sagacious utilization of the people’s assets and contributions to undertakings that will pay back dividends to them in terms of service and steady progress.


Problem of Development.—Indeed, we have progressed. The difficulties with which we are confronted today are a paradox. They arose precisely because of the strides we have made in industry, agriculture, and other phases of the economy speeded up during the past five years.

Substantial progress has been made in production. For the first time since the war, we have such a bumper rice crop this year. The production of corn and other agricultural products has shown much significant gains that warrant the claim that we have attained self-sufficiency in food. Unquestionably, industrial output has been on the rise.

Deficit Financing.—In my report on the state of the nation a year ago, I pointed out that the threat of Communism as well as the natural desire of our people to improve their lot prompted the administration of my late predecessor to accelerate economic development, to the extent of taking a calculated risk inherent in the liberal use of national credit. Faced with limited savings characteristic of an undeveloped economy, the nation had to resort to credit creation. This was in order to cover the inevitable gap between the growth of needed investments and voluntary savings to finance the public works and power projects necessary in launching the momentum of development. The alternative would have been not to undertake development projects at all. This, in turn, would have consigned our economy to stagnation, our people to poverty, and the nation to frustration.

The government granted tax exemptions, priority dollar allocations for raw materials, easy credit for essential industries, and protection through controls. Stimulated by these development policies, a stepped-up rate of investment both in the public and the private sectors yielded significant gains.

Inflationary Pressures.—However, and this is the crux of the matter, at the rate at which these investments in public and private sectors have been undertaken and because of the way they have been financed, which is by expanding credit, it is inevitable that the pressures of inflation have become more pronounced.

In 1958, this was aggravated by the economic recession among our principal trading partners—a factor beyond our control.

The immediate problem today is how to check the inflationary forces that are exerting a heavy pressure on our international reserves. At the same time, we should maintain the momentum of development at an appropriate rate so that the gains we have already achieved will not be dissipated. Thus, the country will forge ahead towards its goal of development. We cannot afford to stop. We must not stop.

Development Momentum.—In the midst of the vicissitudes around us, I propose that we carry on with our economic development program within the scope of real resources available to us. We cannot freeze the economic development program although we have to decelerate to some extent our national budget financed by higher levels of tax revenues so that effective demand may be reduced, and our international reserve replenished while our industrial and agricultural production continues a healthy pace. To these we must add the need for establishing new or widening external markets.

Social Objectives.—Nor must we lose sight of social objectives which can be achieved only through economic development, if our people are to have the more, materially as well as spiritually, satisfying life they hope for and expect. We cannot abandon the masses to perennial poverty. We cannot even allow the present unemployment situation and the high cost of living to remain static much longer. We must act to check their rise.

We must bring economic stability to the common man and his family as well as to the nation at large. We must pursue a course which will bring about a good balance between agricultural and industrial developments. We must reduce our deficit financing for economic development. We must exert fresh efforts to increase revenues from new and revised taxes to be returned, as I have said, to our people in the form of public services and wider opportunities for expansion and employment.


Notwithstanding the grave difficulties encountered last year, this nation has continued to progress in general. Since 1954, the national economy has grown tremendously in volume of physical production. The national income has increased by about six per cent a year during the past five years.

Agriculture.—An overall increase of seven per cent in the volume of food crop production over that of the previous year was achieved through an intensive food production campaign. Technical and export crops, except sugar, also increased during the year.

The livestock population also made significant gains during the same year, increasing by eight per cent over that of the preceding year.

Mining.—Mineral production, one of the primary sources of export earnings, has gone up by more than 50 per cent since 1954 though it has not yet recovered its pre-war level. Gold production showed a substantial rise of six per cent in 1958 over that of 1957. This was the outcome of concessions to the industry in the form of liberal allocations of foreign exchange for equipment and of the grant to owners of blocked funds of the privilege to purchase gold for resale to the Central Bank for foreign exchange. Production of base metals, such as chromite, iron, and quicksilver, declined in 1958 with the slackening of world demand and prices.

Manufacturing Activity.—Since 1954 when we launched our development program, manufacturing activity has recorded a spectacular 52 per cent advance. The establishment of 134 new tax-exempt industrial concerns in 1958 continued the trend of previous years. These industries are largely in food and consumer goods manufacture, textiles, plastics, fabrication of containers, chemicals and fertilizers, pulp and paper.

Public Works, Power, Transportation.—In its efforts to intensify agricultural production, with particular emphasis on achieving self-sufficiency in food, the Government continued to make heavy investments in social overhead projects.

The main and feeder road networks have been improved and expanded.

The Manila Railroad Company has completed the second year of full dieselization of locomotives resulting in substantial reduction in fuel and lubricant consumption.

The Central Luzon electrification project is underway and the construction of the biggest hydro-electric plant in the Philippines in Binga, with an estimated rated capacity of 100,000 kilowatts, is expected to be completed next year.

Operations of the Philippine Air Lines continue to play a vital role in the economic life of the Philippines. Domestic operations for Philippine cities and towns were improved by expanding existing landing fields to accommodate heavier traffic. Plans are completed for our return to foreign or international service. The international tourist trade can be further expanded.

Credit Facilities.—The increasing activity of commerce and industry is reflected in the growth of banking facilities throughout the country. There are 131 commercial and savings banks and branches today. Total resources of our banking system have correspondingly expanded. Whereas there were no rural banks in 1949, there are now 120 of them distributed throughout the rural areas. Likewise, 500 cooperative marketing associations now provide small farmers with credit, storage, and marketing services.

Foreign, Trade and Payments.—Our foreign trade has intensified, with exports and imports showing an upward surge compared with 1953 levels. Our exports aggregated P801 million in 1954; they totaled P897 million in 1958, chalking up a notable increase of P96 million in four years. Imports which amounted to P957 million in 1954, increased to P1.1 billion in 1958.

While importation of foodstuff added a burden on our international reserve, the pattern of imports has been significantly revised. More than 80 per cent of imports last year were capital goods and raw materials. Only the balance of 20 per cent went to consumer goods. The increase in export production and the modified import pattern reflected an overall economic gain for the country in foreign trade.

As we can see, our foreign exchange earnings have not kept pace with the rising internal demand for imports. The gap had to be financed from our international reserve so that our development program would not be paralyzed at its crucial first stages. Because of leakages, estimated at about $80 million, through barter, no-dollar importations and illegal export and import practices, the contribution to our free international reserve from export earning in 1958 was far from satisfactory. Furthermore, what was available from foreign loans in the second half of 1958 did not contribute to meeting fully our actual development requirements for foreign exchange. Mainly as a result of the austerity measures in handling resources, we were able to reduce our unfavorable overall balance of payments (deficit) from $124 million in 1957 to $17 million in 1958. At the rate we are going, we hope to wipe out this remaining negligible deficit in our foreign trade during the next fiscal year and start chalking up favorable balance of payments thereafter. But the decline in our international reserve persisted as result of efforts to provide our expanding industries with their increasing raw material requirements and to stabilize domestic prices of prime commodities.

Domestic Trade.—Domestic trade made progress during the year under review. The implementation of the Retail Trade Nationalization Act and the Retailers’ Fund Law gave encouragement and support to many of our native retail stores.

The Government price stabilization agencies assisted Filipino retailers in improving their merchandizing activities and in increasing their participation in distribution, in order to stabilize the prices of commodities in short supply.


Last year, I stressed to you, Gentlemen of the Congress, the need for raising additional sources of revenues amounting to P158.7 million to finance our expanded fiscal operations required by our growing population and committed policies of development. Unfortunately, none of the various revenue measures was finally approved except the Tax Census Bill. On the other hand, supplementary appropriation/bills were approved by Congress which increased the expenditure proposals in our budget, thus widening the disparity between revenues and expenditures. In an effort to adhere as closely as possible to the principle of a balanced budget and to minimize the need for deficit financing with its adverse inflationary repercussions on the national economy, the Administration had to go on rigid austerity. It scaled down expenditures at the beginning of the fiscal year by P259.4 million. Towards the end of calendar year 1958, our fiscal situation was confronted by indications that revenues would be less than expected owing to the drop in customs collections. Once again, the Executive Branch was constrained to apply further stringent retrenchments in government expenditures. Of the total recommended cuts by the Fiscal Committee of the Cabinet amounting to P74 million, I could only approve P18.6 million because I did not believe in cuts that would sacrifice essential services, especially those in the Department of Education.

Austerity had to go deep into our capital investment for development. The originally envisaged amount of P375 million with general revenue funds, special funds, and bond issues as components was scaled down to P275 million. Of this amount, P175 million was to come from bond issued, but even this ceiling was brought down to P110 million, the irreducible minimum needed to prosecute to termination those projects already started by private contractors with orders already placed abroad. Besides, most of these projects were essential to those already in operation. I present these unprecedented retrenchments in the total amount of P278 million as an answer to those who say that the Administration has reneged from its policy of austerity.

Together with the retrenchments in government expenditures, efforts were intensified to tap new sources of savings to finance our country’s development. This was to avoid usual credit creation which brings about inflation and the risk of a substantial drain on the international reserve.

As pointed out in my budget message last year, we must recognize that the present revenue sources are no longer adequate to finance the requirements of an accelerated development program. During the fiscal year 1958 only eight per cent of the national income was diverted to the public sector in the form of taxes. It is obvious that we can raise this percentage by reducing consumption taxes and by increasing direct taxes on income and wealth thereby making an equitable distribution of tax burden on the basis of capacity to pay.


Labor.—The national concern over unemployment found cause for optimism in the 1958 Labor-Management Congress during which labor and management together formulated plans designed to reduce the areas of unemployment. I will endorse several of these proposals to this Congress for consideration.

Social Security.—Since the Social Security Act was implemented in 1957, 1,400,000 employers and employees throughout the Philippines have been covered against the hazards of death, disability, and sickness as well as of old age. Direct social security benefits are now extended to them. The System has also generated P28 million in public and private investments for the economic development of the country within a little more than a year.

However, our agricultural laborers who constitute the balance of 65 per cent of our workers are not yet enjoying the protective coverage of social security. This matter claims immediate attention of Congress.

The Government Service Insurance System continues to provide security benefits for workers in the public service. It has granted benefits in the form of pensions, disability and death payments, and financial assistance to 272,000 government workers and pensioners at the rate of about P3 million monthly.

Resettlement.—Our committed policy of providing land to the landless through the resettlement of our idle manpower in underdeveloped areas is being implemented by the National Resettlement and Rehabilitation Administration (NARRA). Now 15,000 families are eagerly waiting for their chance to be resettled.

The Land Tenure Administration last year acquired 16 new landed estates located in different areas.

Housing for the Masses.—We are faced with the problem of housing for the working masses. For this purpose, I am asking the backing of Congress to an extensive low-cost house-building program in which the active participants are the SSS, the GSIS, the HFC, and the PHHC. This plan envisages a coordinated program of low-cost housing at nominal amortizations within an extended period of from 10 to 30 years to enable every earning laborer-family of the Philippines to own a part of their native land and earn the dignity of being a stockholder in the Philippines body-politic.

Social Services.—Through the Social Welfare Administration, the Government has extended material aid to over half a million people. Homeless men and women were resettled from squatter areas. Victims of typhoons, fires, floods, and other public calamities received immediate relief and aid. Self-help projects were developed all over the country. Institutional care was provided for orphans, the aged, and the infirm.

Health.—The Department of Health has managed to forestall any widespread epidemic throughout the country. It has also reduced morbidity and mortality.

The Department of Health has been undergoing organizational and structural changes to decentralize and simplify the distribution of services to the greater bulk of our population.

Tuberculosis control measures were maintained through chest clinics and mobile preventive teams.

The malaria control program was expanded with the Filaria Pilot Project and the Regional Malaria Training Center.


New progress has been made in the field of education with the adoption of the Revised Educational Program, the curricula in the public and private elementary and secondary schools have been enriched and made more responsive to our social and economic needs. Increased emphasis has been given to science, mathematics, and vocational education.

Educational opportunities have been extended to more children and adults than ever before. As a result, our percentage of illiteracy has been reduced from 50 per cent in 1948 to 30 per cent this year.

The community school program has continued to stimulate and improve community living, principally in the rural areas.

Character education and optional religious instruction have been intensified as a way of counteracting juvenile delinquency.

Financial difficulties have not been fully overcome, however, in giving every child of school age educational opportunities. The increasing number of children applying for admission every year at an average of 500,000 children continually compounds the problem.

In this connection, we must recognize the role that private schools have in our educational system. Their contribution to the country should be geared at all times to the public interest and their activities attuned to our national objectives.

There is a definite need of placing on a permanent and sound footing the financing of our educational system.

Our efforts in scientific research and investigations have made some headway with the organization of the National Science Development Board and the Philippine Atomic Energy Commission. As additional funds, are made available for this purpose, scientific and technological researches will be pursued in a systematic manner with a view to harnessing science for the attainment of our economic goals. The objective of increasing the economic utilization of our agricultural and natural resources, of expanding our export products and external markets, as well as of building a reservoir of competent scientists and technologists would be assured.


I am happy to report to you that our Armed Forces have kept faith with our democratic tradition and have continued to serve as a stabilizing force in the health growth of our democratic institutions. Thus, our people are able to dedicate their full energies to productive pursuits in an atmosphere of internal peace.

With respect to defense preparations for our national security against any potential aggressor, our Armed Forces have improved their defensive effectiveness.

I wish to draw your attention to the need for maintaining at least the nucleus of the Armed Forces whose primary mission should be the training of our manpower potential not only to defend our territory but also to meet such minimum defense requirements as a consequence of commitments with our friends and allies.


During the past year, there was an increased output of cases disposed by the courts. The courts of first instance, out of 55,454 cases filed were able to dispose of 48,081, leaving a backlog of 7373 cases. The justice of the peace courts, out of 92,000 cases filed, disposed of 91,000 cases, leaving a backlog of 1,000 cases. The Municipal Court of Manila alone, out of 186,900 cases filed, disposed of 176,474 cases, leaving a backlog of 10,426 cases. But this court made a total collection in fines and fees amount to P880,406.23. The Juvenile and Domestic Relations Court, out of a total 3,079 cases filed, disposed of 1,525 cases leaving a backlog of 1,554 cases.

These facts manifest a fresh determination of the judiciary to cope with the fast growing number of court cases. Most often, the nature of our judicial processes, as a result of centuries of formalistic rituals, has retarded their disposition. I would therefore commend to the attention of Congress further simplification of judicial procedure to do away with unessential formalities and get to the core of judicial bodies that administer the socio-economic program of the Government. The Court of Industrial Relations, the Court of Agrarian Relation, and the Agricultural Tenancy Commission have contributed in promoting industrial and agrarian peace.

The Court of Industrial Relations, out of a total of 804 cases filed, disposed of 619, leaving a backlog of 185 cases. It also investigated 413 cases of unfair labor practices. The Court of Agrarian Relations handled during the past year 4,820 cases. Out of these it was able to dispose of 3,000 cases, leaving a backlog of 1,820 cases. However, it was able to serve 41,830 tenants and 9,450 landlords.

The Agricultural Tenancy Commission handled 3,560 cases and amicably settled 2,045 cases. It rendered a total of 6,400 legal opinions for landlords and tenants and served 9,371 tenants and landlords through its mediation activities.

The Court of Tax Appeals, out of 165 cases filed, disposed of 79 cases, leaving a backlog of 86 cases.

There is need for reforms in the penal administration. I note that Congress has taken cognizance of conditions in our national penitentiary and of the need for remedial legislation.


In our every essay at making our social and economic objectives a fact accomplished, we are hampered by a cancer gnawing at our national entrails. Graft and corruption, I say, is not a political question but a national problem. I do not intend to shirk the responsibility of the Administration, but I propose that we all handle this chronic ailment in the body of our Government as a common problem, the people’s as well as the Government’s—of its executive, legislative, and judicial branches.

The problem of graft and corruption in the government is not peculiar to our administration in our country. Nor is it a new one. It has plagued all administrations before us. Nevertheless, I do not condone nor minimize the significance of this blight. On the contrary, we in the Administration recognize its existence. We diagnose it. We identify and expose it. We combat it every day. Modesty aside, this Administration has gone farther than any other in the past on this matter by consistently exposing and encouraging exposure of all cases of iniquity. If it seems there are more of such at present, it is because of the unrelenting exposure of it.

I have set no bars to investigations of graft and corruption. I have taken the initiative in ferreting it out wherever it may thrive. The PCAPE and the investigating body at Customs were created for this purpose.

I have consistently insisted on honesty and integrity in the public service and I say again that erring public officials will be dealt with severely but justly. I do not propose to send innocent men to jail just so the Administrations could crow that it has sent people to jail. That would be compounding injustice to injury. But I do propose to deal accordingly with those against whom evidence warrants such action, not only to rid the Government of these undesirables but also to set the example to others who would make of public service a means to ill-gained private wealth.

We are blessed in this country with the freedom of speech and expression whose potent instrument is the Press. Let the public official live in its searching light, fearing nothing if he has nothing to hide and ever read to defend himself gallantly wherever he is questioned. The Press, however, should focus its searchlight directly on the grafters and the corrupt ones and not hide or forget their identities by blaming the Administration therefore merely for the sake of commercialized sensationalism.


The all pervasive basic philosophy of our foreign policy is to help secure international peace so that in honor and in freedom we may live in its healthy atmosphere, side by side with other nations on the basis of equality.

In my first report to you on the state of the nation, I pointed out that our national security was anchored on our own internal strength as well as on our cooperation with the United Nations, buttressed by regional arrangements and by our mutual defense alliance with the United States of America.

While it must be candidly admitted that international tensions have not subsided, the effectiveness of our position in that regard has been demonstrated. In spite of the several international crises in 1958, on of which exploded over Quemoy—so close to our shores—the measures and the instrumentalities on which we depended were not found wanting. On the contrary, they did their part in staving off a widespread holocaust.

We therefore propose to broaden our participation in the United Nations for advancing the cause of world peace. Wit our friends in the United Nations we shall work for this case as truly an equal partner.

We have to admit realistically, however, that this cause still has a long way to go. The fact that power remains a threat to nations and peoples, because others would use it to dominate them, call for the generation also of defense power to forestall aggression. In this regard, we have to rely on the friends and allies.

Our staunchest friend and ally is America with whom we have a treaty of mutual defense, which even now is being perfected to bring it closer to the ideal basis of sovereign equality.

To this end, exploratory talks on the diplomatic level are being undertaken to bring into harmony points of divergence on the question of military bases in this country, redefining the mutual defense concept and readjusting Philippine-American defense arrangements with the United States.

We hope to reach a happy and realistic conclusion of this task this year in a spirit of mutual respect and cordial understanding.

Already, we have concluded an agreement for the creation of a Mutual Defense Board and the placement of Filipino liaison officers in American bases in the Philippines. We have also concluded another agreement for the complete turn-over to the Philippine Government of American military reservations in the Manila Port area. This agreement has been actually implemented.

In the regional defense area, the SEATO has unanimously approved at its last Ministers’ Meeting in Manila our Government’s proposal for consultative liaison at Secretariat level among the three regional defense arrangements of the free world—the NATO, the Baghdad Pact, and the SEATO itself.

In the economic phase of our foreign relations we are continually exploring the capability and suitability of the Colombo Plan for our development requirements.

Without veering away from America, but rather in pursuit of our own resolution to help in spreading the gospel of democracy in Asia, we have drawn ourselves closer to our immediate neighbors in this part of the globe. Last year, I paid visits of state, first, to the United States, then to Japan. In both countries, I was received with the utmost cordiality and warm friendship as President of the Republic. I feel that, more than anything else, both visits resulted in the priceless boon of closer understanding and mutual esteem between the two countries and ours.

I went to Washington on a goodwill mission, to reaffirm friendship and deeper mutual understanding with the great leader of the Free World. I went to Japan also, on a goodwill mission to manifest a Christian spirit towards a former enemy with whom we would open anew chapter of friendship and amity. We received such a hearty and fervent response from the Japanese Government and people that they broke long established precedents to manifest friendship. In the spirit of friendship the United States and Japan would extend to us a helping hand. We accept this in the same spirit.

Incidental to my trip to Washington, we have been assured of a loan from the Export-Import Bank in the amount of $75 million and $50 million from the Development Loan Fund. Fresh advices from our Washington embassy are to the effect that approval of the release of these loans is forthcoming. We also received assurances that the United States Congress would consider the settlement of the amount due us because of the devaluation of the dollar in 1933. The President of the United States has already recommended the appropriation of the sum to the United States Congress besides economic aid for the Philippines.

With Japan, we have concluded a cooperative agreement under which the construction of the Marikina multi-purpose project and the extension of the telecommunications system on a nationwide scale would be undertaken.

In our policy of moving closer to our neighbors in Asia, we have tightened bonds of amity with them to a greater measure than heretofore—with South Vietnam, Thailand, Indonesia, South Korea, Nationalist China, Laos, Cambodia, India, Burma, and Malaya. The President of South Vietnam and the Prime Minister of Malaya were recently distinguished state visitors of our country. I propose to return such visits as soon as possible. As opportunity offers, I shall visit as many Asian countries as possible to attest in deeds our avowed desire to be their friend and good neighbor.

In relation to Nationalist China, we have been able to reach a tentative agreement on a diplomatic level on the question of the so-called overstating Chinese visitors in the Philippines. The Chinese Ambassador and our Secretary of Foreign Affairs are finalizing this diplomatic agreement which upholds the pertinent laws of the Philippines while at the same time extending the highest human consideration to a friendly people.

The Department of Foreign Affairs has implemented the creation of a legation in Rangoon, Burma, the Hague, and Netherland, and the establishment of eight new consider posts in different parts of the world in addition to our already established foreign embassies, legations, and agencies. We propose the creation of separate diplomatic missions in Malaya and Laos.

I would like also to point out the need for continued representation of our country in international conferences and congresses, especially those of the United Nations and its specialized agencies, as well as the international conventions on sugar, abaca, and other export products. These are representations we cannot afford to miss if we must maintain our international prestige and promote our international trade.


Today, the Philippines finds herself in the flux of development in spite of many odds. Among important items in this development being attained may be mentioned the following: (a) the conclusion of agreement with Japan to build the multi-purpose Marikina project to generate industrial power for waterworks and industrial use and will irrigate 6,200 hectares of ricelands; (b) the telecommunications project which will connect the provinces, cities, municipalities and even rural areas to Manila; (c) the completion of the Binga hydroelectric project with a capacity of 100,000 kilowatts; (d) the extension of the MRR to Cagayan Valley and Sorsogon with work about to be started; (e) the construction of a Mindanao development road system of almost 800 kilometers, of which 419 kilometers have already been completed; (f) the establishment of a merchant marine to increase our tonnage of foreign shipping through the acquisition of 12 ships by the NDC with a total dead-weight tonnage of 130,000 and an additional tonnage of 35,200 already obtained through the Reparations Agreement, our immediate goal here being 500,000 tons of foreign shipping; and (g) the establishment of new industries in 1958, among the most important of which being the multi-million peso Republic Flour Mill with four others to follow; and (h) the establishment of a ramie processing plant in Davao.

But with all these we have still to achieve many other advances. We have vaster economic frontiers to explore, other goals to attain, among which may be mentioned the following: (1) the establishment of our integrated steel industry with three units principally in Ilagan where cheap Camarines Norte, and still another one in Angat, Bulacan, for which a loan of $74,000 from the U.S. Export-Import Bank has been solicited and reported due soon; (2) the exploitation of our laterite mines in Surigao; (3) the propulsion of the oil mining industry in Cagayan Valley, Cebu, etc.; (4) the building and intensification of feeder roads in agriculturally developing areas like Mindanao and Cagayan Valle; (5) the building of the Luzon super-highway; (6) the modernization of inter-island shipping with a view to cheapening the fare and improving the service;(7) the construction of adequate modern airports and strengthening of the PAL to enable it to enter in to the international aviation service; (8) the realization of the reclamation projects for Manila, Cebu and other ports; (9) the intensified development of home and cottage industries; (10) the acceleration of production of rubber and cotton; (11) the greater development of fishing, livestock and dairy industries; and (12) the building of the Angat hydro electric project for industrial power, river control, and irrigation to be financed out of the Development Loan Fund of $50 million, also reported for industrial power. It is bigger than the Marikina project. Its reservoir will have a capacity of 696 million cubic meters that will solve the water shortage of Manila and outlying regions now served by the Metropolitan Water District. It will provide water for irrigation of 25,950 hectares of farmland and establish flood control facilities in 18 towns in Bulacan and Pampanga.

These objectives are the details that achieved and put together, add up to the grand total—the realization of the nation’s aspiration to establish a well balanced agro-industrial economy.

But let us not lose sight of the fact that the principal limiting factor to the attainment of the goals I succinctly summarized is the supply of foreign exchange. It is in connection with this problem that a more deliberate study should be undertaken. We can, however, take comfort and even pride from the achievement that whereas in 1957 our dollar reserve faced a balance-of-payment deficit of $124 million, in 1958 we brought it down to $17 million. Still it is commonly agreed that we have the imperative need of increasing the supply of dollars. We have the following ways open to us, viz., (1) the further expansion of our export industries; (2) encouragement of the right kind of foreign investment; (3) tapping all possible resources from abroad, including loans and procurement of productive machinery on a deferred payment plan; (4) the abolition of the barter trade and the no-dollar import law; and (5) the utilization of reparations payments to capital investment.

The procurement of goods and services under the reparation’s program will help finance the foreign exchange needs of our economic development. In 1957-1958 the total goods and services contracted for or procured by the Reparations Commission amounted to over $70 million, of which $42.6 million has been spent to meet the needs of the government projects and $27.4 million channeled to private industry. The Administration’s policy is to allocate in an increasing measure future procurements under the program to meet the needs of the private sector of our national economy. However, in order to ensure the maximum utilization of reparations goods for the realization of the country’s development policies, it is desirable to amend the Reparations Law. Such desirable amendments I shall specify forthwith.


In view of the foregoing considerations I have the honor to submit for your kind consideration the following recommendations:


Allow me to reiterate with undiminished vigor and emphasis that I am definitely against the devaluation of the peso. This is a measure that may prove beneficial to a handful of privileged classes, but it will certainly bring hardships and suffering to millions of our people. In order to avoid a forced devaluation of a our currency, we must take the necessary measures to stabilize the Government’s fiscal position, by increasing its revenue through a more equitable tax program based on ability to pay, and by enforcing a more efficient and effective collection system. I shall elaborate on the fiscal stabilization program in my forthcoming budget message.

Our present difficulties pose a challenge to the fiscal statesmanship of the Executive and the Congress. We are confronted with two alternatives. The first is to recognize the need for raising revenues for the financing of our expanding economic development program, and then to act boldly and manfully upon that need. The economic development requirements for which we must find financial support are as diverse as they are essential to our continued progress and well-being.

We must build up our maritime fleet, both domestic and foreign. We must push on our irrigation program. We have to build roads and bridges over agricultural and mining areas to connect them with ports. As a necessary step towards genuine industrialization, we have to set up an integrated steel manufacturing industry. We must carry on such projects as the construction of feeder roads in rural areas; the development of industrial power y harnessing waterfalls and rivers; the improvement of ports and harbors; the undertaking of reclamation work and river control; the installation of waterworks and artesian wells, etc.

We also need financing for our progressively expanding social services; such as, community development projects in the rural areas, the program of providing land to the landless through such instrumentalities as the NARRA and the Land Tenure Administration, and the program of giving homes to the homeless through such agencies as the PHHC, the Home Financing Commission, the Social Security System, and the GSIS. We must keep the channels of easy and accessible credit open to our small farmers and traders through the Home Financing Commission, the Social Security System, and the GSIS. We must keep the channels of easy and accessible credit open to our small farmers and traders through the ACCFA, the rural banks network, and the Development Bank of the Philippines. We have to continue helping the Filipino businessman through such instrumentalities as the NAMARCO and the Retailers Fund. The education of our school-age population, which is increasing at the rate of 500,000 yearly, is a responsibility that we intend to discharge fully.

All these, as I have said, will require adequate support and financing, and we have the choice of rising up to this challenge and measuring up to this opportunity by exercising fiscal statesmanship of the highest order.

The other alternative we may choose is to refuse to raise the revenues necessary to support our program and in effect adopt a policy of stagnation.

I know that in this momentous hour of decision the resounding answer of Congress to the challenge will be for progress—never retrogression; for growth—never economic atrophy; for dynamic development—not stagnation. It will be for social uplift, for economic stability and security, and for the general well-being of the Filipino people, at any cost.


I recommend strongly the consideration and approval of amendments to our Constitution called for by our accumulated experience and changing conditions since this document came into effect more than two decades ago.

I recommend approval of the amendments necessary to bring about the synchronization of elections, national and local, once every four years.

I recommend that senators be elected on the basis of specific senatorial districts. Let the conservative and stabilizing role of the Senate in our bicameral system be maintained by extending eight-year terms to its members, one-half of whom will be chosen by the electorate every quadrennial election.

I recommend that the 30-day period given to the President within which to approve or veto bills passed by Congress be reckoned, in the case of every bill, from the date of its submittal to the President and not from the date of the adjournment of session.

It is likewise recommended that, in the event the annual general appropriation act for an ensuring fiscal year is not approved, the general appropriation act for the current fiscal year should be deemed continued in force, until such time as the new fiscal year’s budget is passed.

I recommend that a Presidential Electoral Tribunal be provided for in our Constitution and not in an ordinary act to hear and decide protests in connection with presidential elections.

Finally, the provision on the suspension of the writ of habeas corpus may be re-examined to attune it to the spirit of democracy.

I am aware that some of you may be interested in other Constitutional amendments besides those I have just recommended. May I counsel, however, that since Constitutional amendments require for their approval the three-fourths vote of all the members of both chambers of Congress, we should concentrate our efforts for the present on those changes that best enjoy the prospect of approval, leaving controversial amendments to further study and crystallization of opinion.


The implementation of Republic Act No. 1410, more popularly known as the No-Dollar Import Law or the Barter Trade Law, has resulted in the drainage of our Barter Trade Law, has resulted in the drainage of our dollars at a rate roughly estimated at $80 million a year.

Likewise, the duty-free importation of so-called personal effects by returning residents has opened the way to flagrant abuses and frauds, thus depriving the government of badly needed revenues. It has offered new temptations to graft and corruption.

The operation of this law has given rise furthermore to over-shipment, down-grading, and under-pricing of exports and over-pricing of imports, enabling the perpetrators of these evil practices to “salt away” in foreign countries millions of dollars that should have gone to our reserves.

To do away with these evils and abuses, it is strongly recommended that Act No. 1410 be repealed and all the offices created under it, abolished.


In place of the barter trade authorized under Republic Act No. 1410, whose repeal I have just recommended for the purpose of opening up new and expanding other markets for our products in addition to the American market, I propose the institution or creation of a multi-currency reserve in the Central Bank. It is true that the power to create a multi-currency reserve is already vested in the Central Bank by its charter, Republic Act No. 265. But I believe that such an action of far-reaching national and even international consequences should bear the stamp of legislative authority, and it is for this reason that I am placing this recommendation before you.


I strongly recommend the re-examination of Republic Act No. 901, more popularly known as the Tax Exemption Law for new and necessary industries, in order to check the abuses that have been committed under its protective mantle.

It has been discovered that many holders of certificates of tax exemption have not actually established their industries, but have nevertheless exercised the privilege of importing commodities duty-free which, instead of being applied to their industries, are sold like ordinary imports at great profit. These holders of certificates of tax exemption, by the collusive practice of “purchase in transit” have facilitated non-tax-exempt traders to import duty-free goods worth millions of pesos, thus depriving the government of so much customs revenues. It is also well known that many tax-exempt industries are not keeping proper books of accounts, and have placed themselves beyond the reach of BIR examiners.

There is therefore a clear need to re-examine the Tax-Exemption Law in order to curb these abuses and stop loss of revenues. We must bear in mind that the principal objective for which this law was approved, which was to stimulate and encourage the establishment of industries in our country and thus hasten our industrialization, has been more than realized. As a matter of fact, we have reached a point where our foreign exchange reserves can now hardly keep pace with the requirements of newly established industries. The grant of the precious privilege of tax exemption must now be narrowed down to very exceptional and meritorious cases.


Republic Act No. 1394, popularly known as the Special Import Tax, provides so many exceptions from its provisions that, where we expected to collect some $70 million, we actually took in only a meager amount last year. The extraordinary number of exceptions contained in this act was in fact the principal cause of the heavy decrease in customs collections during the year under review.

I therefore recommend a re-examination of this act with a view to eliminating those self-defeating exceptions.


In the implementation of Republic Act No. 1789, better known as the Reparations Law, we have found that the grace period of 24 months given to reparations beneficiaries before they are required to make an initial payment has made it difficult for the Reparations Commission to comply with its obligation under the law to distribute reparations proceeds among various entities; such as, the rural banks, the Manila Railroad company, the veterans’ trust funds, the Land Tenure Administration, etc. Besides preventing the Reparations commission from fulfilling these commitments, the grace period also would give an end-use free use of reparations goods for a period of two years, after which he may return them to the government already deteriorated or depreciated. The government clearly will be the loser in such an eventuality.

It is therefore urgent and necessary that an amendment to the Reparations Law be approved to eliminate the grace period and to require a certain amount of down payment to guarantee good faith on the part of the end-user and protect the interest of the government.

We must also prohibit reparations applicants and end-users from negotiation directly with Japanese suppliers. This practice can facilitate collusion between the two parties to over-price reparations goods, to the prejudice of the Philippine Government. All procurement negotiations for reparations should be conducted directly and only by the Philippine Reparations Mission.

Another amendment I am recommending is to charge a service fee on both government and private reparations transactions, so as to provide adequate funds for the operational expenditures of the Reparations Commission officers and employees from the requirements of the WAPCO law on position classification and rates of pay.

Finally, I recommend that in Section 2, subsection (1) of the Reparations Act, the clause “entities wholly owned by Filipino citizens” be changed to “entities controlled by Filipino citizens.” The suggested amendment would put more practical and realistic nationalism into the law rather than adhere to a puritan nationalism which oftentimes is self-defeating.


As you all know, Republic Act No. 698 as amended, or the Virginia Leaf Tobacco Act, requires the ACCFA to extend price support to all grades and kinds of Virginia tobacco produced in the country. This has encouraged the production of low grade Virginia tobacco which, however, finds no market among cigarette manufacturers. As a result, stocks of low-grade Virginia tobacco are accumulated, and the net effect is that a sizable amount of invested capital and ACCFA funds is frozen.

If this accumulation of unmarketable tobacco is allowed to continue unchecked, in due time the entire government price support fund intended to assist the Virginia tobacco industry will be tied up in these stocks, thus frustrating the noble purpose of the law. Production of Virginia tobacco industry will be tied up in these stocks, thus frustrating the noble purpose of the law. Production of Virginia tobacco is growing by leaps and bounds, and very soon the industry will require larger amounts from the government for the maintenance of the price support program. Even now, the point of exhaustion of ACCFA funds for the purchase of tobacco has almost been reached.

We must see to it, therefore, that these funds are not dissipated in buying unmarketable tobacco but are used rather for the purchase of high-grade tobacco. We will thus encourage the production of high-grade Virginia tobacco and at the same time discourage the growth of unmarketable low–grade tobacco. I therefore recommend that the tobacco price-support law be amended to exclude low-grade tobacco from its coverage.


I must bring to the attention of Congress that the backpay sinking fund has an actual deficiency of more that P100 million. This is the result of two factors. First, there was a wrong estimate of the amount needed for backpay when Act No. 897 was passed by Congress in 1953, and the second factor is the ruling of the Department of Justice in 1954 which reduced the period of redemption from 30 years to 10 years, thereby upsetting the actuarial computation of the sinking fund.

To cover up this deficiency, I therefore propose the appropriation of P21 million a year for 10 years to build up the backpay sinking fund, and the extension for five years of the period which expired on June 30, 1958.


The Administration has launched a relentless drive against graft and corruption in the government. It has done its utmost to identify and expose corruption. But of course the professional cynics and hecklers are always trying to cast doubts on the sincerity of the Administration in this crusade, by insinuating that the Executive, being the chief of all the investigative bodies, can quash a case or exonerate a defendant whenever he wants or convict even the innocent when he so desires, irrespective of the merits of a case. It is also insinuated that members of Congress can influence investigative or fact-finding bodies. The obstructionists further allege that these investigative bodies are political tools of the Administrative designed to protect its protégés and harass its adversaries.

To silence these destructive voices and re-emphasize once more our determination to sweep out graft and corruption in the government, I am recommending the creation of an anti-graft tribunal to constitute a part of the judicial department of the government, independent of the Executive and Congress. It is my hope and challenge that with the creation of this special court, those who possess evidence of graft or corruption in the public service, committed or perpetrated by whomsoever he may be, instead of engaging in loose talks, generalities, and malicious innuendos, will go to this court to discharge this civic responsibilities and do their duty as citizens to cooperate in the maintenance of an honest officialdom and civil service.


In connection with the desire to improve the quality of public service, may I recommend the expansion of the present School of Public Administration managed by the U.P. into a college where training for high government executive and managerial positions may be given, as well as specialized training for municipal and provincial service. Clerical efficiency can be raised by training in this college. But more important still, this college should emphasize character building and moral education in order to raise a legion of specially trained and efficient men of strong moral fibre to man our public service and administration.


To put an end to the yearly public school crisis, it is advisable that the present method of financing our elementary and secondary schools be re-examined so as to place it on a stable basis. It is my considered view that our public education system should be supported with revenues exclusively dedicated to such a purpose. I am certain that Filipino parents are willing to go to any lengths for the sake of the education of their children. Provided they see that every centavo contributed by them for school expense is invested wisely in this program, they will gladly bear their full share of the burden in raising the revenues needed to maintain in this country the highest standards of education.

The Administration will propose for your consideration a draft bill embodying this recommendation.


Our present laws regulating the relations between the national government and the local governments are no longer realistic, nor are they in keeping with the needs of the times. Local governments are not self-supporting units and depend too much upon aids or shares from the national government. It is because of this situation that the initiative for their progress or improvement has to come all the way from the national government. We cannot allow this state of affairs to continue.

Local governments should be given more autonomy and by local autonomy is meant that any increase in their authority should go hand in hand with increased responsibility. In other words, local governments should assume greater responsibility in supporting and financing their local affairs if they wish to exercise greater authority in the management thereof.

To give this problem the attention and care that it deserves, I propose that a commission be created to study sweeping reforms in the administration of provincial and municipal governments and to recommend appropriate measures to carry them out along the lines I have indicated.


A number of cases have come to our attention of public officials as well as officers and employees of government owned and controlled corporations entering into business deals, contracts, or transactions involving the use of public funds which were irregular, anomalous unnecessary, excessive, or extravagant. In the purchase or procurement of government supplies and materials, for instance, a number of cases of overpricing have been discovered. We have also learned of purchases of stocks of government supplies and materials far beyond the quantities necessary.

Besides overpricing and overstocking, there are other corrupt practices in government offices and corporations which have caused a considerable drain on public funds. Millions of the people’s money have been misspent or lost in this manner. In most cases these acts were discovered long after the damage to the public treasury had been done.

We must act to prevent, or at least to minimize, these corrupt practices. In this direction, it is recommended that the Auditor General be empowered to look into, even before their consummation, contract, deals, transactions, and negotiations involving public funds or property which in his opinion appear to be irregular, anomalous, unnecessary, excessive, or extravagant. He should also be given the power to take all necessary measures to prevent the execution or continuance of such contracts, transactions, or deals. Furthermore, he shall be charged with the duty of bringing them to the attention of the President.

In this connection, it has been observed that the performance of the General Auditing Office leaves plenty of room for improvement in the discharge of its duties and functions relative to anomalous or excessive expenditures of public funds or property, as imposed upon that office by Section 2, Article XI of the Constitution. It is said that this has been due to deficiency of personnel. If so, let the General Auditing Office be provided with the necessary personnel to carry out the new duties and preventive powers hereby recommended.


Gentlemen of the Congress, let me say in conclusion, that the faith of this nation is deep and abiding; the spirit of this nation is mighty; the determination of this nation is invincible. On this rock of faith, and with this spirit and this determination, let us build the House of the Nation so that it may be said: “And the rain fell, and the floods came, and the winds blew and beat against that house, but it did not fall because it was founded on rock.”