exports are below prewar levels because of a combination of disease infestation, inadequate financing to restore production, and high costs.

Sawmill capacity is about double that of prewar years and lumber and timber exports now rank fourth. Among the mineral products, output of gold has not recovered to prewar levels, but production of iron ore, copper, and chromite is high and the export outlook promising.

The Financial Situation

The postwar period has been marked by a period of inflation, a severe crisis in 1949, and improvement in the country's financial situation since that time.

After years of devastation and occupation, at the end of the war the Philippines urgently needed imports of essential commodities and the people also craved luxuries. Payments made by the United States in the early postwar years provided the income to import goods in unprecedented quantities. When dollar expenditures declined, however, a crisis developed since the output of export products had not reached levels sufficiently high to yield the foreign exchange required to maintain continuing high levels of imports.

Foreign exchange reserves dropped rapidly during 1949. The cost of living had also risen further than wages and the Government was experiencing rapidly increasing budgetary deficits. The Philippine Government imposed drastic exchange and import controls and following the recommendations of a United States economic mission 3 later took other steps, including tax changes, to correct the serious financial difficulties.

The Philippines has made progress in solving some of the financial problems which placed it in a critical situation in 1949. The country's international position probably has shown greater improvement than its internal position. The import surplus of 626 million pesos in 1949 was reduced to 93 million pesos in 1953 and is being narrowed further. Tax receipts have increased and fiscal year 1952 saw the first postwar budget surplus. In 1953, however, there was a small deficit and a larger one was expected for 1954.

Continuing Economic Problems

Despite the economic progress the Philippines has made since 1949, there are still weak spots in the economy and continuing problems. A sizable

The U. S. Economic Survey Mission to the Philippines (Bell Mission), headed by Daniel Bell, former Undersecretary of the U. S. Treasury, was sent to the Philippines in the summer of 1950 in response to a request of the Philippine President. It recommended specific courses of action to achieve economic reforms, many of which were instituted following discussions between William C. Foster, special Presidential representative to the Philippines and Economic Cooperation Administrator, and President Quirino in November 1950 (the Foster-Quirino Agreement).

segment of the labor force is either underemployed or without employment; recent estimates place the number of unemployed at about 2 million. Living standards among the lower income groups have not improved appreciably compared with those in prewar years.

Although total production has been raised above the prewar level, the rate of increase is less than the rate of increase in population. In general, per capita productivity continues low. The export trade remains based on a relatively few exports which are vulnerable to changes in world markets.

Solutions of these problems have many aspects including such matters as land reform, improved agricultural practices, increased low-rate credit for small producers, increased industrialization, and new foreign market outlets for Philippine products. A further increase in production, diversification of the economy, and rise in the living standards of agricultural and industrial laborers cannot be achieved in a short span of a few years.

Economic Indicators

National income and gross national product.— Only in recent years have comprehensive data concerning Philippine gross national product and national income become available, through separate studies undertaken by the Central Bank of the Philippines and the United Nations. Although different results were obtained by the two studies, both show a substantial increase in national income and the gross national product in the postwar years. The Central Bank placed national income at factor cost at 6,952 million pesos for 1952 and 7,375 million pesos for 1953 and gross national product at market prices at 7,925 million and 8,356 million for the same years, respectively.

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By far the largest percentage of the national income is generated by the agricultural sector of the economy (including forestry and fisheries), which accounted for about 40 percent of the total in 1952 and 1953. Manufacturing is the second largest contributing factor, accounting for about 15 percent of the national income, followed by trade, Government personal services, construction, transportation and communications, and mining (see table V in appendix F).

Consumption levels and tastes.-The great majority of the people produce crops for their own use and derive only a meager cash livelihood. Others, working in the export industries, likewise have low incomes and standards of living. In contrast with the mass of the people, a small proportion, including large landowners and businessmen, have large incomes.

Growing his own food, the Filipino peasant or "tao" may earn no more than $50 a year in cash

Preliminary figure.

income from the sale of surplus rice or other crops at the local general stores, or through middlemen. Frequently his produce is exchanged for textiles, hardware items, and other simple consumer goods. In urban centers such as Manila, Iloilo, Cebu, and Davao, where most of the workers have no land on which to raise food, cash incomes are higher but living standards are generally no better than, and maybe slightly below, those prevailing in rural areas. The cost-of-living price index of a wage earner's family in Manila as of September 1954 was 334.1, computed on a 1941 base. Since it is not possible for most heads of families to earn sufficient income to meet essential cash expenditures, two or more members commonly engage in earning a livelihood.

Under the impact of many years of close economic ties with the United States, the trend in consumption habits has been toward American tastes. Although the Philippines is generally described as a price market, Filipinos are extremely brand conscious. American brands enjoy a preference in most lines, and it is difficult to introduce a new line when a similar commodity of a different brand is already firmly established. The entrepreneur engaged in manufacturing or merchandising may find that the native customer prefers an item imported from the United States to the same brand made in the Philippines, even if the cost is higher.

Food habits.-The diet of the Filipino consists primarily of rice and root crops, although corn is preferred to rice in the Visayan Islands and in northern Mindanao and wheat bread is likely to substitute in part for rice or corn in urban centers.

Meat consumption is limited owing to its high cost. In general, pork is preferred to beef except by the Mohammedans, who do not eat pork. Fish and fowl are also preferred to beef, and since fish is much more readily obtainable and is less expensive than meat, it furnishes most of the protein requirements. Lamb, mutton, veal, and other such meats are not in general demand.

Housing. Housing needs are influenced most strongly by the climatic conditions of heat and heavy rainfall. In rural villages and small towns most people live in nipa-thatched huts. In Manila and the larger provincial cities such as Cebu and Iloilo the "accessoria," a row type of residential structure, is the most common unit. Considerable numbers of such houses are constructed of wood framing with galvanized iron roofing.

Housing facilities even in prewar years fell somewhat short of needs and, since no sizable construction program has as yet been completed by the Government or private sources in the postwar period, there is a severe shortage, particularly in the Manila area. Government plans for low-cost housing are in the initial stage, with a few projects completed in Manila. Recently, insurance companies have entered the housing field as an invest

ment outlet. Some enterprises, especially lumbering and mining firms, provide housing for their employees.

POLITICAL SETTING

In accordance with the long-stated intention of the United States, in July 1946 the Philippines attained full sovereignty. The Government, republican in form, is based upon a constitution patterned in general after that of the United States. There is an Executive branch with President, Vice President, Cabinet, and certain administrative agencies. Legislative powers are centered in a bicameral Congress; judicial powers, in a Supreme Court, a Court of Appeals, and lower courts. Justices and judges are Presidential appointees.

The President and Vice President and members of both Houses of Congress are elected through universal suffrage. Presidential powers are more extensive than in the United States and in times of national crises the Philippine President may be granted sweeping emergency powers. Important Presidential appointments are subject to approval of a Commission comprised of members from both Houses of Congress.

Under the tradition of a strong Central Government, the governments of the Provinces have relatively little power; no specific prerogatives are reserved for them in the Constitution, as in the case of the United States. Control over local governments was formerly exercised chiefly through the Department of Interior, but with abolition of that Department in 1950, local governments now fall within the influence of the Executive branch. Each of the 50 Provinces has a Governor and a Provincial Board of three members, one of which is the Governor himself. All are elected.

Legal concepts do not coincide precisely with those prevailing in the United States. The bill of rights, standard in other respects, makes no provision for trial by jury. Philippine jurisprudence is a blending of civil law and common law procedures. The statutory framework includes a Civil Code, Commercial Code, Penal Code, Administrative Code, rules of court promulgated by the Supreme Court, and laws enacted by the Congress. The first three codes are based upon the old Spanish codes, revised and modernized in greater or lesser degree. The code of commerce, particularly, has been influenced by United States legislation and jurisprudence.

There are two major political parties, the Liberal and the Nacionalista. The former held the reins of government from the formation of the Republic in 1946 until December 1953, when Ramon Magsaysay, successful Nacionalista candidate in the elections of November 1953, became President. Both major parties have leaders of influence.

National elections are held every 4 years. In addition to the President and Vice President, all

members of the House of Representatives, whose terms are for 4 years, are elected. Senate terms are for 6 years and one-third of the members of that body are chosen every 2 years. In the midterm elections of 1951 the Nacionalistas increased their strength substantially.

A major problem faced by the Philippine Government in postwar years has been the dissidence and unrest resulting from the communist-led "Huk" movement. The movement reached its height in 1950 and 1951 with large-scale raids on towns and villages. Through strong military action, supplemented to some extent by land resettlement measures, the problem has been met with notable success. As of 1954 the Huk movement was fragmentary. It may disintegrate entirely if

military pressure on the dissidents is continued and the planned economic reforms are carried out with success.

Internal difficulties on which the Communists have tried to capitalize in the Huk movement stemmed in large measure from age-old problems of agrarian unrest inherent in the existing landtenure system. In renewed efforts to obliterate the basic difficulties, the Philippine Government, with United States assistance, has launched continuing programs for the classification, surveying, and distribution of agricultural land. Extensive resettlement projects are also under way and laws enacted in the last few years are aimed at improving rural credit facilities and the general conditions of the farmer.