A Path-Dependent Explanation of the Philippines’ Debt-Driven Development Strategy

The debt-driven development strategy was fundamentally about the massive infusion of external capital via foreign loans to boost the economy. This strategy started in the 1960s when the Macapagal administration decided to take in and utilize external borrowings, specifically the Stabilization Fund offered by the International Monetary Fund (IMF). This decision created a “path” and made foreign debts a key component of the government's economic agenda. The subsequent Marcos administration, influenced by the established financial ties between the government and international financial institutions, did not only continue the economic strategy but extensively accelerated the external borrowings. This move transformed foreign loans as the engine of the economy. In time, the debt-driven development strategy became an established pattern and was institutionalized since it generated increasing returns and positive feedback that are self-reinforcing. This economic strategy has mutated into a “debt-trap” and has been underpinned by subsequent government laws (specifically, Presidential Decree 1177, Proclamation 50 and Executive Order 292). Consequently, the debt-driven development strategy became path dependent, which is persistent, difficult to reverse and “locks-in” on succeeding governments