v La familia es el agente primario y esencial en la educación de sus hijos y en la adquisición de hábitos, convivencia, autonomía.
PREPARACIÓN PARA EL ENCUENTRO CON PADRES Y MADRES:
C- SUGERENCIAS PARA JARDÍN MATERNAL: De 45 días a 6 meses:
The second oil price rise caused a contraction in aggregate demand and a worsening trade balance. The inflation rate also rose but not as high as when the price of oil rose in 1974. In 1980, the inflation rate increased to 18 per cent in Thailand, and 19 per cent in the Philippines.
Again, as it is now known that the price of oil actually declined in 1983, and with the benefit of hindsight, it can now be seen that the appropriate response should have been to restore internal balance. In this respect, it was shown in Figures 4.6 - 4.7 that both countries responded to the second oil price rise in that manner. During 1980-83 both were trying to maintain growth rate while the current account deficit further deteriorated. There was an increase in government budget deficit in both countries. However, in 1983 when the current account deficit reached its highest level, there was a significant shift in the objective of both governments to restore external balance. Since then there was an attempt to reduce the government budget deficit. There was also an exchange rate devaluation in both countries. The cost of restoring external balance was a sharp contraction in growth rate below the trend. In Thailand, the contraction in growth continued until 1985 when the economy began to recover. This was possible because of three favourable factors: the increase in non-m erchandise income from tourism, the unprecedented influx of foreign investment, and a significant substitution of imported energy with domestic source. In the Philippines, the sharp contraction in growth rate continued and deteriorated further as the internal shock erupted. In August 1983, political turmoil arose when Senator Benigno Aquino Jr. was assassinated. In 1984, the Philippine economy experienced its first negative real growth rate since the second World W ar and inflation rose to an unprecedented level of 50 per cent. In 1985 the economy was stimulated, but this was because the Marcos Administration increased spending on the election campaign. In February 1986, the Marcos administration was overthrown and President Aquino came to power. Because of the over-spending of the past few years, the government had exhausted its resources. There was also a rising current account deficit as a result of capital flight after the domestic political crisis and a growing debt burden. Therefore, the government had no alternative but continued a contractionary policy despite a recession that arose in that period.
The adjustm ent to the f a ll in export dem and in 1981-83
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The effect of the world recession in 1981-1983 led to a fall in the export demand from both countries. Thus, a reduction in output and a fall in the price of home goods plus a worsening of the current account would be expected. However, this was not clearly shown in Figures 4.6 - 4.7, as both countries were already undergoing adjustment in response to the second oil price shock.
VI. Summary and Conclusions
This chapter analysed the effects of external shocks and possible policy responses in the economy by using a simple model of one good. The external shocks considered here were the volume of trade and the terms of trade shocks. The volume of trade shock was the case of a fall in foreign income that leads to a fall in export demand while the terms of trade shock was the case of a rise in the price of oil imported relative to the price of home goods. The model analysed the effects of both the volume of trade and the terms of trade shocks on gross output, the real exchange rate (the relative prices of foreign goods to home goods) and the current account.
In general, a negative external shock would lead to a fall in home goods output and employment (internal imbalance) as well as a trade deficit (external imbalance) in the economy. In the case of the volume of trade shock, the model predicted that there will be a fall in the level of gross output and a rise in the real exchange rate (a fall in the price of home goods). In the case of the terms of trade shock, the level of gross output will fall but the real exchange rate may rise or fall depending upon the net effect of the terms of trade change on the trade balance.
The policy in response to both shocks could be of four kinds. First, th e government may have a neutral response to the shock. Therefore, there is no change in government fiscal and monetary policy and the economy will be in both internal as well as external imbalances. Second, the government may want to restore internal balance thereby maintaining initial level of output that guarantees full employment of labour. In this case, the external balance or the current account will deteriorate. Third, the government may want to restore external balance, and this is achieved at the expense of a worsening internal balance. The level of gross output will fall and employment situation further aggravated. Lastly, the government may want to restore both internal and external balances. This may be possible only under certain circumstances.
W hether the government should respond to the shock by attempting to restore internal or external balances is dependent upon the nature of the shock. In the first place, a neutral response could be applied, and this is often the case. But in the long run the government must decide whether to restore internal or external balances. The decision
79 rests upon whether the shock is temporary or permanent. If the shock is temporary, the appropriate adjustment is to restore internal balance. If the shock is permanent, the appropriate adjustment is to restore external balance.
Based upon the information on the developm ent over time of the adjustment towards internal and external balances in the Philippines and Thailand during 1970-1989, the actual responses to external shocks were investigated and found to be similar. The adjustment to the commodity boom was characterised as a neutral response. The adjustment to the first oil price shock in 1974 was to restore internal balance. This was inappropriate as the rise in the prices of oil stayed perm anently until 1978. The adjustment to the second oil price shock in 1979-80 was first to restore internal balance. Then the policy shifted to restore external balance, by early 1983 in Thailand, and late 1985 in the Philippines. The adjustment to a fall in export demand in 1981-83 was not clearly seen as the two countries were still adjusting to the second oil price shock.
Although the two countries generally responded to the volume of trade and the terms of trade shocks in a similar way, the relative economic performance between the two countries showed two different outcom e. First, the Thai authorities were comparatively successful in stabilising the internal balance and to lesser degree the external balance. The deviations of real GDP growth from the trend were much less than that in the Philippines and inflation rates were also lower and less fluctuated. Second, the poorer economic performance in the Philippines after 1983 was further compounded by the internal shock that led to more difficulty in macroeconomic adjustment. In Thailand, the economy recovered quickly after 1985 because of three favourable factors: the increase in non-merchandise income from tourism, the unprecedented influx of foreign investment, and a significant substitution of imported energy with domestic source.
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Appendix 4.A Estimation of the long-term growth trend in the Philippines
and Thailand
The estimation of the long-term growth trend for the two countries during 1970-1989 adopted a simple specification as follows:
Log Y = a + b T
where Y and T are real GDP in local currency and time trend. The coefficients a and b
are constant term and the predicted long-term growth rate respectively. The Ordinary Least Squares technique was first employed to estimate the coefficient b but there are auto correlation in the estimation. Thus, the problem is corrected by using the autoregressive estimation. The results for Thailand and the Philippines are
Philippines log Y = 10.8871 + 0.0385 T (0.0639) (0.0053) \o(R, )2 = 0.9915 DW-statistics = 1.8492 U = 1.6169 Uhl - 0.779 Uh2 + V ( t= 11.531) (t =-5.5552) Thailand log Y = 11.8683 + 0.0662 T (0.018) (0.0015) \o(R, )2 = 0.9973 DW-statistics = 1.9139 U = 1.05 (Jt.i (t = 6.1828) 0.6505 Ut.2 + V (t =-3.8304) The numbers in parentheses are the standard error.
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