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Philippines

The Milieu

When the Philippines became a colony of the United States in 1898, the fates of the two nations became inextricably linked. Why then did their fortunes take divergent paths just before the Second World War? While the United States fell into a deep economic recession after the crash of the U.S. stock market in 1929, the Philippine economy experienced unprecedented growth and the campaign for Philippine independence also began to gain momentum.

In a way, the U.S. recession actually contributed to the Philippine economic boom. One of the measures adopted by U.S. president Franklin D. Roosevelt to halt the hemorrhaging of the American economy was to prohibit the exportation of gold from the United States in 1933. This triggered a mad rush in the Philippine gold industry and American prospectors made a beeline for Baguio’s gold mines in a race to fill the vacuum in the international gold market. The boom in the gold industry, in turn, sent the Philippine securities business to unprecedented highs. Lured by the business opportunities that were opening up as the economy expanded, more Americans, as well as other foreigners, arrived to seek their fortune in the Philippines.

The U.S. economic slump was also a factor in the advances made in the campaign for Philippine independence. By virtue of its status as a colony, the Philippines enjoyed a free-trade relationship with the U.S. Philippine exports, especially sugar, could get into the U.S. without any tariffs. However, as the recession in the U.S. deepened, American farmers began complaining that such exports were killing the American farming industry and putting their products at a disadvantage. This pushed the influential American farming lobby to support the call for Philippine independence and the termination of the Philippine’s special trade privileges. Eventually, the powerful lobby did lead to the passage of the Hare-Hawes-Cutting Act in 1933 and its replacment the Tydings-McDuffie Law in 1934, which provided for the granting of independence to the Philippines after a ten-year tutelage in governance.

In 1935, the Philippine Commonwealth transition government was inaugurated and Manuel L. Quezon became the Commonwealth government’s first president. The Philippine economy continued to prosper, thanks to a sizable fund built from taxes collected from the Philippine coconut industry that the U.S. government turned over to the Quezon administration. The money was used for infrastructure and other development projects. The Philippines’ traditional exports—abaca, coconuts and coconut oil, sugar, and timber—were also doing very well as the breakout of the war in Europe in 1939 increased the demand for these products, especially coconut oil and timber.

It wasn’t long, however, before this period of economic and political growth came to an abrupt halt. The war clouds started to drift toward Asia. Japan bombed Pearl Harbor in December 1941 and by 1942 the Japanese imperial forces had occupied the Philippines.

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