Economy During the Spanish Colonial Period

Ferdinand Magellan was the first European recorded to have landed in the Philippines. He arrived in March 1521 during his circumnavigation of the globe. He claimed land for the king of Spain but was killed by a local chief.

Following several more Spanish expeditions, the first permanent settlement was established in Cebu in 1565. After defeating a local Muslim ruler, the Spanish set up their capital at Manila in 1571, and they named their new colony after King Philip II of Spain. In doing so, the Spanish sought to acquire a share in the lucrative spice trade, develop better contacts with China and Japan, and gain converts to Christianity. Only the third objective was eventually realized.

As with other Spanish colonies, church and state became inseparably linked in carrying out Spanish objectives. Several Roman Catholic religious orders were assigned the responsibility of Christianizing the local population. The civil administration built upon the traditional village organization and used traditional local leaders to rule indirectly for Spain. Through these efforts, a new cultural community was developed, but Muslims (known as Moros by the Spanish) and upland tribal peoples remained detached and alienated.

Trade in the Philippines centered around the “Manila galleons,” which sailed from Acapulco on the west coast of Mexico (New Spain) with shipments of silver bullion and minted coin that were exchanged for return cargoes of Chinese goods, mainly silk textiles and porcelain. There was no direct trade with Spain and little exploitation of indigenous natural resources. Most investment was in the galleon trade. But, as this trade thrived, another unwelcome element was introduced — sojourning Chinese entrepreneurs and service providers.

During the Seven Years’ War (1756–63), British East India Company forces captured Manila. Although the Philippines was returned to Spain at the end of the war, the British occupation marked the beginning of the end of the old order. Rebellions broke out in the north, and while the Spanish were busy fighting the British, Moros raided from the south. The Chinese community, resentful of Spanish discrimination, supported the British with laborers and armed men.

The restoration of Spanish rule brought reforms aimed at promoting the economic development of the islands and making them independent of subsidies from New Spain. The galleon trade ceased in 1815, and from that date onward the Royal Company of the Philippines, which had been chartered in 1785, promoted direct and tariff-free trade between the islands and Spain. Cash crops were cultivated for trade with Europe and Latin America, but profits diminished after Spain’s Latin American colonies became independent in the 1810s and 1820s.

In 1834 the Royal Company of the Philippines was abolished, and free trade was formally recognized. With its excellent harbor, Manila became an open port for Asian, European, and North American traders. In 1873 additional ports were opened to foreign commerce, and by the late nineteenth century
three crops—tobacco, abaca, and sugar—dominated Philippine exports.