|Philippine Economy: A Cautionary Tale
Manuel L. Quezon III
On June 22, William Pesek wrote in Bloomberg, that President Gloria Macapagal-Arroyo seems frustrated with the skepticism expressed by foreign groups over her ability to keep control over the fiscal situation of the Philippine government. The skepticism began with Standard & Poor’s post-election announcement that inefficient tax collection was resulting in government being unable to meet its income goals. On June 14, Moody’s Investors Services said something similar. Fitch Ratings chimed in, last week, saying the same thing: Weak tax revenues would push the deficit up. And Monday, JP Morgan also said the Philippines was expected to be unable to meet its deficit goals.
Pesek said there’s a simple enough reason why skepticism tends to greet Philippine government actions, even if the same observers go through periods of praising government efforts. “Unfair as that may sound, investors have a funny way of remembering when a government defaults on debt, as the Philippines did two decades ago,” he wrote. It’s useful, I think, to revisit the period Pesek referred to.
President Ferdinand E. Marcos had plied businessmen with pro-business decrees, and while the economy hummed along no one complained. But when the economy, which had grown by an average of over 6 percent in the first seven years of martial law, began to falter (down to 5.4 percent growth in 1980, 3 in 1981, and 2.6 the year after), businessmen worried about an economy and a country so firmly tied up with Marcos and his friends.
It also became evident at this time that Marcos’ preferential policies toward his friends or dummies had started to take a significant toll on the economy. Businessmen, who just winked at these peccadilloes, now worried that as these bogus, publicly-financed enterprises sank under the weight of mismanagement and plunder, they would take the rest of the economy with them.
Bankruptcies increased, as did unemployment, and some foreign investors pulled out their investments ($100 million worth of equity capital was taken out in 1980).
The Makati Business Club, composed of the Philippines’ top 1000 corporations, was organized and shortly after issued a plenary paper titled “Issues and Prescriptions.” It called for “an environment of honesty, integrity, peace, and greater confidence in the government; a curb to military abuse and government corruption; a stop to red tape, graft, corruption and cronyism; the definition and pullout of government roles from private sector concerns and business; the removal of lopsided competition from government; and the protection of media in its crusade against injustice and the curtailment of human freedom.”
These were uncharacteristically strong words that stuck; the operative words “corruption,” “cronyism,” and “abuse” became battle cries of those social classes who stir when their pockets rather than hearts are touched.
In 1982 the businessmen had summoned up the nerve to present their complaints during the Eighth Philippine Business Conference in 1982. They invited Marcos to be their guest speaker, and were rewarded with a bravura performance by the president, who thundered, “This government will, and has the capability to protect itself. The country is presently reeling from worldwide recession and export price slump… but let me warn those who opt to provide further misery to our people: Tax evasions and frauds in remittances of export earnings will be seriously dealt with the full force of the law. These people are known to me and I have a list of companies right here with me.”
The businessmen blanched. They wanted reform, he would reform them. They had invited him with all the elegant formalities at which they are so good, and he had treated them such as no rabble-rousing labor leader would have dared.
Even as businessmen like Joe Concepcion still fretted about “the danger of punitive action of some kind” as a result of their mild criticism of Marcos, the notion grew that only without Marcos did the country have a chance.
The revulsion among businessmen grew when their stand-ins in the Marcos government were marginalized, as quickly as they had been brought in.
Together with Gerardo Sicat, Roberto Ongpin, and Placido Mapa, Cesar Virata was the complete technocrat - reputedly honest, certainly proficient in his field. His presence had deodorized the profligate dictatorship with its creditors abroad. Marcos even made him a member of the 14-man Executive Committee tasked with governing the country in case he died, whose ranks took years to fill. In the event of Marcos’ death, Virata was therefore in the running to succeed him. Raised to these lofty heights, the business community was supposed to feel that their own kind were in positions of responsibility and respect in the Marcos regime.
In 1982 Virata asked that the Central Bank stop discounting loans for sugar planters, who had been hard-hit by the collapse of the sugar industry. The planters grumbled that it was all close Marcos friend Benedicto’s fault, since he was the head of the sugar monopoly. Virata’s action raised the hackles of the cronies; Marcos allowed them to strike back in 1983. In April of that year a KBL caucus was held in Malacanang in preparation for a review of the country’s fiscal performance by its creditor banks. A scene reminiscent of China’s Cultural Revolution took place. After all, Imelda Marcos was an admirer of Chairman Mao.
Leader after leader stood up to shout at Prime Minister Virata and Central Bank Gov. Jaime Laya, accusing them of incompetence, stupidity and cowardice in the face of creditor banks and the IMF. Then Marcos stepped in and chided Virata to “to defend himself.”
He had humiliated the chief technocrat and demonstrated that everyone’s position depended purely on his goodwill. Virata offered to resign. Marcos told him to take a rest abroad instead.
Thus, these great brown hopes of reform were exposed as toothless fools, essential in making the government look good but powerless to make it so. When Marcos revealed that he had left confidential orders to Gen. Fabian Ver, his chief of security, in the event of his death, everyone realized Marcos respected and trusted only his bodyguards.
Anyone following the recent infighting in the Arroyo Cabinet will know that history seems too close to present-day reality.
Arab News Newspaper: Philippine Economy: A Cautionary Tale
Tags: Arab News Newspaper, Cesar Virata, economy, employment, facts, Ferdinand E. Marcos, Gerardo Sicat, Gloria Macapagal-Arroyo, investments, Jaime Laya, jobs, JP Morgan, Makati Business Club, Moody's, Philippines, Placido Mapa, politics, presidency, ratings agencies, Standard & Poor's, William Pesek, World Bank