Posted: March 19, 2010 in GMA, Philippine politics, Political economy

A reading on the politics of economic reform in the Philippines from the dying years of the Marcos dictatorship to Estrada’s ouster, 1980-2000

(Author’s note: A similar reading of the politics of economic policy-making of the GMA presidency will be presented in a future blog.)

Prologue: a tax chief resigns

In July 2002, Rene Bañez, the head of the Gloria Macapagal-Arroyo government’s primary tax collection agency (the graft-ridden Bureau of Internal Revenue, or BIR) resigned after trying to push an anti-graft and reform campaign within the agency.  The Far Eastern Economic Review reported that he “quit his lonely job after meeting fierce resistance from civil servants” (HOOKWAY 2002, 13).  The president had to accept Bañez’ resignation after recalcitrant tax collectors apparently fought his reform program and performance-related pay plans “by deliberately cutting back on collection”.  A few days before he quit, employees from all ranks staged a rally at his office with scores of men and women surging in and out as if they were storming the building, shouting for Bañez’s immediate resignation ostensibly for his “abrasive and aloof” management style.

Why did he actually resign?  Or better yet, why was his resignation accepted by President Arroyo?  Was Arroyo throwing the towel into the ring and giving up on reform of the critical tax agency?  Isn’t she worried the International Monetary Fund (IMF) will come down on her administration for the yawning budget deficit?  How will the fund managers the world over react to this disturbing statistic?  An insider told me that Banez’ resignation was supposedly quid pro quo: he has to resign to turn off the ‘heat’ generated by his reform efforts; then Arroyo’s allies in Congress promised to pass the law providing for a new BIR charter that incorporates his proposed changes.

A few months before, a similar demonstration of public employee ‘people power’ also caused the resignation of another reforming head of office, Vitaliano Nañagas from the graft-ridden Social Security System (SSS). The SSS is a state pension fund that provides social security services for private sector employees in the Philippines.  Since the Marcos dictatorship, its investment funds had been used, not for its members’ benefit, but to finance ambitious but non-productive prestige projects (e.g. the 5-star hotel building spree in the late 1970s when the IMF and World Bank met in Manila), electoral campaigns, and dubious financial deals wherein big politicians and rich businessmen were the obvious beneficiaries.

On 13 August 2002, reform-minded Raul Roco quit as Department of Education secretary after employees there accused him of haranguing them and misappropriating funds.  In his defense, Roco says he was set up by well-organized syndicates (or sindikato) that had been creaming the fat from government budgets for years.  Of course, it did not help that Roco emerged in a July 2002 survey (undertaken by the Ibon Foundation) as the most likely winner if presidential elections were held at that time. The ousted president, Joseph Estrada, was second while Arroyo was only a poor third. Roco’s irrevocable resignation from Arroyo’s cabinet was prompted by a pre-emptive move by Malacañang (the presidential palace) announcing its endorsement of graft charges against Roco to the courts.  In turn, Roco felt that Arroyo dealt him a bad hand and spurned all efforts at ‘reconciliation’ after his resignation.

These three episodes, to my mind, illustrate the perplexing complexity and the daunting difficulties faced by economic reformers in the Philippines.  In all three cases, an unlikely alliance between the corrupt sindikato in BIR, SSS and the education department and leftist public sector unions supplied the ‘people power’ that embarrassed Bañez, Nañagas and Roco into resignation.  The interest of the sindikato against the reforming trio is obvious.  How about the leftist unions, who even helped catapult Arroyo to power in January 2001 against Estrada?  Their reasoning: Since they are ultimately for the revolutionary overthrow of the Philippine state, they should frustrate reform efforts of any reactionary regime. The cynical alliance with the sindikato is very productive; in exchange for supplying the cannon fodder for strikes and demonstrations against allegedly anti-employee bosses, they receive substantial sums from the former, portions of which could be siphoned to finance the guerrilla war in the countryside.  Besides, the reform efforts anyway are part and parcel of an ‘anti-people’ ‘neo-liberal’ ‘pro-imperialist’ program foisted by the ‘evil’ World Bank-IMF tandem under the ‘globalization’ banner.

Meanwhile, Bañez and Nañagas were being convinced by professional and business groups like the Makati Business Club, the Philippine Institute of Certified Public Accountants (PICPA), the Financial Executives of the Philippines (FINEX), among others, to hang on and continue with their reform efforts. Even the Catholic Church, through Cardinal Sin, added its voice to this effort.

The Philippine mass media dutifully featured both the newsworthy and sensational aspects of all three cases.  More column inches and air-time were however expended in the case of Roco given his presidentiable stature.

The Roco case was obviously complicated by future electoral politics.  Several observers agree that Arroyo’s indecent haste was partly caused by pique at being third in an electoral survey.  At the risk of suggesting a grand conspiracy or deux et machina theory, the Ibon Foundation, which recently discovered it had the capacity to undertake independent (as opposed to commissioned) surveys, is also associated with the Philippine left.  One then can most likely speculate why it chose to release at a most appropriate time the results of an alleged survey that can help exacerbate conflicts within the ruling elites?

Almost all of the major stakeholders in the Philippine political economy are featured here in these three cases—sitting presidents, presidential rivals, reforming bureaucrats, international financial institutions, legislators, criminal syndicates, leftist unions, professional organizations, business groups, the Church, and mass media.  The cases above exemplify the great stakes involved in the reform process and highlight the intricacy of the politics of reform in the Philippines.

This paper is an initial attempt at understanding the politics of the economic reform efforts in the Philippines during the past 20 years—from the crisis-ridden final years of the Marcos dictatorship to the tumultuous ouster of President Joseph Estrada from office in January 2001.  It is divided into three parts.  The first section introduces the notion that all economic reform efforts in the Philippines over the past 20 years has been induced or forced by crises.  The next section makes use of a four-fold reform typology that is useful in organizing the subsequent discussion of disparate and distinct reform episodes.  The subsequent section is a summary review of the key reform efforts from 1980 to 2000.   It seeks to identify the impetus for reform and discusses the elements of the reform package, the actual process of reform implementation, and its outcomes.

Introduction: Crisis-induced economic reform in the


In January 1981, the Philippine financial system was rocked by an investors’ panic crisis precipitated by the flight abroad of a free-wheeling, gambling-addicted textile magnate who wanted to evade responsibility of debts amounting to about $6.0 million dollars (using the prevailing peso-dollar exchange rate at the time).  In the process, investor confidence in many merchant banks (more popularly known as ‘investment houses’ in the Philippines) and other ‘quasi-banks’ waned and were hit by a wave of pre-terminations leading to their closure, bankruptcy, or absorption (by other FIs).  Highly-leveraged non-financial corporations (NFCs), especially those affiliated with these troubled FIs were also adversely affected.  The economy was already previously weakened by the recession in its major international trading partners (e.g., the US and Japan) following the OPEC’s 2nd ‘oil shock’ in 1979.  Thus the domestic financial woes combined with the recession outside to send the martial law economy of Ferdinand Marcos to the doldrums.

As the economy slowed down from the heady years of the 1970s (when the Philippines was dubbed as ‘the next Asian Tiger’ by Euromoney), Marcos had to eat ‘humble pie’.  First he had to retreat from an ambitiously-expensive import-substituting (albeit packaged as export-oriented)  ‘11 major industrial projects’ programme purportedly designed as a copy of the South Korean industrialization experience under Park Chung Hee’s Yushin regime. This schema was criticized by the World Bank (in the famous Ascher Report of 1980) and other multi-lateral financial institutions as running counter to received knowledge and economic policy orthodoxy (that proscribed massive state intervention in the economy).  Second, as a result of the crisis, the Marcos dictatorship had to accept a neo-liberal ‘structural adjustment program’ in exchange for World Bank financing (or a ‘structural adjustment loan’).  In this sense therefore, economic reform and restructuring during the waning years of the dictatorship was precipitated by economic crisis.

This episode was not the first or the last crisis-induced economic reform effort in the Philippine’s checkered economic history since its re-emergence as an independent nation-state in 1946.  In an almost monotonous fashion, economic crisis in the Philippines happens in the form of a balance-of-payments crisis (where the economy lacks sufficient foreign exchange to finance outflows).  Thus, the country sustained major (and minor) BOP crises in 1949, 1957, 1962, 1970, 1980, 1983-85, 1990-91, and 1997-98.  These persistent foreign exchange constraints are meanwhile seen as the main factor behind the lack of sustainable economic growth and a rather repeated boom-bust cycle, for the country despite a promising start in the immediate post-war years and in 1950s (when the country was given the accolade as ‘the next Japan’ by its international admirers, the World Bank included).

The Marcos dictatorship was finally deposed in February 1986 after the economic crisis in 1980 matured into a full-blown depression in 1984-85 when the economy contracted (on a real basis) by almost 12 percent.  This was the country’s worst economic crisis to date since the last world war.  The economic downturn this time was so severe that regime change rather than simply economic reform was its resolution.

Economic and political reform: typology, targets, etc.

A study of the reform efforts in various countries indicate that reforms cannot be limited to just the economic sphere or the political sphere.  While reform efforts in the economy and the polity can be distinguished from each other, reformers the world over have accepted several verities:

  1. Reform in whatever arena is potentially a politically contentious process as stakeholders try to assess whether they will gain or lose from a particular reform effort.  This calculus is never done perfectly or even done to a significant degree of satisfaction.  Contrary to the claims of some neoclassical economists, even from an economic point of view, it is often not very clear who benefits or loses from a particular economic policy reform (KOPPEL 1992).  Often, the political stance and action taken by various stakeholders, especially at the outset, will depend upon the perceived effect of a particular economic reform.
  1. Errors in the reform process, including that of sequencing and social marketing can solidify political opposition to reform as well as produce unintended consequences.  In turn, all these make the calculus of ultimate gains and losses even more problematic.
  1. In many cases and instances, economic reform cannot proceed without reforms in the political front.  For this reason, reformers needed to initiate reforms on a broad multi-front socio-economic-political space, making the entire reform effort even more difficult and contentious. In fact, SICAT (2002, 6) warns: “Reform issues will never end.  As a country matures, old problems require continuing review especially as new problems arise.”

The target of economic and political reform in the Philippines is a set of socio-political institutions we can label as “the protectionist rent-seeking society-weak Philippine state” combination.  The desired end state is a strong Philippine state and a vigorous profit-making economy that could provide a decent livelihood for the country’s millions of inhabitants, including the members of the under-classes.

In a separate piece written earlier (MENDOZA: 1997), I have outlined the essential features of Philippine political economy.  A cursory examination of the Philippines as a rent-seeking society suggests the following fea­tures:

  1. Widespread poverty, highly inequitable income distribu­tion, and narrow markets;
  2. Relative abundance in exportable natural resources;
  3. Stagnant production technologies;
  4. A high degree of external dependence; and
  5. A “rule-prone” weak pork-barrel state.

The first factor sets the stage for the development of natural or structural mono­polies that can earn economic rents.  The rela­tive abun­dance of natural exportables indu­ces domestic economic elites to sell to external markets instead of broadening the in­ternal market.  The lucrative income they earn from these export products dissuades them from further processing and value-adding, encoura­ges compra­dor behavior (where one seeks exclusive or monopolistic marketing arrangements), and encourages conspicuous con­sump­tion.  For this reason, when these natural cash products are exhausted, the rent-seeking economy is in deep crisis.  The onset of crisis meanwhile encourages capital flight by rent-seekers (which is not to say that capi­tal flight was absent in the pre-crisis period).

On the other hand, the existence of a foreign patron, who stands ready to bail out the domestic economy for its own strategic reasons, may enable the rent-seeking elites to weather the storm.  This has been the case for the Philip­pines while the US maintained military bases in Clark and Subic.  HUTCHCROFT (1993: 587) suggested that the withdrawal of US strategic interests from the country in 1991 “will bring increasing pressure to re-orient the economy toward interna­tionally competitive modes of operations.”

The obvious impact of stagnant production technologies and technolo­gical de­pendence on external sources is to also stimulate monopolies and deter competition.  For one thing, these technolo­gies are expensive and by themselves erect barriers to free entry.  If the policy environment is biased in favor of capital imports, then capitalists will continue to operate capital-intensive industries in a labor-surplus economy.  If the policy environ­ment is further biased against agriculture and the rural areas (by way of over-valued cur­rencies, credit and incentive biases), rent-seeking tendencies are then fur­ther stimula­ted.

A comment on the state in contemporary rent-seeking socie­ties is in order.  These states, in some cases through their chief executives, have gained control over substantial public resources that could be ap­por­tioned to favored parties.  Hence, these societies are obsessed in trying to make sure that it would be difficult to raid the public purse.  At all governmental levels, elite frac­tions out of power are quite anxious that the in­cumbents’ control of the public largesse will perpe­tuate the latter in power.  In pursuit of this ‘noble’ objective, these states have a rule for almost every­thing.  Ironically, the prolife­ration of rules offers ample opportunities for law­yering and rent seeking.  For every rule, there is an implementer, a regulator, who could be lobbied for favorable treatment.  Notwithstanding the apparent proliferation of bureaucrats, there is, as EVANS (1992: 176-7) reminds us, an under-, not over-supply of a Weberian bu­reaucracy.  There may be an abundance of regulatory or administrative organizations, “but most have neither the capability of pursuing collective goals in a predictable, coherent way.”  One may argue that the states in rent-seeking societies are necessarily weakly insti­tutionalized states.

The reform episodes, 1980-2000

The twenty-year span from the last years of the Marcos dictatorship up to the ouster of President Joseph Estrada could be divided into the following reform episodes labelled according to the incumbent chief executive:

  • Marcos, the reluctant reformer (1980-1985);
  • Cory Aquino, the besieged reformer (1986-1992);
  • Fidel Ramos, the ‘can do’ super reformer (1992-1998); and
  • Joseph Estrada, the ‘reversal’ of reform (1998-2000).

De DIOS and HUTCHCROFT (2002) suggest that a fuller taxonomy of four types of efforts that fall under the rubric of ‘reform’ will be useful for our analysis.  First are various measures of economic liberalization that intend to promote market competition, reduce monopolistic power in strategic economic sectors and push government out of the economy through various privatisation schemes. The second category goes beyond standard neo-liberal pro-market prescriptions and involves the more difficult task of creating stronger institutional bases for economic and political development.  This includes improving the quality of public/private bureaucracies and the overhaul of tax, public budgeting/expenditure, and judicial systems. The third type of reform is redistributive in character, usually state-initiated or directed, and aims to increase the claims and shares of the poorer under-classes and groups in the country’s economy.  In the Philippines, land reform in the urban and rural areas is the most important redistributive reform.  The fourth broad category of reform is political and involves efforts to democratize polities by encouraging greater participation, and increasing system responsiveness to the requirements, of the marginalized under-classes and groups.  Political reform is in fact necessary so that poor people can partake of the economic opportunities generated by market reform and economic restructuring (MENDOZA 1996).  We use this reform typology to classify the various reform efforts over the past two decades.

Marcos: the reluctant reformer

During the last years of the Marcos regime, all reforms were in the economic liberalization front.  As the Philippine economy continued to sink into greater depths since the 1981 financial scandal through the 1982 Third World debt crisis, Marcos sought external financing from the World Bank to meet balance-of-payments (BOP) difficulties.  The latter thought it was an excellent opportunity to, among others, dismantle the sugar and coconut monopolies controlled by his cronies, reduce government exposure and intervention in the economy, and free up the international trade regime.  Since he, his family and friends dominated many sectors of the Philippine economy, the structural adjustment package of the World Bank was resisted, albeit accorded lip service.  The subsequent shocks beginning with the Third World debt crisis in Mexico and the political crisis caused by the assassination of opposition leader, Benigno Aquino, Jr. in 1983 totally unhinged the situation.  The Aquino assassination not only caused a political crisis but also worsened economic difficulties.  As the Philippines was forced to declare a moratorium on its sovereign debt in October, it submitted itself to the bitter medicine of a draconian IMF economic stabilization program. The said program managed to tame runaway inflation and restore some order to the country’s external accounts but caused the severest contraction of the economy during the 1984-1985 period.

All of these difficulties had the ultimate effect of totally eroding Marcos’s legitimacy and People Power 1 (or EDSA 1) forced his exit from the political scene.  During this difficult period, the more problematic reforms of the redistributive and institution-building type could not have prospered or even attempted.  To the extent that Marcos’ continued rule constituted the single most important barrier to reform, his ouster paved the way for another reform episode.

Cory: the besieged reformer

The economy inherited by the Cory Aquino government in 1986 was in the midst of its deepest recession since 1946, with the economy contracting by as much as 15% in two consecutive years (1984-85).  As if that was not enough, the government had to deal with natural and man-made disasters.  In 1990, Luzon was rocked by a strong earthquake (that registered 7.3 on the Richter scale) which not only killed hundred and destroyed billions of pesos worth of public infrastructure, crops, and other private property.  In the following year, a long-dormant volcano exploded and spread its pyroclastic material inventory built over six centuries the Central Luzon plains.  The amount of material was just so much that the plains are still dealing with pesky lahar flows up to this time.  Before these natural catastrophes, military rebels repeatedly staged coups to oust Aquino from power.  The most serious of these coups occurred in August 1987 and December 1989 and they dampened the economic recovery during the late 1980s.

Anxious to regain the confidence of international investors and creditors, Aquino promised, in a speech before the US Congress in September 1986, to honor, fully and unconditionally, all of the debts incurred during the Marcos regime, even as she acknowledged, in the same breath, that some, if not most of them, were fraudulent or ‘without honor’.  Since her government partook of a revolutionary character from February 1986 up to the middle of 1987, a number of creditors were taken aback and were ecstatic over the unexpected good fortune.  A number of observers thought that a revolutionary government would have at least called for a review of the Marcosian loans, especially those contracted in connection with the Bataan nuclear power plant.  On this front, the influence of Aquino’s finance minister and Central Bank governor carried the day for a non-confrontational approach to foreign management.  As a result, her planning minister who took the stance of selective repudiation of fraudulent accounts eventually resigned from her cabinet after keeping her peace for a few years.  Civil society groups supported the latter approach and went on to organize a broad single-issue coalition around the foreign debt management and economic recovery issues.  They argued that the Philippines needed some relief from its foreign debt problem so that economic recovery could be effected.  They reasoned that the internal requirements of the people who suffered the most during the 1984-1985 recession must be prioritized over the interests of external creditors.  They also insisted that the external creditors should bear some of the risks of their lending to the discredited dictatorship.

Before the incoming legislature could figure in the policy debate, conservative monetary officials proceeded to lock the country into a ‘business-as-usual’ policy vis-à-vis the foreign debt and foreign exchange flows.  They negotiated a debt restructuring agreement with the international creditors’ union (which almost did not push through as some creditors involved in a particularly onerous account threatened to scuttle the talks).  They stopped another government agency (the one charged with pursuing Marcos’ ill-gotten wealth) from following up on fraudulent loan contracts with Japanese suppliers involved in Japanese ODA-funded projects in the Philippines.  Their basic stance was to seek the restoration of the country’s ability to tap the international capital markets at all costs.  They reasoned that any hint of aggressiveness or konfrontasi will jeopardize the prospects of regaining the good graces of the world’s money markets.

Along with restoring access to international money markets, the same set of conservative economic officials restarted the trade liberalization program initiated by Marcos in 1980 but suspended in 1983 as a result of the BOP crisis.  Under the Marcos program, the average nominal tariff fell from 43 percent in 1980 to 29 percent in 1985.  In all, the Marcos program reduced the number of quantitatively restricted import items by half.  From April 1986 to February 1990, the Aquino government removed quantitative restrictions on 1,460 items, about 1,213 of which were liberalized by April 1988.  A series of executive orders issued between October 1986 and October 1987 amended the tariff code, principally through reclassifications.  These reforms left the average tariff rates for exportables at about the 1985 level of 30 percent and reduced the average export tax from 4.5 percent to 2.2 percent.  However, manufacturing continued to enjoy twice the nominal protection, at 20 percent, than agriculture, at 9.9 percent.  This was largely due to the efforts of Aquino’s trade and industry minister, who was closely allied with industrial interests.  MONTES (1992) noted that most of these tariff reforms were meant to be temporary measures to accompany the removal of import restrictions.  He also reported that some economists believed these changes had a minimal effect on the structure of protection between 1986 and 1988.

The December 1989 coup attempt that almost toppled the Aquino government if not for the ‘persuasion flights’ of USAF fighter planes out of Clark Air Base, prompted yet another cabinet revamp like the previous coup attempts against Aquino.  The planning minister, Jesus Estanislao, who earlier replaced the critical Solita Monsod, was named finance minister.  In response to intensified criticism of how traditional industrialists and financiers had profited from their positions in the Aquino government, central bank governor Jose Fernandez was replaced though by another banker, Jose Cuisia.  Cayetano Paderanga, Jr, an Estanislao protégé, replaced him at the planning ministry.  All three—Estanislao, Cuisia, and Paderanga—are associated with the conservative religious group Opus Dei.  By early 1990, the influence of trade and industry minister Jose Concepcion was waning and Estanislao secured a shift of power in his favor and proposed a bold “100-day reform agenda” reminiscent of similar ‘big bang’ initiatives in the former Soviet Union under Mikhail Gorbachev and Eastern Europe, especially Poland.

Estanislao and his allies moved quickly to take advantage of the crisis atmosphere generated by the failed coup and the weakened position of potential objectors inside the cabinet.  The main elements of the 100-day agenda were published in the Manila dailies as the “Report on General Agreement: Special Cabinet Meeting (June 2, 1990).”  It was reported that the principal negotiations were between Estanislao and Concepcion.  They had agreed to a four-tier tariff system but did not agree about the timetable of implementation.  Negotiations included the role and powers of the Board of Investments, a government body that provided incentives to industrial corporations and regulates the entry of all foreign investments.  It was a key operational agency of Concepcion’s trade ministry.

With broad agreement reached within the cabinet, it was up to another government agency, the Tariff Commission, to work out the actual assignment of new tariff rates.  The proposed changes were codified in Executive Order 413.  In summary, the weighted average tariff for agriculture was to fall from 22 to 15 percent while that for manufacturing was to drop from 21 to 14 percent.  In the main, the Tariff commission followed the outline of the cabinet agreement: the lowest rates to raw materials not produced locally, the next higher rate to locally produced raw materials, the next rate to intermediate products, and the highest rate to finished goods.   Nonetheless two issues were unresolved.  First, how will tariff reductions (that in turn will reduce government revenues) affect government efforts to meet stringent budget deficit targets promised the IMF?  Second, was it wise to pursue tariff reform before the reform of more harmful quantitative restrictions on the import of durable consumer goods, motor vehicles, and motor vehicle parts?  A tariff reduction, without removing import QRs, increases the subsidies to protected industries and encourages the wasteful movement of additional resources into them.
Industry-by-industry public hearings on the tariff reform proposals were held to comply with legal requirements.  Nonetheless, no hearings on the new four-tier tariff proposal were done and industry representatives voiced complaints.  The intensity of their objections reflected both their fear of the new rates’ impact and well as their dissatisfaction with the consultative process. While all of these were happening, a killer earthquake caused extensive damage in Northern and Central Luzon and strained the pubic treasury as government responded with relief operations.  The new tariff was promulgated as EO 413 on 19 July 1990, four days before the legislature resumed its session.  The device of an executive order was used to spare both executive and legislative departments a bruising and controversial debate.  However, the absence of consensus amongst the stakeholders and generated a firestorm of resistance from industry and some influential legislators.  UPSE economists also critiqued the Estanislao program from another tack: unless the tariff reform was accompanied by a large devaluation, it would lead to both greatly reduced government revenues and reverse mercantilism, i.e., a flood of imports.

In the face of vociferous opposition, Aquino withdrew EO 413 in October 1990.  A joint executive-legislative committee was formed to placate Congress and a new round of public hearings was held.  A key congressional committee became the venue for bureaucratic negotiations and industry lobbying.  After nine months, a compromise reform program was embodied in EO 470.  The new tariff code, which took effect in July 1992, includes the original four rates of 3, 10, 20, and 30 percent plus five other rates (0, 5, 15, 25, and 50 percent).  Four of these were scheduled to be discontinued after four years, which will result in a significant simplification of tariff rates.  Instead of a maximum tariff rate of 30 percent, the highest tariff rate of 50 percent will be retained.  Some 179 items will enjoy the 50 percent rate on a permanent basis while certain other products will enjoy a 50 percent rate for four years and 30 percent afterwards.  The potential revenue loss from EO 470 was about one fourth of EO 413.  For major manufacturers most dependent upon protection, EO 470 either permitted retention of most existing tariffs or provides a five-year adjustment period.  Using the EPR measure, EO 470 will result in a gradual but substantial reduction in overall protection from 25 percent to 19 percent by 1996.  Importable products, which compete for the domestic markets for agricultural and industrial products, bear the largest reduction, from 47 to 37 percent.  However, the prospective changes will not increase the competitive position of exports since manufacturing still received greater protection compared to agriculture.

The 1990 tariff reform episode illustrates the power of entrenched interests and calls for “a bureaucracy and legislature capable of formulating and implementing economic policy with sufficient autonomy from these interests” (MONTES 1992, 114).  The power of entrenched interests was further demonstrated with the fate of a redistributive reform program—the Comprehensive Agrarian Reform Program (CARP).  While Aquino wanted to avoid acrimonious intra-elite debate on tariff reform and issued executive orders instead, she allowed the landlord-dominated Congress to legislate an agrarian reform law.  While civil society groups organized another broad single-issue coalition in the Congress for People’s Agrarian Reform (CPAR) to work for “genuine agrarian reform), the resulting law reflected landlord power by allowing numerous loopholes in implementation.  Uneven application, slow adjudication of cases, and the government’s inability to finance the compensation of landlords stipulated in the law further hindered progress (PUTZEL 1992 and RIEDINGER 1995).

Elsewhere, the initial reconciliation with revolutionary anti-status quo movements collapsed.  Peace talks with the Communist Party-National Democratic Front-New People’s Army combine stalled after a massacre of peasant demonstrators in January 1987.  The insurgents withdrew from the talks and thereafter, Aquino unsheathed the ‘sword of war’.  There was better progress in the talks with the Moro National Liberation Front.  However, pressure from the US and rightist political actors (notably Aquino’s cashiered defense minister, Juan Ponce Enrile, who also prominently figured with Ramos in the failed coup that morphed into EDSA 1 in February 1986) saw Aquino veering more and more to the right herself, accommodating the policy positions of her more dangerous political rivals.  She also sought the extension of the stay of the US military bases in the country but was frustrated by a Senate vote rejecting the bases treaty in 1991.

Nonetheless, her administration was a transition one from years of authoritarianism and the peaceful and legitimate transfer of power in 1992 was a most singular achievement. That her last years presided over a recession in 1990-91 as well as a debilitating electric power crisis does not reduce the significance of this feat.

Ramos: the ‘can do’ gung-ho reformer

Outgoing president Aquino chose to endorse the presidential bid of retired Gen. Fidel V. Ramos in the 1992 elections instead of House of Representatives’ speaker Ramon B. Mitra, the quintessential traditional politician (or trapo, or dirty rag).  Most likely, Aquino calculated that Mitra’s trapo image will not clinch the election or continue the reforms her administration started.

Not baggaged by connections to established political and economic elites and enjoying a reputation of being ‘Philippine democracy’s guardian’, Ramos hit the ground running with gruelling work ethic (he starts work at 5 am) and the stance of a professional (his staff’s favorite admonition: complete the staff work before seeing him about anything, or ‘CSW’).

He had to act decisively to remedy the power crisis that was crippling the economy and enraging urban residents who had to put up with daily 8-12 hour power outages (brownouts and blackouts).  After that was resolved, he liberalized the capital accounts and assured the complete convertibility of pesos into foreign exchange.  In doing so, he managed to attract substantial amounts of foreign savings and the Philippines became one of the hottest “emerging markets” in the early 1990s.  The bourses were further electrified by a series of initial public offerings (IPOs) involving both private corporations and prime government firms such as the Philippine National Bank (PNB) and the Philippine National Oil Corporation (PNOC).

The boldest initiative of the Ramos administration has been its attacks on the so-called cartels and monopolies of major oligarchic families that have long controlled strategic economic sectors.  His first target was the telephone monopoly: the Cojuangco-controlled Philippine Long Distance Telephone Company (PLDT).  To this observer, his tactics were brilliant: he first scared the Cojuangcos by threatening to form a new telephone company (appropriately acronym-ed NETCO) jointly owned by government and Cojuangco (but with Cojuangco as minority partner).  Then he appeared to be magnanimous and allowed continued control of the Cojuangcos over PLDT provided the latter did not oppose the grant of franchises to other telephone companies.  His administration initiated the ‘service area’ concept where the entire country was divided and assigned to a particular telco to develop.  In this manner, the under-served areas especially in the provinces will not be shut out.  In the lucrative Greater manila Area, the metropolis was likewise divided into ‘service areas’ that accommodated one or two other telcos to compete and co-exist with PLDT.  As a result, each urban service area became duo-polies or tri-polies eroding PLDT dominance.  PLDT of course tried to fight off all of these competitors by refusing or making inter-connection so difficult.  Advances in digital ICT kicked in; the advent of mobile telephony forced land-line telcos to innovate and improve their product lines and services further.  In the end, PLDT went along and noted it generated new revenues even with competition because of inter-connection and infrastructure sharing charges.  He duplicated this feat in the inter-island shipping, domestic and international air travel, and other strategic economic sectors.  He de-regulated the pricing of petroleum products and allowed new players (e.g. British Petroleum, Seaoil, Total, PTT, etc.) into the field to reduce the market power of the three oil majors—Caltex, Shell and Petron.

On the international trade front, the Ramos administration plunged further ahead with accelerated speed.  In 1994, it was able to stitch a legislative alliance for the Senate to ratify accession to the GATT-Uruguay Round Treaty that produced the World Trade Organization (WTO).  Prior to that, it joined its neighbors in declaring the formation of an ASEAN Free Trade Area (AFTA).  With the Philippines’ accession to the WTO, the Ramos government unilaterally announced that it was aligning its AFTA commitments with WTO commitments.  Commitments in tariff reductions that were supposed to be completed in 2010 were to be done by 2003.

Learning from the previous administration, the Ramos administration rightfully thought that economic recovery and reform cannot be undertaken unless a measure of political stability is achieved.  He sought peace first with the militarist rebels in the Reform the Armed Forces Movement-Soldiers of the Filipino People-Young Officers Union (RAM-SFP-YOU combine) by declaring a general amnesty for coup plotters and participants.  The most charismatic and dangerous coup leader, former Colonel Gregorio Honasan was incorporated into the system as an elected member of the Philippine Senate in 1995.  While there is gossip that Ramos and his henchmen ‘doctored’ election returns to ensure Honasan’s electoral victory, many Filipinos accepted that as a small price to pay for political peace. In 1996, a breakthrough peace agreement was signed with the Moro National Liberation Front (MNLF) and its leader, Nur Misuari, became chair of a temporary body—the Southern Philippines Council for Peace and Development (SPCPD)—before a plebiscite created a permanent body—the Autonomous Region of Muslim Mindanao (ARMM)—with Misuari also as its first governor. The settlement with the Communists proves to be less conclusive.  Ramos legalized the Party by repealing a Cold War law and that restarted the peace effort.  The Communists, however, insisted on a four-stage sequenced peace process and both sides reached agreement pertinent to the first stage.  That the Communists were weakened by splits and internecine purges had both positive and negative impact on the peace process.  A positive development on this front was the continued growth of a strong peace movement amongst civil society organizations (CSOs).

Ramos, particularly his chief ideologue and associate, retired Gen. Jose Almonte (who became his National Security adviser), knew that they faced tougher tasks ahead.  It was tactically and strategically useful that they coined a catchy battle cry for the entire reform effort, “Philippines 2000”.  The Ramos effort, to many observers, represented the first strategic at-the-top project for social and economic restructuring since the Marcosian “New Society” program associated with martial law.  Almonte said that they have successfully hurdled the easy phase of ‘legislating’ pro-market reforms. He however acknowledged that the more difficult tasks of institution building, income and asset reform and political reform lay ahead.

For example, they knew they had to clean up the revenue collection agencies and improve the overall tax collection effort.  Two reformers were put in charge of the graft ridden BIR and Bureau of Customs.  Notable progress was achieved in the Customs.  On the hand, the BIR spent substantial time to prepare a multi-billion peso tax evasion suit against erstwhile Marcos crony, Lucio Tan.  In Congress, Ramos tried to push the Comprehensive Tax reform Program (CTRP).

It was in the redistributive front where the Ramos administration made the least progress.  It managed to cobble together a “Social reform Agenda” through a long process of summitry with CSOs and all other stakeholders.  Before you knew it, time has run out on his presidency and the Asian financial crisis brought a stop to the economy’s bullishness.

Before the financial crisis of the late 1990s, Ramos and his key lieutenants knew that reform cannot all be accomplished within a single six-year presidential term.  As the administration surveyed its potential successors, it was alarmed that the most likely winner was the sitting vice president, Joseph Estrada.  Ramos thus tried to parlay his relatively-excellent performance into political capital; his lieutenants started a campaign for constitutional change that will allow, among others, a chance for him to get re-elected in 1998.  However, the onset of the crisis in 1997 and the fact that the benefits of growth had yet to reach the under-classes took a lot of wind from his sails.  A lot of middle class Filipinos, though fearful of an Estrada presidency, could not countenance a self-serving Constitutional change.  It was considered too ‘Marcosian’ and raised the martial law spectre anew.

Estrada: the reversal of market reform and the return to personalism?

For this reason, the country took a gamble on Joseph Estrada in 1998. While some progress was achieved in the easier economic liberalization front (the passage of a new retail trade law and an e-commerce law even ahead of the US in June 2000), these advances were nullified by massive corruption, cronyism and the criminalization of state agencies.  All these came to a boil in late 2000.  Estrada was impeached but the impeachment process was stalled. Another episode of righteous popular anger swept him out of the presidential palace to usher in the administration of Gloria Macapagal Arroyo in January 2001.


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