The love-hate triangle, Part I

“The changing triangular relations between the Philippines, the United States and the People’s Republic China: From Obama, Aquino, and Xi and beyond”[1]

 

Amado M. Mendoza, Jr. and Richard Javad Heydarian[2]

The triangular relationship between three states–the Philippines, the United States of America, and the People’s Republic of China (the former a minor power and the other two are great or major powers)–is defined and promoted by each of these states according to their best lights and interests.  Notwithstanding the twist and turns of the trilateral relationship and subsidiary bilateral relationships, the conduct of the major powers in relating with each other is marked by ‘pragmatic opportunism’. Meanwhile, the Philippines is guided by naive incompetence under-girded by a failure to recognize an ally’s strategic opportunism as well as an unfounded belief that the ally is always there or could be forced to be there to protect Philippine interests vis-a-vis the PRC.  Such incompetence is a function not only of naiveté but also of wishful thinking, the lack of a strategic planning culture, and plain laziness amongst Filipino policy-making elites.

Fareed Zakaria, the plagiarizing pundit so beloved by American media, opined that the so-called post-American world is not about the decline of the United States but rather the rise of everybody else.  Zakaria is as usual too effusive and sanguine; not everybody else will rise or has risen.  Consider Africa. Has it undeniably profited from the opportunities generated by contemporary globalization?  How about the war-torn and failed states of Afghanistan, Syria, Libya, and Senegal?

In truth, what are quite clear are the rise of China (the People’s Republic of China, or PRC) and the resurgence of the Asian region as a whole.  The world is indeed changing; more particularly, the locus of economic power has been shifting from a (by now Old) New World in Europe and North America to a (by now New) New World in Asia.  Wracked by public economic malaise and simultaneously hollow and hyper-financialized economies, the West is apparently playing second fiddle to the East in a seeming return of the world’s center of gravity to a region that held sway in ancient times (See Kohli, Sharma and Sood 2011 and Nye 2015; for a differing viewpoint, see Dollar 2007).

Talk is rife about a new Asian century.  This conference was in fact premised on this shift to the East and inquires into how the Philippines will (and should?) respond to the varied and multi-faceted challenges generated by a rapidly-changing strategic (regional and global) environment.  Key to this endeavor is an analysis of the country’s relationship with two key powers—the United States of America (USA) and the People’s Republic of China (PRC).

This paper argues that the Philippines has clung to and continues to abide by an outmoded and wishful appraisal of the capabilities and intentions of its American ally.  Consequently, it has erred in the conduct of its relations with a powerful rising neighbor, China.  The mistakes have particularly piled up during the current presidential administration of President Benigno Simeon C. Aquino III, who hopefully will step down from office on the last day of June next year.  In preparation for a post-Aquino foreign policy, this paper will suggest some ways to rectify these errors.  However, a clinical understanding of the current situation is necessary to undertake such reforms.

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[1] Paper presented at the 1^st Asian Politics & Policy International Conference, UP Asian Center, 25 July 2015. It is still a draft and should not be cited without the corresponding author’s knowledge.

[2] Mendoza is full professor of political science at the University of the Philippines (Diliman) while Heydarian is assistant professor of political science at the De La Salle University (Manila).  Comments are welcome and should be address to the corresponding author through ammendozajr@gmail.com.

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References:

Dollar, D. 2007. “Asian Century or Multi-polar Century.” World Bank Policy Research Working Paper No. 4174.

Kohli, H., Sharma, A., and Sood, A. eds. 2011. Asia 2050: Realizing the Asian Century. Singapore: Sage Publications.

Nye, Joseph Jr. 2015. “The future of U.S.-China Relations.” Brazilian Journal of International Relations 4(1): 7-20.

Explaining the Philippine (Non-)Growth Record, 1946-2000: From Independence to Estrada’s Ouster

Explaining the Philippine Growth Record 1946 to 2000

Note:  This is another ‘old’ paper resurrected from my external disks.  I am again sharing it for what its worth.  I intend to update the monograph to cover the presidential administrations of Gloria Macapagal-Arroyo (2001-2010) and Benigno Simeon C. Aquino III (2010-2016) very soon.

Banking liberalization in the Philippines (Last part)

Concluding remarks

 

If one is to assess the efficacy of the banking liberalization using the economic efficiency standards of liberalized markets, then it was a failure.  It did not bring down the cost of money, did not narrow intermediation spreads (the gap between bank borrowing, i.e., deposit rates, and lending rates), and did not increase the supply of loanable funds to the cash-strapped economic groups and sectors, including agri-business and venture capitalists/entrepreneurs.  Under the relatively-constricted terms of financial liberalization, the new banks came in only to cater to the already competitive but still lucrative high-end corporate market.

This lack of potency can only be explained satisfactorily by the mangling of the terms and the intent of the banking liberalization law.  To the extent that the law hewed closely to the preferences of the financial oligopolists, then it signifies another notch up their sleeves.  To the extent, however, that new players have come in and may be able to offer significant competition in the future, then the law can be considered a skillful compromise as well as an opportunity for thorough-going financial openness.  The future course of events is, of course, an empirical matter that could not be settled in this paper.  One can only speculate and perhaps hope for a more competitive financial regime that can offer cheaper credit to all fund users but still able to afford investors with respectable yields and acceptable risks.

REFERENCES

1. Books and Journal Articles

“Liberalization and the Transformation of the Philippine Economy.” Governor’s Page, CB Review 44(4): 1-2.

Alesina, Alberto and Guido Tabellini. 1989. “External Debt, Capital Flight, and Political Risk.” Journal of Development Economics 27(2): 199-221.

Andrews, David. 1994. “Capital Mobility and State Autonomy: Towards a Structural Theory of International Monetary Relations.” International Studies Quarterly 38(2): 193-218.

De Dios, Emmanuel. 1996. “Resource Mobilization and Industrial Organization.” In Financial Sector Issues in the Philippines, pp. 55-82. Edited by Raul Fabella and Kazuhisa Ito. Tokyo: Institute for Developing Economies.

Frieden, Jeffrey. 1991. “”Invested Interests: The Politics of National Economic Policies in a World of Global Finance.” International Organization 45(4): 425-51.

_____________and Ronald Rogowski. 1996. “The Impact of the International Economy on National Policies: An Analytical Overview.” In Internationalization and Domestic Politics, pp. 25-47. Edited by Robert Keohane and Helen Milner. Cambridge University Press.

Haggard, Stephan and Chung H. Lee. 1995. Financial Systems and Economic Policy in Developing Countries. Ithaca: Cornell University Press.

Haggard, Stephan and Sylvia Maxfield. 1996. “The Political Economy of Financial Internationalization in the Developing World.” In Internationalization and Domestic Politics, pp. 209-39.  Edited by Robert Keohane and Helen Milner. Cambridge University Press.

Hutchcroft, Paul.1998. Booty Capitalism: The Politics of Banking in the Philippines. Quezon City: Ateneo de Manila University Press.

Goodman, John and Louis Pauly. 1993. “The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets.” World Politics 46(1): 50-82.

Kurzer, Paulette. 1991. “Unemployment in Open Economies: The Impact of Trade, Finance and European Integration.” Comparative Political Studies 24(April): 3-30.

_______________. 1993. Business and Banking: Political Change and Economic Integration in Western Europe. Ithaca: Cornell University Press.

Lee, Chung H. and Stephan Haggard. 1995. “Introduction: Issues and Findings.” In Financial Systems and Economic Policy in Developing Countries, pp. 1-27. Edited by S. Haggard and C. H. Lee. Ithaca: Cornell University Press.

Mendoza, Amado Jr. 1995. “Who’s Wagging the Dog?: State, Rent-Seeking and Finance in South Korean NIC-hood.” Kasarinlan 11(1-2):149-174.

______________. 1996. “Democracy and Economic Growth: What’s in Store for South Korea?” Kasarinlan 12 (1): 45-70.

Montes, Manuel and Johnny Noe E. Ravalo. 1995. “The Philippines.” In Financial Systems and Economic Policy in Developing Countries, pp. 140-81. Edited by S. Haggard and C. H. Lee. Ithaca: Cornell University Press.

Nam, Sang-woo and C. H. Lee. 1995. “Korea.” In Financial Systems and Economic Policy in Developing Countries, pp. 31-55. Edited by S. Haggard and C. H. Lee. Ithaca: Cornell University Press.

Pauly, Louis. 1988. Opening Financial Markets: Banking Politics on the Pacific Rim. Ithaca: Cornell University Press.

Rosenbluth, Frances. 1989. Financial Politics in Contemporary Japan. Ithaca: Cornell University Press.

Suleik, Mercedes. 1992. “Banking and Financial Reforms in the Philippines (Part 2).” CB Review 44(1):13-17.

Winters, Jeffrey. 1994. “Power and the Control of Capital.” World Politics 46(4): 419-52.

World Bank. 1988. Philippines: Financial Sector Study. Industry and Energy Operations Division, Country Department II.

Banking liberalization in the Philippines (Part 5)

House vs. Senate

Major issues in the legislative debate included how many foreign banks would be allowed to enter, their mode of entry, how much capitalization would be required of the new entrants, and how many branches each would be entitled to open up.  The bill enacted by the Senate in April 1994 (SB 1606) was far more restrictive than that earlier passed by the House (HB 8226).  It permitted only six to eight new entrants (rather than leaving the matter up to the Monetary Board, as did the House bill), required $16 million in capitalization (rather than the roughly $5 million required by the House), and sanctioned only six branches for each of the foreign banks, whether existing or new entrant (rather than giving the foreign banks the same privileges as the domestic banks).  As to the mode of entry, SB 1606 hewed closely to the Angara-Roco-Ople version.  First, it disallowed the entry of foreign banks as a wholly-owned and controlled subsidiary incorporated under Philippine laws, which the House version permitted. Second, while HB 8226 allowed foreign banks to own up to 70% of the voting stock of an existing Philippine bank, the Senate version limits foreign ownership to 60% of a bank, whether existing or newly established.  Third, the Senate version restricts the entry of foreign banks to only one mode of entry.  The appropriate section of SB 1606 read:

Sec. 2.  Modes of Entry. – The Monetary Board may authorize foreign banks to operate in the Philippine banking system through any of the following modes: (I) by acquiring, purchasing or owning up to SIXTY PERCENT (60%) of the voting stock of an existing bank; (ii) by investing in up to SIXTY PERCENT (60%) of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or (iii) by establishing branches with full banking authority: Provided, That a foreign bank may avail itself of only one (1) mode of entry: Provided, further, That a foreign bank or a Philippine corporation may own up to sixty percent (60%) of the voting stock of only one (1) domestic bank or new banking subsidiary.

How the banks positioned themselves in the debate

The major argument of the BAP was that, to ensure a ‘level playing field,’ foreign and domestic banks should have the same minimum capitalization requirements ($27 million for non-unibanks).  On the question of branches, however, they desired a most uneven field: retention of the three-branch limit for foreign banks, thus ensuring that the vast bulk of depositors would remain outside the reach of external competition.  As the debate heated up, the BAP waged a media campaign to weaken the extent of actual liberalization and support the more restrictive Senate bill.

The four foreign banks already in the system—in particular Citibank, by far the largest and most influential of the four—actively supported the less restrictive terms of entry.  It is believed that while these banks would be most directly affected by the entry of new foreign banks, a strong desire for more branches was apparently a stronger consideration.

As the bicameral conference committee convened to reconcile the differences between the two bills, tensions escalated between House and Senate, foreign and domestic banks, avid and reluctant reformers.  After deadlocks among key sponsors, the House and the Senate forged a May 1994 compromise allowing the entry of ten foreign banks and sticking with the Senate’s earlier six-branch restriction on the scope of their operations.  Minimum capitalization of roughly $9 million allowed three branches, and $13.5 million the rights to six.  The new law also provided a second mode of entry for foreign banks: up to 60 percent ownership of a domestically incorporated bank (as compared to the 30% to 40% permissible since the 1970s).  The BAP made no effort to hide its pleasure over the compromise; BAP president Rafael Buenaventura[1] explained that the final law “met [our] standard in terms of balancing the national interest with the country’s need for globalization without making too many unnecessary concessions.”[2]

Twenty-one banks applied for entry and in early 1995 the ‘magic’ ten were selected.  These include Australia and New Zealand (ANZ) Bank, Bangkok Bank, Chemical Bank, Development Bank of Singapore, Deutsche Bank, Fuji Bank, International Commercial Bank of China, Internationale Nederlanden Groep (ING) Bank[3], Korea Exchange Bank, and Bank of Tokyo.  Three of these banks—Chemical, Deutsche, and Tokyo—were not exactly new since they had offshore banking units (OBUs) in the country prior to 1995.  By 1996, all had opened shop—and by the way they did so it was evident that their direct impact on competition would likely be confined to the very top end of the market, which was already competitive.  In general, they established offices on the upper floors of Makati skyscrapers and did not bother with the expense of lobbies or tellers.[4]  In effect, the new banks will compete in the corporate banking and trade financing, segment of the market where there’s already keen competition.  Even Citibank, the only foreign bank that may begin to have the institutional strength to tap a larger segment of the market, shied away from the market’s lower end.  It has yet to complete the six-branch quota since it only has four branches so far—Makati, Greenhills, Libis Citi-Square (the newest branch inaugurated by no less than President Estrada last April 2000), and Cebu.

To be concluded….

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[1] Mr. Buenaventura is the current governor of the Bangko Sentral ng Pilipinas (BSP).

[2] Rafael Buenaventura, “At the Forefront of Change,” Fookien Times Philippines Yearbook 1994, p. 180.

[3]When the British merchant bank, Baring Brothers, collapsed due to the uncontrolled trading of a rogue trader, it was acquired by ING.  In the process, ING Philippines also acquired Baring Securities (Philippines).

[4] Of the ten, only the Development Bank of Singapore (DBS) opened more than one branch, presumably to better oversee remittance of foreign exchange by Filipino OCWs in Singapore to relatives in the Philippines.