Aquino: Making Manila Work

MANILA, the Philippines - Most Filipinos agree that the February referendum on their new, 80-page constitution had less to do with the document's contents than with President Corazon Aquino's stewardship since the revolution of late February, 1986.

The constitution won overwhelming approval - 16.6 million Filipino's voted in favor of the draft constitution while only 4.9 million voted against it, a resounding affirmation of Aquino's first year in office.

By surviving four attempted coups, Benigno Aquino's widow has demonstrated her political acuity, and her toughness. Last fall, in a political showdown of sorts, she dumped Defense Minister Juan Ponce Enrile from her cabinet along with other cabinet members. On January 27, she was able to quell an attempted coup by more than 500 troops, perhaps the most serious threat to her year-old government to date.

Under the new constitution, Aquino will begin a six-year term as president in June. Local elections and a vote for the national legislature will be held in the spring of 1987 and some sort of democratic government should then start to take shape.

The outcome of the referendum gave a crucial boost to Aquino's government. But major political and economic obstacles remain, and stability will not be restored to the Philippines until these are overcome. Stability is the key in this strategic Southeast Asian nation, whose land area - 115,830 square miles -and population - 56 million-plus - are almost identical to Italy's. The Philippines, divided into 7,100 islands and nearly 1,200 miles from north to south, is the only Christian nation in Asia, a heritage of 377 years of Spanish rule and 48 years of U.S. rule. About 83 percent of Filipinos are Roman Catholic, 9 percent Protestant. The only significant religious minority are the approximately 3 million Moslems living on the southern island of Mindanao.

Politically, the communists and their followers in the mountains and "rice bowl" of central Luzon, the main, Kentucky-sized northern island, pose the biggest threat and Cory Aquino knows it.

Reynaldo A. de Dios, president of an insurance company here and a fervent Aquino backer, summed up the problem: "Our president feels that many are not really communists but have been forced by social injustice into the hills. Once they are there, they can't come back. She is bending over backward to accommodate them."

The 60-day cease-fire negotiated between the Aquino government and the National Democratic Front (NDF) on behalf of the 23,000-member, communist led New People's Army (NPA) was an important first step, even though it was terminated on February 8. During the cease fire the government gained credibility with the middle class and was able to sway at least some members of the NPA to give up arms in return for amnesty and help in resettling. In late January, however, NDF government talks were indefinitely suspended. Although the NDF claimed the suspension was in reaction to the Mendiola Massacre, where government troops opened fire on 15,000 peasants advocating land reform, some onlookers say the NDF may have cancelled talks because it feared it was losing ground with its supporters.

Almost immediately after the cease-fire ended, Manila announced a new, get-tough policy with the NPA and there have been several bloody confrontations between the communists and government troops. If the communists refuse to go back to the bargaining table, the government has threatened to take the negotiations to the local areas, where promises of land reform and amnesty should garner more interest.

Aquino cannot risk offering too much to the communists. She must, above all, ensure that she has the backing of the military, hence amnesty followed by the get tough policy. Questions on the extent of Aquino's control over the military were raised anew by the Mendiola Massacre, which left at least 20 dead.

Aquino is trying to minimize future run-ins with the communists by advocating limited land reform. The new constitution commits the government to the "just distribution of all agricultural lands." And it guarantees landless farmers and farmworkers the right to "own directly or collectively the lands they till." The Aquino administration will start by redistributing the more than 48,000 acres of land accumulated by Marcos that has already been turned over to the state.

The Communists' official attitude toward the new constitution was summed up by Antonio Zumel, one of the NDF's chief cease-fire negotiators, when he was asked before the election how he would vote: "We're conducting an information campaign," he said, "to let the people know about it so they can decide of their own free will. I personally am not going to vote. I belong to a proscribed organization, the Communist Party."

Satur Ocampo, the NDF's other chief negotiator, said "my inclination is not to favor it, some parts are negative. We'd rather watch from the sidelines."

But the grassroots attitude tends to be different, as expressed by Romulo de Guzman, a communist "commander" - of 70 to 80 followers - in Bulacan Town, about 50 miles north of Manila.

"I'll vote for it," he said. "Its bill of rights is good, though I don't agree with the parts on the economy. Most party members are going to vote yes."

De Guzman, a rice and mango farmer who was once vice mayor of this town, said "It's better to have a constitution we can amend than nothing. The barometer is going up. Everybody, even in the countryside, is deciding to vote yes."

The countryside remains the heart of the Philippine economy - more than 60 percent of the Philippine population is rural.

Under Marcos in the 1970s, a land reform program was put in place, but it exempted sugar and coconut plantation owners and provided so many loopholes for owners of rice lands that virtually no redistribution took place. Now the Union for Agricultural Workers has proposed an agrarian reform program which it says "calls for radical changes," such as decreasing the amount of land that can be owned, lengthening amortization periods, abolishing interest charges, creating a "well-balanced pricing policy" and extending more effective government help to farmers.

But the country, still hurting from more than 20 years of Marcos dictatorship and a civil war, needs more than just land reform. The World Health Organization's (WHO) year-old "Health Information Profile" presents facts which suggest that major economic changes must be undertaken soon. For example:

• Only 64.5 percent of the Filipinos have "safe" water and only 56.5 percent have "adequate sanitary facilities."

• The infant mortality rate - deaths in the first year of life -is 58 per 1,000 living births. The U.S. rate is 11 per 1,000.

With a population growing at 2.4 percent annually and a 1985 per capita income of $556, the new constitution's restriction against abortions has serious consequences. The constitution says the state "shall equally protect the life of the mother and the life of the unborn from conception."

In some Third World nations, such as Thailand, where birth control programs have been effective in bringing down the rate of population growth, this kind of clause might not be a problem. In the Philippines, however, the addition of 1.4 million mouths to feed yearly would be disastrous. Even WHO, using conservative figures, projects a Filipino population of 75 million by the year 2000.

The dimensions of the Marcos regime's mismanagement of the Philippine economy were laid out near the end of last year by Finance Minister Jaime V. Ongpin, who ran the big Benguet Mining Corporation and was an outspoken Marcos opponent before Aquino's accession.

In a public talk and an interview, Ongpin said the Aquino administration had "inherited a very sick economy" from Marcos. After "two decades of plunder and abuse," he said, the economy was in a state of massive disrepair. The statistics, he said, are alarming:

• Over the past five years the peso has been repeatedly , devalued and is now worth only a third of its previous dollar exchange value.
• The Gross National Product (GNP), sum of the value of all goods and services produced, was down 5.3 percent in 1984 from 1983, and down 3.8 percent in 1985 from 1984.
• Inflation "soared to 50 percent in 1984, 23 percent in ' 1985"; interest rates "escalated beyond 30 percent" as late as February, 1986, and the country's foreign exchange reserves at that time "had dwindled to $911 million."
• "Real unemployment had risen to a range of 15 to 20 percent and underemployment to a level of 35 to 40 percent."
• The foreign debt had risen to over $26 billion. Interest payments alone used up almost half of the country's export earnings in 1985.
• Less than half the Philippines' manufacturing capacity was being used because of "a severe downturn in domestic demand."
• The "coconut and sugar industries, as well as trading in grains, meat and fertilizers, were controlled by either crony or state monopolies."
• Finally, "70 percent of our population was living below the poverty line compared with only 28 percent when Marcos came to power in 1965," Ongpin said.

Since Aquino came to power, said Ongpin, the peso has stabilized and foreign exchange reserves have grown to more than $2 billion, in part because a lot of anti-Marcos money held in Hong Kong banks was returned to the country. Inflation has been brought completely under control - in the first nine months it averaged only 1.1 percent - and interest rates are now down to 11 to 12 percent for "prime borrowers."

"The best news, especially for the 15 million Filipinos who depend on the coconut industry, is that the copra export ban has been lifted and all export taxes have been abolished," Ongpin said. "The crony and state monopolies in coconut, sugar, meat, grains and fertilizer have likewise been abolished and free trading has been restored in all these commodities."

And, in an effort to raise consumer purchasing power, the government has revised its budget to increase public spending for "infrastructure and job-creating schemes focused on the agricultural sector and rural areas," said Ongpin. It broadened the tax base, going after the wealthy and "lightening the tax burden" on lower-income people. It is restructuring both the Philippine National Bank and the Development Bank of the Philippines to make them commercially competitive and at the same time is disposing of several hundred million dollars worth of "non-performing assets" held by those banks. And Aquino's government is getting about $1 billion in foreign aid.

The International Monetary Fund has approved a new $508 million "standby agreement," triggering the release of previously negotiated new money from commercial banks. The hope is that this will pave the way for a $300 million economic recovery loan from the World Bank which would then be co-financed by a parallel $300 million loan from the Ex-Im Bank of Japan.

One index of the Philippine economy's resurgence, said Ongpin, is that through the first nine months of 1986 non-oil imports increased 33 percent over the same 1985 period, "with raw materials and intermediate goods increasing 47 percent, capital goods by 24 percent, consumer goods by 10 percent."

The Aquino administration, of course, is more optimistic than most outside observers. One U.S. economist said the Philippines would "just barely eke out a little bit of positive

GNP growth" in 1986, which is "a good sign considering that the GNP was down 0.4 percent in the first nine months of 1986, compared with 1985."

The economist added: "There seems to be a modest turnaround. By the end of the decade the Filipinos could recover to where they were at the decade's start."

That's not good news for the Aquino government, but it's a realistic appraisal. In the 1960s and 1970s the Philippine GNP averaged a growth rate of more than 3 percent annually, peaking at 9 percent in 1973. But the world recession of the early 1980s, accompanied by severely depressed commodity prices and the Marcos regime's economic gluttony badly damaged the Philippine economy.

One of the Aquino government's biggest problems is restructuring the foreign debt, which stood at $200 million when Marcos took office in 1965 and is now more than $26 billion. Some economists estimate that it is nearer to $30 billion.

Of the total, more than $9 billion is owed to approximately 400 foreign banks. The single biggest exposure is a $1.8 billion debt to Citicorp, holding company of the largest U.S. bank, Citibank. Citibank Philippines has been a profitable operation; in 1985 it netted 4.09 pesos for every peso of "assigned capital." Indeed, Citicorp doubled its share of all commercial banks' deposits from 1983 to 1985 and increased its profitability from 15 percent of all commercial banks' profits in 1983 to 23 percent in 1985.

Now Citicorp is the lead bank on a committee of a dozen banks negotiating with the Aquino government to restructure the foreign debt. The negotiations center on what rate above the LIBOR (London Interbank Offered Rate) the Philippines should pay. Both the Aquino government and the World Bank believe Citicorp has been intransigent. The Philippine negotiators would like to get a rate equal to that which Mexico received, but the banks, which already have too much Latin American exposure, don't want the Mexican rate to set a precedent. After a prolonged suspension of talks, Citicorp has eased its demands and an agreement may soon be reached.

The Aquino government is also negotiating with the World Bank for 20-year, six-percent loans with a 10-year grace period to start.

For now, the Philippine commercial banking system is "awash with liquidity," said Ongpin, due in part to the significant decrease in capital flight. Before the revolution, says Ongpin, "capital flight amounted to $1.5 billion a year."

One way Aquino's government is recapturing capital is through an ingenious "debt-to-equity conversion" scheme, introduced by the Central Bank last August. Under this scheme, investors can buy Philippine external debts in secondary markets abroad at discounts from their face value, then redeem the debt for the full peso equivalent of the debt's face value, provided the peso proceeds are used for long-term investments in the Philippines. The government charges a fee for each transaction, said Ongpin, "in order to share a minor portion of the discounts."

The scheme is intended to:

• Offer a major incentive for Filipinos to repatriate foreign currency.
• Attract foreign investors to undertake long-term equity investments.
• Reduce the level of the country's external debt burden.
• Give foreign banks a chance to unload their shaky Philippine debt portfolios.

In the scheme's first three months the Central Bank had approved 15 of more than 40 applications for the conversions, representing transactions valued at $32.5 million out of a total of $211 million sought.

But Reynaldo de Dios said most investors, both domestic and foreign, were still taking a "wait-and-see" attitude. He noted one "tragic consequence" of the 1980s' economic turndown, aggravated by Marcos regime mismanagement, was that 400,000 to 500,000 of the "most-skilled" Filipinos had accepted jobs overseas. For the nation, he said, that meant and means "over $1 billion a year in remittances sent home, but it also means that our college graduates are ending up as domestics for the Saudis, Malaysians and Thais."

The hope here is to lure back the skilled Filipinos and to attract new capital which Cory Aquino's government can direct toward productive ends. The United States and Japan, the Philippine's two biggest customers, are trying to help, but most Filipinos recognize they're going to have move toward the development of such neighbors as Taiwan, South Korea and Singapore on their own steam. Right now the bulk of the Philippine nation seems to realize that Aquino is the best asset they've got. 0

William Steif, a freelance writer based in the U.S. Virgin Islands, writes regularly for the Multinational Monitor.