Marcos’ Future May Hinge on Economy of the Philippines

Philippines President Ferdinand E. Marcos went to Cebu recently to outline his plan for economic recovery of the Philippines and to give a pep talk to businessmen.

Urging them to look for new investment opportunities, he spun a little story. The subject was kaolin, a clay-like substance used in ceramics and other products. The president said he had been surprised to learn that the Philippines has a lot of the stuff. He then confided how it came to his attention:

“Several foreign entrepreneurs came to me and asked for exclusive rights to kaolin deposits,” he said.

The economy of the Philippines is beset by problems and Marcos’ story revealed one of the basic ones: the concentration of power and influence at the top of government.

When foreign investors feel that they have to go to Malacanang Palace to ask the president of the republic for exclusive mining rights, a Southeast Asian diplomat said, it illustrates “exactly what’s wrong with the Philippines.”

If snap presidential elections are held early next year, as Marcos says he wants, the economy will be a top issue. The role of Marcos and some of his political allies in directing agriculture and industry will be a certain opposition target.

“The business community has been demanding reform, but Marcos has not moved,” said Jose Concepcion Jr., who runs a food products company and is active in the opposition.

The president has his defenders. Defense Minister Juan Ponce Enrile asks, “Is it the fault of Marcos that the world price of sugar has gone down? Is it his fault that the sugar plantation owners have had to lay off workers?”

But after 20 years as president, Marcos will find it difficult to deflect the issue. These are hard times. Unemployment is estimated at 15%, underemployment as high as 45%.

Manila, the country’s industrial center as well as its capital, has been particularly hard hit. Some garment workers here reportedly make only 8 pesos a day, less than 50 cents.

Foreign investors are wary--at the very least. Political and Economic Risk Consultancy, a Hong Kong think tank for multinational corporations in Southeast Asia, said in a report earlier this month: “The Philippines stands alone as the most risky non-Communist country in the region for doing business.”

The report cited both economic factors and potential political instability, specifically the threat of the communist-led insurgency here.

Paul D. Wolfowitz, assistant secretary of state for Pacific and East Asian affairs, told a House subcommittee recently, “Some economic models show that the (Philippines’) downslide has bottomed out and that the economy is beginning a recovery. However, domestic and foreign investment is still flat.”

Marcos told the businessmen in Cebu that the government’s economic policy will concentrate on agricultural exports to lead the way to recovery, particularly products “that others can’t produce, or where we have a competitive advantage.”

He also announced approval by International Monetary Fund negotiators for the government’s economic and fiscal policies, which, if endorsed by the IMF board in Washington, will release another $106 million to help the Philippines handle its debt problems. Half the country’s export earnings now go to pay interest on its $26-billion foreign debt.

The economy has been in a tailspin since late 1983, initially the result of a financial crisis. In 1984, economic growth declined by 5.3%, its sharpest contraction since World War II, and a similar figure is likely this year.

Reduced Inflation

The government has followed an austerity program under IMF guidance and has succeeded in reducing inflation from the 50% mark in 1984. The rate this year is expected to be about 20%. Interest rates have also fallen sharply. But despite the decline in consumer prices, the domestic market is drying up.

“It’s OK in the provinces, where with the exception of the (sugar-producing) province of Negros, subsistence farming has allowed people to live a near-normal life,” the Southeast Asian diplomat said. “But here in Manila, an industrial city, it’s very difficult.”

Toyota, Ford and General Motors have shut down their Philippines assembly plants in the compressed market, though Nissan and Mitsubishi are still operating. Three banks have closed their doors this year, the reason being “mainly bad loans,” according to the diplomat.

“The whole banking system is being propped up by the central bank,” he added.

The proposed presidential elections themselves pose a threat to the fragile economy. Opposition spokesmen and businessmen estimate that the ruling KBL Party will spend at least $300 million on a campaign to reelect Marcos, and some estimates are double that.

Any figure between the two estimates could send inflation soaring again, businessman Concepcion said. A smaller amount, however, might put a little life back into the consumer economy.

Coconut oil and sugar remain the country’s top agricultural exports. More than 35% of the 54 million Filipinos are involved in their production, processing and sales. But the world price of sugar collapsed several years ago, and this year the coconut oil industry has been hard hit by competitive products and storm damage.

Close Ties to Marcos

The two industries have been largely controlled by businessmen closely allied with the president. Roberto Benedicto has directed the sugar industry through monopolistic government agencies. Eduardo Cojuangco parlayed his own money and his friendship with Marcos to gain control of the coconut business.

The two men epitomize what the opposition calls cronies. Former Sen. Salvador Laurel, a front-runner for the opposition’s presidential nomination, lists “stamping out monopolies” as a prominent campaign promise. International lending organizations have also pressured Marcos to open up the sugar and coconut industries.

“Agriculture is doing OK,” a foreign economist here said. It showed a slight growth last year while the industrial and service industries tumbled. “The problem is to redistribute the benefits,” he said. “Most of the money goes into the pockets of the cronies and large millers.”

But economic reforms present the president with a political problem. Much of Marcos’ support comes from businessmen who have benefited from his friendship. Some run rural political fiefdoms important to the KBL at election time.