Aquino Inherits Economy Beset by Poverty and Debts

Last Wednesday, only a few hours after former President Ferdinand E. Marcos fled the country, enterprising young Manila hawkers were forcing their hands through car windows to sell tabloids with sensational headlines. “FM (Marcos) Flees to Guam,” said one red-inked headline. “Malacanang (Palace) Ransacked!” said another.

In their midst, at a downtown intersection, stood one emaciated old woman with a beleaguered face, apparently oblivious to the dramatic turn of events. Gesturing with hand to mouth in the time-honored way, she was begging passers-by for money to eat.

It was a chilling reminder of the economic difficulties that the new government of President Corazon Aquino faces.

With the major undertaking of its political revolution accomplished, the Philippines remains a nation in which half the population lives below the poverty line, in which an estimated 15% to 20% of the people have no work at all and another 40% hold no more than half-time jobs.

A week ago, Aquino was an outsider pressing for a nationwide boycott of prominent Philippine banks and businesses run by Marcos’ allies.

Now, she is suddenly confronted with the daunting tasks of restoring business confidence, attracting back the capital that has been pouring out of the nation and trying to figure out how the Philippines can discover a path to prosperity comparable to that blazed by East Asian neighbors such as Taiwan and South Korea.

Last week, in the aftermath of Marcos’ departure after two decades of rule, the euphoria that gripped the Philippines produced a sudden outpouring of economic optimism.

Share prices for Philippine companies jumped upward, the value of the Philippine peso stabilized, exporters reported a flood of orders from overseas and foreign governments, banks and businesses rushed to express support.

But in interviews, experts on the Philippine economy cautioned that the nation has long-term structural problems that cannot be solved merely by the departure of Marcos and his cronies.

‘Tremendous Expectations’

“Cory’s going to have to face a long period of restrained economic growth,” said one foreign economist. “Enthusiasm does not create an economic miracle. There are tremendous expectations building up on the economic side, and no way for her to fulfill them.

“The people who went into the presidential palace on Tuesday night and grabbed tiny clocks or pictures are the ones who have gotten something material out of this revolution. The rest of the country may have to wait for a long time.”

The Philippine economy remains heavily dependent on agriculture, which in 1985 accounted for half the nation’s total employment and a third of its export earnings.

Coconuts, Sugar

The two main cash crops traditionally have been coconuts and sugar. Both have been developed through state-supported private monopolies run by Marcos’ business supporters. The prices for both commodities were high during the 1970s, but since then the price of sugar has collapsed and the Philippine coconut industry also has been in a slump.

Although the Marcos regime spent heavily on some industrial projects, it missed out on the opportunity for export-oriented industry that spurred economic growth elsewhere in Asia over the previous two decades. Economists say that with the market in the United States contracting, it is now too late for the Philippines to try to develop such industries as textiles, toys and electronics.

“She (Aquino) is saddled with the same long-term problems that her predecessors faced,” said Fred C. Whiting, president of the American Chamber of Commerce in Manila. “She needs to figure out how to reorient the economy toward nuts-and-bolts agriculture.”

Declining Since 1983

The Philippine economy has been in rapid decline since 1983. After the August, 1983, assassination of Benigno S. Aquino Jr., husband of President Aquino, Filipinos concerned about political turmoil either began transferring money abroad or, in the case of overseas workers, simply stopped sending it back home.

“A good chunk of money went out in 1983 and didn’t come back,” said D. N. Vistan, operations officer for the Philippine subsidiary of Citibank. Vistan said there was another burst of capital outflow in recent weeks, during the presidential election campaign and shortly after the election.

In all, he estimated, “we might be talking about $100 million, maybe more. It was a lot of money.”

During the late 1970s, the Marcos government borrowed heavily from commercial banks eager to recycle their petrodollars. The Philippines now has a foreign debt estimated at $26 billion to $27 billion, the fifth-largest of any nation in the world and the largest of any country outside Latin America.

In late 1983, the Philippines declared itself unable to meet some of its debt repayments. That statement brought a halt to most foreign credit and to the nation’s economic growth. The Philippines’ gross national product declined by 5% in 1984 and another 4% in 1985.

Even if political stability returns quickly under Aquino, few economists expect any significant growth this year.

Minus Growth Rate?

“I expect the growth rate to be between minus 1% and 1% this year,” said Francisco Trinidad Jr., an economist for the Center for Research and Communications, a private economic foundation. “I don’t think the economy is capable of returning to the 6% growth rates of the 1970s despite the resurgence of business confidence.”

During her election campaign, Aquino provided only the broadest outlines of how she hopes to rejuvenate the Philippine economy.

In her most detailed speech, made to a coalition of Manila business leaders last month, she pledged to dismantle the coconut and sugar monopolies, end special privileges for businessmen and in general reduce government involvement in the private sector. She also said she wanted to implement “a genuine land-reform program,” one that goes beyond Marcos’ land-reform legislation.

Focus on the Poor

Aquino told her first press conference that her principal aim will be “to improve the lot of the poor, unemployed and underemployed.” Her second concern, she said, will be the foreign debt, which she said she will seek to renegotiate.

“It was a little vague, but she was in the mainstream of Philippine economic thought,” observed one U.S. official.

In the few days since Marcos’ departure, Aquino and her forces have concentrated largely on providing assurances of stability to the business community, restoring confidence and keeping the economy running.

Boycott Called Off

The new president quickly called off a boycott she had proposed of businesses and banks allied with Marcos. She announced that she will retain Jose B. Fernandez, a Marcos appointee, as governor of the Central Bank of the Philippines. And she appointed two well-known businessmen to serve as her ministers of finance and of trade and industry.

The president and her new appointees have also reaffirmed the broad promises made during the campaign.

Newly appointed Finance Minister Jaime Ongpin announced that the monopolies created by Marcos will be dismantled, and Agriculture Minister Ramon Mitra said specifically that the coconut and sugar monopolies will be broken up.

Other Questions

But economic analysts say that the new government will soon have to face other, more conventional economic questions on which social concerns and business interests may collide.

“One immediate question is whether the government will transfer land to new uses in order to feed people,” said one Western diplomat. “For example, in Negros (the center of the Philippine sugar industry), people were virtually starving, and businesses have been unwilling to transfer the use of their land” so that other crops can be grown.

In some parts of Negros, on once-lush sugar plantations, three or four young children die each week from malnutrition and its side effects. Their parents have no jobs and no money, and many families survive only because of United Nations feeding programs.

Some Immediate Benefits

Most experts believe the change from Marcos to Aquino will carry some immediate economic benefits.

The ouster of Marcos’ longtime allies will mean new management for some of the nation’s largest business concerns. The proposed breakup of monopolies will bring about increased competition and efficiency. And a successful drive against corruption may itself stem the diversion of money out of the country.

“The cronies won’t be skimming it off the top anymore,” said one economist. “What you’ll see is a fairer distribution of the limited proceeds.”

Aquino’s aides also held out the hope last week that they may be able to recover as much as $5 billion to $6 billion in “hidden wealth” clandestinely taken out of the country by Marcos and his associates.

Japan Revives Loans

Also, the new Aquino regime is hoping that increased support from foreign governments and more lenient treatment by foreign lenders will help the economy.

Only two days after Marcos left Manila, Japan announced that it will revive loans to the Philippines that had been postponed. U.S. special envoy Philip C. Habib met with Aquino and her aides last week, and diplomatic sources said the Reagan Administration is likely to announce a new, larger aid package for the Philippines.

In the current fiscal year, the United States is giving $241 million in aid to the Philippines, of which $55 million is military assistance.

But one diplomat warned that in the climate of extreme budgetary constraints brought on by the Gramm-Rudman Act, the amount of new aid that the Reagan Administration can offer is not great. “The U.S. government doesn’t have any money right now,” said this official.

No Hasty Commitments

Analysts said last week they expect the Philippines to have an easier time persuading foreign banks to renegotiate debt repayments under Aquino than it would have had under Marcos. Yet one international banker in Manila, who spoke on condition of anonymity, said that the lenders are not eager to make any hasty commitments.

“The foreign creditors have no basis yet to decide whether they will agree to change the terms of the loans,” said this banker. “Things have just happened so quickly.”

The Philippines owes money to 483 different banks. The largest single amount, more than $1 billion, is owed to Citibank.

Investment Goal

After he was appointed finance minister, Ongpin said he hoped that loan negotiations with foreign creditors will improve “now that they will be dealing with a government they can trust.” At the same time, Ongpin said he wants to attract new money to the economy primarily through investments rather than new loans.

Some businessmen said the crucial factor will be whether the Aquino forces can persuade Philippine businessmen to begin channeling money into the local economy again.

“The most important thing would be seeing the Filipino businessmen selling their condos in Los Angeles and bringing money back over here,” said Whiting. “Once Filipino businessmen invest, foreigners will, too.”

One foreign analyst here said he feels that the continuing political excitement generated by Aquino’s ascendancy may divert attention from economic problems.

“Everyone’s hyped up now on getting back the wealth, tracking down the assets,” said this economist. “No one’s thought much about bread and butter yet.”