Slowly Turning the Corner

By William Stewart/Manila

When Philippine Finance Minister Jaime Ongpin returned to Manila last month after 27 days of tough bargaining in New York City, he was jubilant. With reason: the patrician Ongpin had won an impressive new financial deal from U.S. and foreign bankers for the still struggling government of President Corazon Aquino. Payments on nearly half of the country's $28.2 billion foreign debt had been rescheduled at interest rates nearly 40% lower than the banks had originally demanded, saving about $1 billion. Ongpin had also won approval for a novel method of turning some of the remaining interest into badly needed foreign investment. Said Betty Starkey, an analyst at Multinational Strategies, a Manhattan-based economic-consulting firm: "The Philippines has pulled off a coup."

By last week, however, Ongpin was much less sanguine. At a Manila press conference, he announced that the Philippines might reject his hard-won arrangement. The reason: hard-pressed Argentina had reportedly secured even more favorable terms on the repayment of its staggering foreign debt. Ongpin said the Aquino government demanded further negotiations to alter a deal "based on false premises."

The renewed debt standoff came just as there appeared to be fragile signs of economic renewal in the battered Philippines (pop. 56 million). After two years of dramatic slump, the country's $32 billion economy is expected to grow an impressive 6% to 7% this year. Inflation has fallen from 40% two years ago to about 1% or 2% today. Free-market-oriented economic reforms by the Aquino government have also laid the groundwork for future growth. Says Gordon Westly, vice president of Manila's American Chamber of Commerce: "We're on the slow road to recovery."

That is surely good news for Aquino, whose People Power revolution helped drive former Strongman Ferdinand Marcos from office just over one year ago. Since then she has been beset with a mild flurry of rightist plots aimed at either unseating her or destabilizing her government. An 18-year Communist insurgency stopped briefly but resumed with a vengeance last February. For the economy, the result was that the Philippine GNP, which had dropped 5.6% in 1984 and another 3.8% in 1985, continued to fall through the first half of 1986 before ticking up an almost unnoticeable .13% by the end of the year. Per capita income suffered a 15% cut, particularly cruel since an estimated 70% of the population live below the poverty line.

Stark need and the Communist insurgency have given Aquino a severe challenge on two fronts: achieving both economic recovery and political stability. Economically, Aquino has fought back with, among other things, an adjustment program negotiated last October with the International Monetary Fund. The IMF promised to lend the Philippines roughly $330 million while insisting on limitations to monetary growth and fiscal restraint along with basic changes in the country's protectionist economy.

Many of those changes either have been made or are under way. A program of tariff cuts and import liberalization has begun for a broad range of goods, including machinery, rubber tires and textiles. Rafael Alunan, a strongly nationalist local manufacturer of synthetic fibers, decries such moves as a "form of economic slavery, a way to keep us poor." Nonetheless, by April 1988, 90% of the country's imports should be free of quotas.

Aquino's government has also instituted a version of Reaganomic tax reform. The top tax rate has been cut from 60% to 35%, while a broad range of special exemptions has been eliminated. In the same egalitarian vein, the country's sugar and coconut monopolies, long in the hands of Marcos cronies, have been disbanded. The world price paid for copra, or coconut meat, has increased 250% in the past year; thanks to trust busting, money that once went to monopolists now goes to farmers. In the effort to purge Marcos-style cronyism from the economy, scores of nonperforming public enterprises that had languished in the hands of the former President and his friends are slated to be sold off.

The sobering fact, though, is that the Philippine economy must continue to grow at the projected 6% rate for the next four years just to bring per capita income back to where it was in 1981. Along with that daunting prospect, the Aquino government faces the critical issue of land reform. The Philippine population is growing at 2.5% annually; many of the children are born into families of landless, impoverished peasants. They are a prime recruiting source for Communist rebels.

Last February the government announced a multibillion-dollar five-year plan to redistribute the nation's 22 million cultivated acres. (President Aquino's family plantation, the 14,000-acre Hacienda Luisita, would be included.) But it is almost certain that the new Philippine congress, to be elected May 11, will water down the plan. Even then, the program will remain heavily dependent on foreign economic assistance.

What the Philippines needs now is massive investment, and that in turn will depend on how well Aquino continues to handle her political problems. Aside from efforts by foreign companies already in place, little new direct foreign investment has entered the country since she took presidential office. But so far as Western banks are concerned, the awkward problem is that the latest fussing over debt agreements has delayed a cautious vote of confidence in the archipelago.