Monday, December 17, 2012

Land Reform No Longer Possible Without Revolution,

June 19, 2000, BusinessWorld, Land reform no longer possible without revolution, by Walden Bello and Marissa de Guzman,
October 6, 2000, Sun Star Davao, Speed up Mindanao Rural Dev't - Angara 
October 30, 2000, BusinessWorld, Business sector fears economic depression, by Romulo T. Luib, Yasmin Lee G. Arpon, Cecille E. Yap and Marites S. Villamor, with Leotes Marie T. Lugo,
November 3, 2000, BusinessWorld, Industries now hurting from weak peso, by Patricia L. Adversario,
November 23, 2000, BusinessWorld, Cause of crisis, economists say, is not economic, by Yasmin Lee G. Arpon,


June 19, 2000, BusinessWorld, Land reform no longer possible without revolution, by Walden Bello and Marissa de Guzman,

As we mark another year in the inglorious history of agrarian reform, it might be instructive to explore the elements that spelled the difference between the continuing failure of land redistribution in our country and its striking success in places like Korea, Taiwan and Japan. Perhaps the decisive factor was the contrasting role of critical external actors, in particular the United States.


In Korea, agrarian reform was a case of military exigency. In their drive down the peninsula in 1950, the North Koreans distributed the lands of the fleeing rural elite among the South Korean peasants.

When it was their turn to march up the peninsula as the North Koreans retreated, the Americans were faced with the choice of maintaining the de facto reform or undoing it and reinstating the South Korean landlords as property-holders.

Faced with the prospect a provoking a full-scale peasant revolution on their rear, the Americans let the North Korean reforms stand and later pressed the reactionary government of Rhee Syngman to legalize these arrangements in order to create a conservative anti-communist political base in the countryside.

In the case of Taiwan, local landlords were expropriated -- indeed many of them were massacred -- by the Kuomintang government of Chiang Kai-Shek that had been evicted from the mainland by the Communists in 1949.

Simply put, the Kuomintang saw land reform in terms of realpolitik: they did not want Taiwan's local landed class around as a competing power center and saw agrarian reform as a means to eliminate them as well as build a pro-Kuomintang constituency among the peasants.

Eager to stabilize the island as a bastion against Mao's revolution that threatened across the Taiwan Straits, the US vigorously backed the Kuomintang reform program with large doses of technical advice and aid that established, among other things, an effective system of support services. In Japan, General Douglas MacArthur saw land reform as an essential part of the comprehensive program of demilitarization of Japanese society that was essential if a Western-style liberal democracy was to flourish in occupied Japan.

In all three cases, the US did not have any compunctions about sacrificing rural elites since, in the case of Japan, the gentry had been the social base of Japanese militarism, and in case of Taiwan and Korea, the land-owning class had served as the local base of Japanese colonial rule from the turn of the century to 1945.


Backed by American policy and aid -- not to mention firepower -- the results of the land reform programs in these countries were impressive. In Japan, rigorous limitation of landownership to three hectares in densely irrigated areas resulted in the redistribution of two-fifths of the country's land to 4.5 million tenants, or over half of the agricultural population.

The ambitious land-to-the-tiller program in Taiwan, which also limited ownership to three hectares, transferred 250,000 hectares of cultivated lands to tenants. Owner-cultivators rose from 61% to 88% of farm families, and tenant farmers plunged from 39% to two percent.

In Korea, a ceiling of three hectares for landownership was also adopted, resulting in the redistribution of 470,000 hectares. Owner-cultivators as a percentage of farm families rose from 14% to 70% and tenant farmers dropped from from 83% to 30%.

The South Korean reform, however, was less thorough than in Taiwan and Japan. Much of the land scheduled for land redistribution was not transferred to tenants because landlords were able to disguise themselves as tillers or register land titles under their sons or other relatives. Systems for the delivery of credit, fertilizers and extension services were not in place, leading to many recipients losing their land. Despite these limitations, the Korean land reform, like the Taiwanese and Japanese reforms, broke the back of landlord power and made small owner-cultivators the dominant class in the countryside.


Aside from promoting rural equality and stabilizing the countryside socially, land reform in all three societies had profound economic consequences. Most important was the elimination of a backward and grossly inequitable system of land tenure that restricted the development of a domestic market, siphoned off to unproductive consumption resources that would otherwise have gone into investment in industry, and served as a social base for authoritarianism.

Most important was the way reform created a vibrant domestic market that stimulated vigorous industrial growth. This is most evident in the case of Taiwan, where the income of owner-cultivators rose 62% in the 15 years following the reform.

This rural purchasing power was what triggered the growth of a variety of industries, including food processing, light manufacturing, agri-chemicals, machine industries, and metalworking enterprises. Farmers' purchases of goods from outside the agricultural sector rose 56% from 1950 to 1955.

Underlining this link between rural demand and industrial vigor was the birth of the light machine sector: there were only seven power tillers in the whole of Taiwan in 1954; six years later there were over 3,000, of which about half were manufactured locally.


The role of external actors in the Philippines was different. And, not surprisingly, land reform went in a different direction -- nowhere. One would have expected that upon its coming to the Philippines, the country that had known no feudalism in land -- that had been "born bourgeois," to use Louis Hartz's words -- would have broken up large estate agriculture.

The sale of excess Church lands ordered by the colonial government in the first years of the new century should have provided the wedge for the transformation of Philippine agriculture into a system based on small owner-cultivators.

Instead, the friar lands were sold to the gentry -- a move that was not merely an adjunct to military pacification, but part of an evolving strategy to forge the regional rural elites into a national ruling class that would serve as the base of American colonial rule.

The Americans, for instance, allowed their former foe Gen. Emilio Aguinaldo to acquire a 2,540-acre ex-friar estate in Cavite province in southern Luzon. Indeed, US colonial viceroys like General Douglas MacArthur not only forged intimate political links with the landed class, but also close personal ties.

This served the elite well after the Second World War, when Mr. MacArthur saw to it that charges of collaboration with the Japanese were dropped against most of the rural elite families.

No event captures the Americans' double standards in dealing with Asian landed elites more than Mr. MacArthur's absolving his landlord friend Manuel Roxas of the sin of collaborating with the Japanese to enable him to run for president of the new republic, at the same time that he was preparing to radically expropriate Mr. Roxas's class counterparts in conquered Japan.

The last chance that the US had of significantly influencing the course of agrarian development in the Philippines was probably during the Huk (pro-Moscow communist) insurgency in the early 1950s, when peasant alienation fueled a full-blown communist insurrection in a country regarded as a key bastion of the US forward defense system against expansive Asian communism.

But primordial loyalty to its local elite protégés emasculated the US's feeble support for reform -- a point underlined by Washington's recalling Robert Hardie, a US adviser whose proposal for land reform was bitterly denounced by local landed families in 1953.

Instead of land reform, US advisers sought to defuse agrarian unrest by promoting land resettlement. Working with the populist Defense Secretary Ramon Magsaysay, Col. Edward Landsdale, the Central Intelligence Agency's (CIA) point man in the Philippines, formulated the EDCOR project, which sought to resettle Huk surrenderees in Mindanao, then portrayed as "virgin territory."

This strategy did help defuse the insurgency in Central Luzon, but it did nothing to alleviate the land problem there or anywhere else. Indeed, it was a significant step in promoting the uncontrolled Christian migration to Moro and lumad territory that has led to the unending crisis in Mindanao. 


When the late former president Ferdinand E. Marcos declared land reform a cornerstone of the "New Society" in 1972, US support for land reform was, surprisingly, lukewarm. Apparently, this attitude stemmed from (United States Agency for International Development) USAID's experience of land reform in Vietnam, where it was seen as having been disruptive and destabilizing.

More important than USAID as an influence on Marcos was the US-dominated World Bank. But the Bank, then led by Robert McNamara, deliberately shied away from promoting land reform, with its rural development strategy paper asserting that the Bank would "put primary emphasis not on the redistribution of income and wealth -- as justified as that may be in many of our member countries -- but rather on improving the productivity of the poor."

When the Marcos land reform program ground to a halt in 1975, owing to Marcos's realization that small and medium landlords owning seven to 24 hectares were actually an important base of his rule, there was little protest from Washington, except for loud denunciations by the CIA land reform expert Roy Prosterman. By the end of the Marcos era, only 126,000 hectares out of an originally projected 1,767,000 hectares of tenanted rice and corn land had been transferred to owner-cultivators.


Former president Corazon Aquino, like Mr. Marcos, also promised to make land reform a cornerstone of her government. Washington, which helped bring Ms. Aquino to power, was again lukewarm when it came to support for land reform, perhaps feeling that the matter was no longer urgent with the marginalization of the National Democratic Front and the New People's Army as significant political actors.

Lacking both external and internal stimuli and ridden with 1001 loopholes, the Comprehensive Agrarian Reform Program (CARP) floundered. The real test of a land reform program is the compulsory acquisition of private lands: towards the end of Ms. Aquino's term, CARP could boast of having acquired and distributed only 10,467 hectares of private land via compulsory acquisition.

Unlike the case with his predecessors, agrarian reform was not articulated as a centerpiece program by President Ramos, who explicitly placed the so-called social agenda behind "preparing the Philippines for global competition" via an ambitious program of trade and investment liberalization.

Not surprisingly, by the end of one decade of CARP in December 1998, only 60% of the total land targeted for transfer had actually been distributed. The marginalization of agrarian reform has continued under the Estrada administration, notwithstanding the President's pro-poor rhetoric. The figures on compulsory acquisition of private lands are way off target, according to Department of Agrarian Reform (DAR) figures provided to economist Solita Monsod.

By the end of 1999, only 27% of targeted land in estates that were 50 hectares or larger in size had been successfully acquired and distributed. For targeted land in estates in the 24 to 50 hectare range and five to 24 hectare range, the figures were only five percent and four percent, respectively.

Indeed, during the last years of Mr. Ramos and under Estrada, what might be described as a process of aggressive counter reform has been gathering steam. The landlord-dominated Congress allocated to DAR only 600 million Philippine pesos ($14.081 million at PhP42.611=$1) for land acquisition and distribution in 1999, or half the land reform budget for 1998.

Cancellations of Emancipation Patents (EPs) and Certificates of Land Ownership Awards (CLOAs) owing to successful legal action by landlords have increased at an alarming rate, with 17,534 EPs and CLOAs covering 40,677 hectares nullified during the last four years of Mr. Ramos and 15,0644 EPs and CLOAs covering 36,315 hectares cancelled during Mr. Estrada's first two years. NOT ALONE

But the Philippines is not alone in experiencing the failure of a reformist land redistribution program without aggressive foreign backing. In the case of Thailand, of 2.7 million hectares subject to reform under the Land Reform Law of 1975, only 47,619 hectares had been distributed to tenants as of 1993.

Nothing captures the sorry state of land reform in Thailand than the fact that after over 17 years of land reform in the mid-1990s, only 43 families had received full landownership rights to a total area that came to only 126 hectares!

The Thai and Philippine experiences with reformist land redistribution programs that lacked vigorous US sponsorship were paralleled in Latin America. In Bolivia, Guatemala, Venezuela, Chile, Brazil, Colombia, Ecuador, Peru, and El Salvador, land reforms were initiated, but none could be labelled successful in terms of making smallholders the dominant force in agriculture.

The US government was not, of course, a disinterested actor in all this. As
Solon Barraclough notes, "The United States government's position in respect to land reform in the region was very interesting, if inconsistent. It intervened to reverse the Guatemalan reform when United Fruit Company lands were taken. It supported reform 15 years later in Peru, however, in spite of the expropriation of some US investors. It did not intervene in Bolivia except to help the new government with aid. It mildly supported reform in Venezuela. In Cuba it did everything possible to overthrow Castro.

In Chile, it strongly supported the Alessandri and Frei reforms but intervened to help overthrow the Allende government that was executing the same land reform law. It pushed for reform in El Salvador but opposed it in Nicaragua...Obviously land reform itself was of little concern. What mattered was the political orientation of the regime concerned."

Even where it intervened, however, as in Chile and El Salvador, the US pressure on local elites was mild compared to the heavy-handed supervision it exercised in the reforms in Korea, Japan, and Taiwan.

Probably the reason is that, although Latin American countries were wracked by insurgencies, they were not on the political and military frontlines of the Cold War, as the Northeast Asian countries were. Nevertheless, as the case of El Salvador illustrated, without Washington's determined ground-level support, land reform could be successfully stalemated by recalcitrant elites.


Ironically enough, aside from US-sponsored land reform, the only other kind of land distribution that has a fair chance of success in really transforming the rural order is that which takes place as part of a larger revolutionary process.

The most successful land reform effort before the 20th century was the late 18th century agrarian revolution in France that literally decapitated the landed aristocracy and gave birth to a vigorous smallholder-based capitalist agriculture.

Over 130 years later, it took only a few months after the outbreak of the February Revolution in St. Petersburg in 1917 for the Russian peasantry to almost totally dispossess most of the country's landed gentry and assert traditional village communal control of lands.

Cuba's agrarian reform was the most profound and far-reaching in Latin America, with the expropriation of over three-fourths of the country's land in the few months after Mr. Castro's ascent to power in 1959.

It was also one of the most successful, with overall agricultural output increasing by three percent annually from the mid-1960s to the mid-1980s and bringing in its wake improvements in the nutrition and health of the rural population.

In China, land reform from 1949 to 1952 redistributed ownership rights among the peasantry and collectivization in 1955-56 abolished private land ownership. Despite the changes in the control and use of land with the adoption of the market-oriented contract system in the 1980s, the dynamism of the agricultural sector in the last two decades would not have been possible without the foundation of relative equality in access to land that had been laid by land reform and collectivization in the '50s.

To conclude, the most successful agrarian reforms appear to have been either those that were vigorously supported by an external power like the United States for anti-revolutionary reasons or those that were part of a broader revolutionary conflagration.

There are few, if any, instances of really successful efforts at reformist programs of land redistribution with no vigorous foreign backing. With the end of the Cold War, US interest in successful land reform in its client states has practically disappeared.

Owing to this trend, reformist land distribution in the Philippines is heading nowhere but to the demise of the peasantry and the deepening crisis of Philippine agriculture. It now seems quite evident that only an agrarian revolution that is part of a bigger radical project to restructure Philippine society can now save the peasantry and Philippine agriculture from this dismal future.

The author can be reached at


October 6, 2000, Sun Star Davao, Speed up Mindanao Rural Dev't - Angara 

Agriculture Secretary Edgardo J. Angara is pushing for a speedy implementation of rural development program in Mindanao. This was bared by Honesto Avellanosa, Jr., MRDP Public information officer and Consultant.

Avellanosa said they are working double time because of Angara's directive to implement the Mindanao Rural Development Program (MRDP) 2001 projects within this year. He said the Secretary has also committed to give additional funds amounting to P7.4 million for the Community Fund for Agricultural Development program on top of its 2000 budget. He added that these programs would all be started before the end of the year.

MRDP is a special program of the Department of Agriculture assisted by the World Bank. A total of P22 Billion is earmarked for this program to cover 24 provinces of Mindanao in 12 years from Year 2000 to 2012.

It has four major components: rural infrastructure with a total allocation of P16.4 billion, Community Fund for Agri-Development (CFAD) with P2.4 billion, Coastal and Marine Bio-diversity conservation, with P.6 billion, and the rural development Planning for Agricultural productivity with P2.6 billion.

Avellanosa said the program is presently operating in five Provinces: Compostela Valley covering five municipalities, Cotabato with nine municipalities, Maguindanao, Sultan Kudarat, and Agusan del Sur with six Municipalities each.

He added that the local government units of each municipality has a counterpart amounting to P500 thousand each. As of September this year, a total of P831 thousand has been fully released for the livelihood projects in the rural areas covered by the program.

These include the turn over of Post harvest facilities, goat raising production, agricultural products marketing, agro-livestock production, and swine breeding projects.

Moreover, some livelihood projects are still on going such as establishment of warehouses, small goat raising production, and Salt crop production totaled to P1.1 million. An Additional amount of P6.9 million worth of equipment and vehicles has been turned over to the municipalities of Cotabato and Sultan Kudarat.

"We are working tightly with the help of the Department of Agriculture to significantly address the needs of our farmers. Moreover, the success of all our programs depend highly on the commitment and support of the Local government units," Avellanosa said.


October 30, 2000, BusinessWorld, Business sector fears economic depression, by Romulo T. Luib, Yasmin Lee G. Arpon, Cecille E. Yap and Marites S. Villamor, with Leotes Marie T. Lugo,

A peso-dollar exchange rate of PhP51 can be a manna for the well-leveraged exporter, but is an undeserved scourge for many a small manufacturer who has to contend with a range of rising costs: interest rates, imports, power and transport fees. The future can even be more gloomy for labor.

Indeed, not a few exporters are making a windfall, but a greater number of manufacturers selling in the domestic market may have to face the difficult task of shutting down factories and letting workers go. Businessman Herman Montenegro, former president of the Philippine Chamber of Commerce and Industry (PCCI), tells of an experience that illustrates this irony: his activated carbon exports plant is reaping nice margins, but he had to temporary close his floor tiles factory the other week.

"We call this a recession, a correction in the economy. Wait until this is prolonged and it can slide into a depression. We'll go that way unless the economy picks up," he told BusinessWorld in a telephone interview. Though he acknowledged the country's economic fundamentals are "still good," he said "the crisis will get worse before it gets better." The bottom issue, he said, "is confidence and unless the leadership can restore that, we will continue to sink."

It is a political problem rubbing off on the economy, agreed Escolastica Segovia, a former government executive who is now vice-president for operations of a garment exports firm. It will be noted the peso had just slightly recovered from speculative attacks triggered by the Mindanao conflict when President Estrada was accused of pocketing tobacco excise tax collections and payoffs from operators of an illegal numbers game, popularly known as jueteng.

The local currency has since been on a tailspin, crashing below PhP51 to the US dollar last week. "The problem is instability of the peso. And we have to deal with the uncertainty," she told BusinessWorld, also in a telephone interview. Although admitting that garments firm Gelmart Industries Phils., Inc. is benefiting from the peso depreciation in terms of increased export earnings, Ms. Segovia said, "We also have foreign-denominated loans and the new exchange rate does not put us in a better situation."

A businessman prefers dollar loans apparently due to lower lending rates, but the political drama clouding the real value of the peso has become a source of trepidation. And, of course, one has to take stock of the situation before borrowing as peso lending rates take flight.

Mr. Montenegro noted the possibility of some exporters gaining handsomely. "But that must be qualified," he said, adding the gains can be derived from the value-added local components, including labor -- "if that does not go up further."

In the case of his Pacific Activated Carbon, the gains can be considered huge because it uses 100% coconut shell charcoal. But then again, the money costs are a big portion of production expenses and, thus, the segregation between exporters making money and those facing difficult decisions concerning working capital "depends on how leveraged you are."

With the prevailing peso interest rate, "the small (manufacturer) would really die," said an executive of a major jeans exporter who refused to be named. "Well, not in my case. Not much adverse effect for us because we get our imported raw materials on consignment basis." Many in the labor-intensive garments industry borrow dollars for working capital. "Only about 10% is financially stable and can live without dollar loans," the executive said.

Beyond the woes related to interest rates, the plight becomes all the more taxing for those dependent on the domestic market as the peso's purchasing power weakens. Mr. Montenegro runs the HM Montenegro Group of Companies, "quite an international group" with reliable financial resources, as he described it. Yet, he decided to temporarily shut down Titan Megatiles Industrial Corp., a producer of PVC (polyvinyl chloride) floor tiles which employs 50 workers. The tile factory buys raw materials overseas and sells in the local market where the construction industry has had to contend with an anorexic appetite. "I have to restructure the firm. We're considering exports to improve viability of the business," he said, noting local hardware stores are having a hard time selling PVC tiles.

All businessmen BusinessWorld interviewed said they understood the need for the Bangko Sentral (Central Bank) to mop up puddles of liquidity in the banking system to constrain speculation. "But (the rising interest rates and the prevailing instability of the peso) will kill exporters, particularly small and medium enterprises," Ms. Segovia said.

"It's true there is a windfall," she said of profits exporters make on payments of orders made when the dollar was about PhP40. "But this is wiped out by the uncertainty that is killing us now." Banks may have been calling on exporters, preferring them over firms dependent on the local market, but the money costs are not as inviting, she said.

Mr. Montenegro warned that if such "rudderless government continues, even the domestic investors will not invest. Then there will be deterioration of the labor ranks. And when people starve, that will be the last straw for President Estrada."


But despite the continued fall of the peso, the country's chief economist remains optimistic the exchange rate and the economy in general will stabilize within the next two months. Socioeconomic Planning Secretary Felipe M. Medalla's optimism hinges on the expected influx of dollar remittances from the millions of overseas Filipino workers (OFWs) as well as the realization of investors of President Estrada's political resolve to stay in power.

"Once the market sees the President's strong political position, it is very clear the market will react positively," Mr. Medalla said over the weekend. Mr. Medalla, concurrent director general of the National Economic and Development Authority (NEDA), repeated the standard line of the government that OFW remittances, export earnings in November and December, coupled with the economy's stable fundamentals, should help prop up the peso.

He said the last two months of the year is the time when OFWs send dollars to their families here, thus boosting the peso's value. Mr. Medalla said the economy has gone through trying times this year, including the fall of the stock market following the jueteng scandal. But while the market tends to react to these news, experience shows the reaction tends to be self-limiting.

He said this was the same case in May when the market fell following two mall bombing incidents in Mandaluyong and Makati in central Metropolitan Manila. He noted that while the stock market fell, it immediately corrected. Bangko Sentral director Diwa Gunigundo, however, assured the present high interest rates regime is a temporary situation.

"We have always assured the public that we don't expect this situation to last long. Once the system stabilizes, we will bring down interest rates," Mr. Gunigundo said during the radio-television program JEEP ni Erap last Saturday. He said the central bank had to raise interest rates to keep the peso-dollar exchange rate from spinning out of control. However, he could not say when the present situation will end.


Press Secretary Ricardo V. Puno, however, admitted imposing currency controls similar to what Malaysia adopted at the height of the 1997-98 regional currency crisis was considered but immediately thumbed down. "We're in a very, very different situation from Malaysia. Although I will acknowledge that there have been some proposals, I think that has been dismissed by the economic managers," Mr. Puno said in an interview last Friday.

He said the proposal, which included fixing the peso-dollar rate, came from various sectors. "It's been raised in a very, very general sense," he said. He said the economic managers also considered the huge foreign exchange reserves of Malaysia, which amounted to close to $40 billion when it imposed currency controls, compared to the Philippines' estimated $15 billion.

For now, a fixed rate is out of the question. "Unless there are further arguments why it should be done. But I know that it was considered but it was felt that it would be unwise to do it at this time," Mr. Puno added. The continued depreciation of the peso-dollar exchange rate will make life difficult for most Filipinos, but Mr. Medalla hopes this will be "temporary." Mr. Medalla said Filipinos who work for export firms or whose relatives are overseas contract workers will not have it "so bad" since the stronger dollar will keep them afloat.

"But for those who are not (earning in dollars), well, clearly it is bad. But what we must realize is, most Filipinos have relatively low import content in their expenditures, so the impact will not be that much," he told BusinessWorld.

Admitting the 10% change in the foreign exchange rate, or to PhP51 from PhP45 in August, will hurt ordinary consumers, he was quick to point out that the import content in the basket of goods of majority of the Filipinos is only about 15%.

"Assuming that they have about 15% import content in their consumption basket, the impact should be only 1.5% with the change in the foreign exchange rate. Still, these are clearly going to hurt them. But, as I said, hopefully this will be a very temporary thing, and with the normalization of the conditions, we may actually see the return of the peso to levels in previous months," he said.

NEDA deputy director-general Ruperto P. Alonzo said the correlation between the foreign exchange rate and the prices of basic commodities has been "delinked" in the late 1980s. "Poverty is not that dependent on the peso depreciation because the prices of basic commodities are not following the trend. Somehow, the expectations for a stronger dollar have not set in yet, so the price levels of goods are still stable. But if this crisis continued, eventually, we may see price increases," Mr. Alonzo said.

He added the economy, like the Filipinos themselves, is "resilient." "If you look at the history of the financial crisis, prices did not go up that much until the peso stabilized. In our 1997 experience, the peso climbed to PhP40 plus from PhP26, but our response was not all that negative if you look at our growth. So, I think we will follow the same path," he said.

The economy managed a 3.3% growth in 1999, rebounding from a 0.6% contraction in 1998 due to the Asian contagion. This year, the economy is projected to grow at between 4% and 4.5% and even Mr. Medalla himself does not see a need to scale down the projection despite the political and economic crisis facing the country. "Once the political situation has stabilized, the peso will find its real value. We are resilient. During the Asian financial crisis, our problem was financial. How much more now that our problem is only political," Mr. Alonzo said.


But for De La Salle University economist Ponciano S. Intal, Jr., life will be more difficult for the country's economic managers, who are tasked to set the direction of the economy amid the political uncertainties. "I would not want to be in the position of Secretary Medalla and the rest of the economic managers. Their task to project a positive attitude is tough under the circumstances," he said candidly.

"Given the uncertainties, there is definitely a possibility (that things will be more difficult). It all depends on whether or not the Monetary Board will increase interest rates further for a month or two. (Otherwise) we will see that managing the macroeconomy will be tougher," he added.

Mr. Intal said the economic managers cannot allow the peso to decline dramatically because of its significant implications on inflation and the "political economy." "But, on the other hand, by raising significantly the interest rates, they are actually derailing a nascent recovery and the danger is, you've got to have investments if you want to have sustained recovery. And by raising interest rates, that means you are moving towards a kind of a recession," Mr. Intal said. "It is really a no-win situation for our macroeconomic managers," he concluded.

So how long can a recuperating economy take the blows? Not for long, according to economists and bankers, especially in the light of the peso free-fall and the rising interest rates. Foundation for Economic Freedom chairman Calixto Chikiamko warned in a television interview of a forthcoming recession, saying the economy cannot take the peso skidding further away.

Technically, a recession -- or a drop in the economy -- takes root when a country's gross national product (GNP) falls for two consecutive months. So far, the economy has been growing, albeit at a lower rate. "The economy will be in trouble once the peso reaches PhP60," a foreign bank official, who requested anonymity, said.
But with the speed at which the peso has gone down -- losing PhP1 a day since the jueteng scandal erupted -- anything can happen. Projecting how it will perform towards the year-end may be too long a view to take, even as earnings from overseas Filipino workers in time for the holidays may provide some psychological comfort.

The currency has lost more than 20% of its value since last year, and 7% since the latest controversy against the President snowballed into a move to get him out of power through whatever means. Moves to defend the currency through an increase in interest rates is not helping solve the problem, contrary to what the central bank believes, the bank official said. "Recent actions made by the (central bank) is taken by the market as a sign that more tightening is to come. That, in itself, will be taken negatively by the market," the bank official said.

For University of the Philippines economist Solita C. Monsod, jacking up interest rates to address the peso's weakness is a "sure-fire recipe" for hurting the economy. "The peso cannot plummet more than it has fallen. With or without interest rates, it would have gone down," Ms. Monsod said. For Peter Yeates of Hong Kong & Shanghai Banking Corp. (HSBC), increases in interest rates willcertainly slow down lending activities in the financial system, despite the fact "people need to borrow."

But it seems lending had slowed even before interest rates started to go up. A bank trader, who requested anonymity, said since early this year the absence of creditworthy borrowers have prompted banks to go easy on their lending activities. Likewise, bank deposits or placements with the central bank's reverse repurchase facility continued to rise. Meanwhile, unlike in 1998, when Cebu (central Visayas) businessmen sought out Bangko Sentral officials for dialogues regarding the soaring interest rates, the Cebu Chamber of Commerce and Industry (CCCI) does not expect the Monetary Board to respond to their plea for the government to stop raising the interest rates in defense of the peso. "No, we don't really expect them to respond. We know that the problem is not financial. It's political," said Sabino R. Dapat, CCCI president.

The chamber issued last Thursday a manifesto, urging the government to "save business and the economy" by minimizing intervention in the financial system and allowing the peso to seek its own level. The chamber warned that defending the peso by increasing lending rates "is putting business in a slowdown mode and will pull down our economy into a recession." Cebu, Inc. co-chairman Efren S. Valiente said he expects the peso to continue falling until a solution to the political crisis is found. "It was very obvious last Thursday that the fall of the peso is no longer caused by global concerns but by our domestic problems. The peso fell even as the US and regional markets were very quiet," he said.

Financial executive Ruben Almendras said he believes the peso will reach PhP60 if the political crisis continues. "Sixty pesos should be the maximum. Beyond that, it will topple the government just as the rupiah toppled Suharto," he warned. Seaweed exporter Benson U. Dakay, on the other hand, believes the weakening of the peso is artificial. "I believe this is artificial. When the political situation improves, it will correct to PhP45. But on the other hand, I don't believe the situation will improve in the short term because the President will not step down," he told BusinessWorld.

Mr. Dakay, whose seaweed exports have high local content, are among those exporters who have benefitted from the fall of the peso in terms of making bigger profits. But he said the weak peso has also increased the value of his dollar loans. Another exporter, who asked not to be named, complained that he is having difficulty setting the price for next year. "I don't know what exchange rate to use," he said.


November 3, 2000, BusinessWorld, Industries now hurting from weak peso, by Patricia L. Adversario,

During hard times, some try to cope by recalling how things could be worse.

But Arthur Dy, a garments producer, can't remember now how the latest round of peso depreciation could fare lightly with the previous ones his business went through in the last 30 years.

Depreciation, this time around, came with two companions -- high oil prices and globalization, which brought down tariffs and opened the floodgates to cheap imports.

Back then, Mr. Dy said, whenever the peso depreciated, local manufacturers like him simply passed on the added cost to consumers. When the peso depreciated in 1974, 1976, and 1983, there was enough demand to sustain increased prices.

But that's not the case anymore, he said.

"Our costs of production have increased but the consumer's purchasing power is lower. We're squeezed," said Mr. Dy, who owns Mega Shirts Garments Manufacturing.

"We're also not able to absorb the increased costs now simply by raising our prices because supply has grown bigger than demand with globalization," said Mr. Dy, who is also president of the Garments Manufacturers Association of the Philippines.

"The demand is there, but it's not increasing because of the crisis," added Felix K. Maramba, president of the Philippine Association of Flour Millers.

"People have less disposable income. Usually, we post our highest sales towards the fourth quarter of the year, but we haven't seen the expected increase," he noted.

With a depressed market and reduced purchasing power, most local manufacturers like him are strapped for options.

Survival no longer dictates that they raise their prices because that would kill them outright.

"There's nothing that we can do. We cannot increase our prices. If we do, nobody would buy and we'll end up worse off than we were," said Mr. Maramba, who is also president of Liberty Flour Mills, Inc.


Most local manufacturers are still heavily dependent on imports.

The garments industry is 70% to 80% dependent on imports for their material components, Mr. Dy said.

As large consumers of industrial fuel, the rise in crude prices has also affected their production costs.

Imported tin comprises 75% of the cost of each can, said Henry A. Tañedo, president of Tin Can Manufacturers Association of the Philippines.

Since the National Steel Corporation (NSC) closed in November 1999, 100% of tin used is now imported.

While tin prices in the world market have been steady, the peso depreciation and tariff increases have raised the cost of imported tin, said Mr. Tañedo, who is also vice-president of Philcan Industrial Corp.

Import duties on tin were raised to seven percent from three percent, mainly to help the NSC. With NSC's closure, the government has yet to lower tariffs to help tin can makers offset the drop in the peso's value.

And as with the garment industry, tin can producers consume large quantities of industrial fuel. Prices of liquid petroleum gas have risen by 54% this year, Mr. Tañedo noted.

Meanwhile, input costs in the rubber industry, which include labor, power and raw materials, have increased by 20% to 30%, said Pablito Chua, president of Philippine Rubber Industries. The rubber industry has three subsectors: tires, shoes and sandals and belts.

While world prices of raw materials have dropped by 10%, the reduction was not able to cover the more than 50% increase in cost due to the peso depreciation, as well as the rising cost of labor and power, said Mr. Chua, also vice-president of Philippine Belt Manufacturing.

For their part, flour millers import 75% to 80% of raw material, which is mainly wheat. Costs have increased 10% from last month, but millers cannot increase prices because sales will suffer further, Mr. Maramba said.

In the steel wire industry, 100% of raw materials (wire rods) are imported. These raw materials comprise 80% to 85% of total costs; the rest comprise labor and power costs.

A BusinessWorld source in the industry who requested anonymity, said prices of imported raw materials are steady, but costs are rising because of the currency's depreciation.

Landed costs have increased five percent to eight percent from last month and this year alone, while costs have gone up by more than 20% for the sector.

Manufacturers who are already hard put to cope with increased costs due to depreciation also face a shrinking market because of alleged smuggling and rampant dumping of imports.

"Smuggled items are a direct assault on our products," Mr. Dy said.

He added the garment industry has been on the downtrend since 1992 -- since the start of globalization. Import tariffs on garments have gone down from 35% to 40% to five percent to 10%, he said.

Like the garments industry, the steel wire and rubber sectors are also hit by smuggled goods and stiff competition from imports coming from the region.


Some manufacturers cope with the higher costs by using cheaper materials and getting materials from non-traditional sources.

Mr. Ty has begun adding polyester content to lower the cost of producing cotton shirts. At least for his price-sensitive C and D market, "you have to compromise quality to maintain your price."

He also notes that other manufacturers are shifting lines -- those who cater to the B and C market have begun shifting to the C and D market.

The peso depreciation, however has nothing to do with the shift in lines, he clarified. "For the industry, the biggest blow is globalization. Peso depreciation? It has painful effects on our costs, but we don't feel the pain anymore because we already have been dealt the most painful blow-globalization," he said.

Tin can makers like Mr. Tañedo said "they are studying the possibility of down gauging the tin used for paints and thinners since we cannot increase our prices. This move, if implemented, could save five percent of total cost of producing a can."

They are also sourcing cheaper sources of raw materials from non-traditional markets. However, he declined to say from which markets -- for competitive reasons.

This move, he said, could reduce costs by 10% to 15%. Materials from these markets, however, have to be sorted as these are no longer A-1 materials.


Costs could also be reduced by being more efficient in production.

At the plant level, process are being reengineered to maximize human resources like assigning one person to handle two machines instead of one, Mr. Tañedo said.

He also said that some tin can producers have shortened the work week from six to four to five days. Some have also shifted to the manufacture of plastic containers in response to market demand.

Still, any cost savings from being more efficient in production are not able to offset the hefty increases in cost inputs.

"If the exchange rate does not improve, we'd have to increase our price by 10%. This increase will not even cover our costs," he said.

The last time the company increased its prices was two years ago.

Philippine Belt, which is said to command 30% to 45% share of the local market, copes by exporting to other countries.

The company plans to increase its exports to the North America, Australia and the Middle East to take advantage of increased margins from exports.

Mr. Chua said their margins have increased to 10% from five percent as a result of the depreciation. At present, exports comprise 30% of its total production.

"Still, the increase in margins from exports is not enough, so we really have to increase our prices," Mr. Chua said.

His firm is contemplating another price increase -- probably less than five percent. The belts producer increased prices by 10% in the past two years.


But Mr. Dy of Mega Shirts who makes garments for the C and D market said "they may not also push through with the planned five to eight percent increase in their prices this Christmas because our consumers cannot afford it."

Mega makes shirts for the price-sensitive C and D market. Prices of its shirts range from PhP25 to PhP45. The company has maintained its prices since 1997.

Local garment makers cannot also increase prices because of competition from the flood of imports, Mr. Dy said.

Neither can tin can makers like Mr. Tanedo increase prices because of the depressed market.

Sales of canned goods like sardines are hardly moving because of depressed demand.

"It used to be that canned sardines were a poor man's meal. But not anymore because noodles are cheaper," he said.

An industry source from the steel wire industry said that "construction activity is still sluggish. It's better for us to just break even or incur losses than close shop and lose jobs. We're not talking about margins anymore, but survival."

The sector already increased its prices by 10% early this year.

He said his company's production volume and sales dropped 50% from 1998. "We expect next year to be the same. We hope it will be the same, and not worse."

Reducing production volume to cut costs is out of the question for garment producers like Mr. Dy, who said they have to maintain their volume -- or lose market share.

Flour millers also said "even if we're losing, we have to continue production -- we still have to pay laborers. Cost-cutting is the only way to cope. If you stop operations completely, the cost of depreciation will kill you," Mr. Maramba said.

Some companies however, have closed shop or stopped operations completely, said Antonio Garcia, president of the Federation of Philippine Industries (FPI).

The FPI, however, does not have figures on the number of firms that have either temporarily closed shop or reduced production because of the peso depreciation.

Mr. Garcia, who is also chairman of Chemical Industries of the Philippines Holdings, however, gives his own case as example.

He said that operations at his Bataan Polyethylene Corp. plant closed down temporarily in April because of the high cost of procuring raw materials. The plant resumes this month at 60% capacity. The government, he said, could help reduce the cost of doing business here by cutting bureaucracy and red tape. The passing of the Omnibus Power Bill should also be prioritized to help reduce power costs.


November 23, 2000, BusinessWorld, Cause of crisis, economists say, is not economic, by Yasmin Lee G. Arpon,

Crossing academic affiliations, economists from the University of the Philippines (UP), Ateneo de Manila University (AdMU), De La Salle University (DLSU) and the University of Asia and the Pacific (UA&P) again appealed to fellow economists in the Estrada government to stop allowing themselves to be used as "apologists" of the Estrada presidency.

At the same time, three major business in Cebu City (central Visayas) reiterated their call for the resignation of President Estrada "to restore decency and competent leadership in the Office of the President." In Davao City (southern Mindanao), Estrada critics say the impeachment proceedings offer no solution to the current crisis in the country.

The economists -- led by UP economics professor and former Socioeconomic Planning Secretary and National Economic and Development Authority director-general Solita C. Monsod, AdMU economics professors Fernando T. Aldaba and Leonardo A. Lanzona, Jr.; UA&P associate dean Emilio T. Antonio, Jr.; and former Philippine Institute for Development Studies and DLSU professor Ponciano S. Intal,/ Jr. -- said the members of President Estrada's economic team should resign at the soonest time.

In a statement, the group, which calls itself as "Concerned Filipino Economists," said the "talents" and "expertise" of Socioeconomic Planning Secretary Felipe M. Medalla, Budget and Management Secretary Benjamin E. Diokno, National Treasurer Leonor M. Briones and Finance Secretary Jose T. Pardo "only serve to prolong" Mr. Estrada's stay in power. "Do not compromise your integrity with the stain of Mr. Estrada's decrepitude," they said.

"Given the political impasse, we entreat the government's economic managers to tell Mr. Estrada the real score: that the root cause of the crisis is not economic, but the moral turpitude of the occupant of the highest office in the land, and that the state of the economy merely reflects the Filipino people's revocation of Mr. Estrada's mandate," they added. They also denounced Mr. Estrada's lack of delicadeza despite serious allegations that he received hundreds of millions in payoffs from illegal gambling operations and acquired multi-million-peso mansions through his associates.

"We denounce in the strongest possible terms the obdurate refusal of Mr. Estrada to vacate his office despite the preponderance of evidence of his moral unfitness to discharge his functions and the countless calls for his resignation," the economists said. "Everyday that the political crisis persists, the economy bleeds. Ironically, the most vulnerable to and the hardest hit by the economic shocks are the poor whose interests Mr. Estrada claims to uphold and promote," they added.

Mr. Aldaba, director of the Ateneo Center for Economic Research and Development, told BusinessWorld the group plans to hold dialogues with Mr. Medalla and the other economic managers in a bid to convince them to step down. He said their primary target is Mr. Medalla, a former dean of the UP School of Economics, whom they expected to be the first one to resign from the Cabinet after Ilocos Sur (northern Luzon) Gov. Luis "Chavit" C. Singson came out with his allegations.

On the other hand, a BusinessWorld source, requesting anonymity, said members of the UP School of Economics have already spoken with Mr. Medalla, but apparently failed to convince him to give up his post. "The group told him how the faculty feels about these political developments; it was more of an opportunity for his colleagues to dialogue with him about the pros and cons of recent events on the economy," the source said.

When asked how Mr. Medalla reacted to their sentiments, the source said, "Well, he listened. But obviously, he is still there." For his part, Mr. Aldaba said his group hopes to increase the pressure on the economic managers by seeking audience with them. "We just wonder how they are able to continue serving such a government. Because even if they are there, nothing seems to be happening, the situation is not improving. If indeed the economy will collapse (because of their resignation), it cannot be attributed to them," he said.


In Cebu City (central Visayas), the Cebu Chamber of Commerce and Industry (CCCI), Mandaue Chamber of Commerce and Industry (MCCI) and Cebu Business Club expressed their "anguish that justice and truth will never be served in our present political system."

In a manifesto, the three business groups noted that the impeachment trial against the President largely depends on "the interplay of the senators' political loyalties and their conscience, which, as we know, vary in different degrees." "We seriously doubt whether many of them (senators) can differentiate right from wrong," they stated. "The eyes of the world are upon us as we continue to make ourselves the laughing stock in the community of nations, with the help of President Estrada," they added.

The three business groups also scored the Estrada administration for allegedly diverting the attention of the people from the charges against the President through prayer rallies to show he still has the support of the masses; "the sheer madness of inciting the poor to hate the rich;" and pinning the blame on big businesses, the Catholic Church and the political opposition.

"The popularity of President Estrada with the masses is not the issue. The issue is this: President Estrada, according to the bill of impeachment, is accused of graft and corruption, bribery, betrayal of public trust and culpable violation of the Constitution, resulting in the continuing political crisis that will precipitate the economic ruin of our country," the manifesto stated.

Members of the three groups noted that while the administration wants the people to believe the impeachment process will restore moral order as well as business and consumer confidence, efforts have also been made to delay the transmittal of the articles of impeachment from the Lower House to the Senate.

"This early, some senators are already saying that President Estrada will be acquitted because of the sheer number of his supporters in the Senate. We know the political colors of the senators and a number of them received financial and other kinds of favors from President Estrada. We also observed their behaviors and inclinations during the Blue Ribbon committee hearings," they said.

"How can we form a respectable opinion of these senators?" Copies of the manifesto were sent to the Senate, the Makati Business Club, the Philippine Chamber of Commerce and Industry (PCCI) and the 11 prosecutors from House of Representatives. Last month, the same three groups issued a statement of concern and appealed for an early resolution to the crisis.

Late last month, CCCI published an open letter urging the President to resign. The chamber said an impeachment trial will prove neither Mr. Estrada's innocence nor guilt beyond reasonable doubt. Over in Davao City, anti-Estrada groups do not find the impeachment proceedings as an immediate solution to the country's current crisis. "We cannot wait for the result of the impeachment proceedings. The Senate's action must work hand in hand with civil society actions," said Irene Santiago of the Mindanao Council of Women Leaders.

All major players in the Erap Resign Movement in Mindanao will convene the Kongreso sa Kamindanawan (Congress of Mindanao) on Dec. 2. Ms. Santiago said this will bring together church groups, civil society organizations, the public sector and political parties and groups from all over the island to air the Mindanao voice and perspective.

"We will escalate public pressure on the Senate. This time, we will make our voice even louder and clearer for the Senate to hear. They must listen to the cry of the public," she said. At the Kongreso, the group will agree on three key demands for the first 100 days of a post-Erap presidency. Ms. Santiago said Kusog Mindanao might discuss its proposed agenda with the rest of the group, but it doesn't mean these will be the entire group's demand.

Kusog Mindanao is batting for the demilitarization and rehabilitation of Mindanao,and representation in national bodies, among other demands. Ms. Santiago said a vigorous Mindanao-wide program of action to remove the President will be initiated. "We have a lot of concerns, but our priority now is the removal of the President. We will be working hard on it," she said. The Kongreso will also feature Mindanao's tribunal against the President and the Mindanao people's verdict on the cases against him. Former President Corazon C. Aquino will be the keynote speaker, while former House Speaker Manuel B. Villar, Jr. will deliver the closing remarks. -- with Marites S. Villamor in Cebu and Melanie G. Oliver in Davao

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