Recalling martial law’s ‘lifting’; FDI lesson still to be learned

1981 should have been a pivotal year for the Philippines that had been gripped by martial law for nine years before that regime ended — if only in name — in January of that year.
But, 35 years after that decision — made to boost the credibility of the late strongman Ferdinand E. Marcos’s economic decision-making amid an unfolding debt crisis — there are still a few lessons to be learned in improving the economy, significant gains since then notwithstanding.

“The lifting of martial law was not meaningful. That was a sham removal,” Ramon R. del Rosario, Jr., said in a Jan. 14 interview. He was an investment banker in the 1980s when he delivered a speech before businessmen who turned the busy district of Makati into a venue for protests in November 1983, three months after the assassination of Senator Benigno Simeon “Ninoy” Aquino, Jr., Mr. Marcos’ political nemesis.

Mr. del Rosario is now chairman of the influential Makati Business Club, which was formed on the same year that martial law was lifted.

In his 1983 speech, Mr. del Rosario lamented the performance of Philippine exports — largely dominated by sugar and coconut products — after the sector grew at a pace below Southeast Asia’s average.

“To me, the single most important factor that explains our plight is that in the Philippines, in this, the era of the New Society, the spirit of the Filipino entrepreneur… has been completely smothered and allowed to die,” read his speech that was then reprinted on the weekly tabloid magazine Mr. & Ms. “A wide range of activities, heretofore reserved for private enterprise, is now controlled and dominated by government or quasi-government entities.”

Dollar earnings from that sector that Mr. del Rosario spoke of — exporters — were crucial at a time when the country’s balance of payments was under pressure amid a Mexico debt default and sky-high offshore borrowing costs after the US central bank raised interest rates.

In his biography of Cesar E. A. Virata, economist and Marcos-era technocrat Gerardo P. Sicat wrote that the debt burden could have been “less significant” if the economy “had been more open to foreign direct investments (FDI) that brought in dollars.” Dollar-earning foreign investors had more access to financing and could service their own loans, Mr. Sicat said in his book Cesar Virata: Life and Times through Four Decades of Philippine Economic History.

But the industrial policy that prevailed in that era was one of import substitution by which the government sought to protect select local industries in order to enable them eventually to lessen the country’s dependence on imported products.

“Our balance of payments from the very start had been very weak because, originally, our presidents and Congress adopted a policy of import substitution as a way of development,” Mr. Virata said in a Jan. 15 interview in Makati City.

Import substitution, which employed very high tariffs, eventually resulted in more imports as the protected industries sourced from abroad the equipment and raw materials they needed to develop, he said.

And at that time, Mr. Virata recalled, “We were borrowing — as far as commercial rate is concerned — at 25% or 26%. Who won’t collapse under that?”

The lifting of martial law catapulted Mr. Virata into becoming the second highest official of the land as the Interim Batasang Pambansa elected him prime minister in July 1981, while concurrently serving as finance minister — a post he’d held since 1970.

But Mr. Marcos retained his decree-making powers and was commander-in-chief, with the prime minister not having the power to appoint his cabinet unlike most parliamentary systems elsewhere.

The end of martial rule was envisioned to let Philippine political affairs “return to some normality,” Mr. Virata recalled.

It was a normalcy needed to deal with two crises, namely: the financial crisis set off by the so-called Dewey Dee scandal that resulted in government bailing out bankrupt financial institutions; and the debt crisis that could have been kept from further unraveling with the help of foreign lenders like International Monetary Fund. But negotiations with creditors were scuttled after confidence in the economy crashed in the aftermath of Ninoy’s assassination on Aug. 21, 1983.

It was only when democracy was restored in 1986 that seeds of current economic gains started to be sowed.

LINGERING CONSTRAINT
Mr. Virata would later back proposals to open up the economy to FDI needed to build more factories and develop dollar-earning industries.

He formed part of a commission formed by then President Joseph E. Estrada to review constitutional amendments.

“We should not put in the Constitution all of these restrictions,” Mr. Virata said, referring to foreign ownership restrictions.

Data from the Bangko Sentral ng Pilipinas have shown net FDI into the country faring poorly against those of Southeast Asian peers, hobbled by protectionism entrenched in the Constitution.

Net FDI inflows in the 10 months ending October last year fell 4.9% year-on-year to $4.987 billion, far short of the $6 billion the government had targeted for the entire 2015.

Latest available central bank data have also shown that for the first three quarters alone, Singapore had already raked in $48.648 billion, Indonesia received $16.906 billion, Malaysia recorded $7.817 billion, while Thailand got $6.311 billion. Reuters had also reported that Vietnam’s net inflows could have reached $11.8 billion in those three quarters. — Maria Eloisa I. Calderon