An Economic Legacy from Tita Cory

Banking & Finance
Written by Free Enterprise / Val Araneta

THE passing away of President Cory Aquino has aroused deep emotions from her beloved nation. One common reaction is to look back in history to reflect and appreciate the good things that she has done. The following article is a perspective on certain economic events that may give insights into the economic history of the Philippines.

July 1983

PEOPLE who were born in 1983 are now 26 years old. Persons 26 years old and younger constitute a very large part of our population. It is very important for them and all to appreciate that the Philippine economy was in bad shape then. The state monopolies created under martial rule were going bankrupt. The country was having a hard time servicing its foreign debt and not enough investors or commercial lending was coming in. The New People’s Army had become strong in the countryside and its assassination squads called sparrow units were killing soldiers and policemen with audacity in the towns and cities. In other words, the general business environment was very bad.

August 21, 1983

THE assassination of senator Benigno Aquino Jr. did not cause the economic crisis of 1983-85. It brought it to the open and definitely aggravated it. If the problem before August 21 was lack of foreign investment and bank lending getting tight, the problem now became capital flight, freeze on new lending and intense pressure on the exchange rate and the international reserves. Standby credit facilities could not be drawn.

October 17, 1983: Foreign-debt moratorium and ‘standstill’

IN October the Philippine government had to seek a moratorium on the repayment of principal of most of its foreign-currency-denominated debt, as well as that of government-owned and -controlled corporations and private corporations. There simply was not enough available foreign currency or credit lines to repay the maturing principal obligations. The foreign-currency debt of the country had to be restructured.

Debt restructuring and political upheaval

THE street protests, led by Cory Aquino, that swept the nation fueled a vicious circle of economic deterioration under the Marcos administration. Domestic and international investor confidence was very bad. The foreign debt-restructuring process under which the country was in did not give the government much leeway to introduce economic palliatives to appease business or consumers. On the other hand, foreign currency was rationed for the importation of the most essential goods and interest rates were very high to make it to rein in inflation and to make it expensive to speculate against the peso. During this period, the Philippines was pejoratively referred to as “the sick man of Asia” or a “Latin country in Asia” because other countries in Asia were enjoying high economic growth rates while the Philippines was enduring negative growth rates and a foreign debt-restructuring process similar to several countries in Latin America.

February 1986: The restoration of confidence

THE people power revolution of 1986 changed everything. The change was in national and international confidence. Confidence in the mandate of the new administration and that it was transparent was the all important thing. There were no drastic or immediate changes in economic policies. In fact, it was to the credit of the Aquino government that there was a smooth transition in the Cabinet departments, including government institutions and corporations in spite of the revolutionary manner of the change of government. The civil-service structures and tenures were respected.

The restoration of confidence in the country and the government was the first and most important economic legacy that President Aquino achieved for the county.

The rule of law and honoring of contracts

WHEN the Aquino government took over, the Philippine foreign debt-restructuring process had been going on for two-and-a-half years and in a particularly difficult phase. Philippine debt paper was trading at 50 percent or less of its face value. There was one school of thought among the Aquino advisers that it could be justified to repudiate or unilaterally reduce the principal and/or interest payments of debt that were incurred by the previous administration and apparently used for uneconomic projects or that corruption was committed in the financing of these projects and that the lenders had to share in the responsibility. The Aquino government, however, honored all obligations and continued working on the debt-restructuring negotiation process with its creditors. It did not miss a single interest payment or any principal repayment not covered by the debt standstill agreement. The country eventually finalized and signed its debt-restructuring agreements and, from 1992, it was able to access the international debt markets again.

Today the Philippines has one of, if not, the biggest outstanding issues of foreign-currency debt among Asian countries. It is able to access the international markets at prices that are oftentimes better than issuers with higher credit ratings. I would put great credit to President Aquino for this—that the market remembers and considers the Philippines as a country that never reneged on its foreign-debt obligations.

Privatization and the dismantling of monopolies

THE Cory Aquino administration almost immediately dismantled government monopolies and embarked on the privatization of government assets. The sugar-trading monopoly and the coconut-levy fund were dismantled. Proclamation 50, serving as the basic law for privatization, is one of the decrees of the revolutionary government. Among the corporations listed on the stock market under this proclamation were the Philippine National Bank in 1989 and Petron under the Ramos administration in 1994.

Lessons from the Aquino legacy

WE go back now to the next generation of Filipinos. What can we see in the economic meaning of 1983 and 1986? Looking at it simply, the country was led by a brilliant lawyer to near economic perdition and a housewife restored confidence and economic recovery. They both had the most brilliant economic and business advisers available with graduate degrees from Harvard, MIT, University of Pennsylvania, Stanford, etc. As the nation searches for answers and meaning, it may be a good option to look beyond economics and look at the values that Cory Aquino represented. She represented idealism and the unwavering intention to do what is right. She believed in the democratic process even if it could work against her wishes. She did her best to institutionalize these values. That is why there was business confidence in her policies and institutions.

The 1987 Constitution is indicative of her desire to restore the democratic processes as soon as possible and to take the power to issue decrees with the effect of legislation away from her hands as soon as possible. The nation must not forget the background of the Cory Aquino legacy lest they be tempted to believe that it is good to trade off some democratic freedom for economic growth, and peace and order. The legacy of Cory Aquino shows that this is a fallacy.

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Indeed an economic legacy from Tita Cory fueled best by her faith in God.

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