FOCUS ON THE PHILIPPINES an electronic newsletter(focusing mainly on Philippine news and issues) of FOCUS ON THE GLOBAL SOUTH a Program of Development Policy Research, Analysis and Action Issue #21 Series 2000 11 October A call for brinksmanship: Prescriptions for an embattled presidency By Carlos H. Conde www.CyberDyaryo.com In newscast after newscast, government officials are seen telling the public that the economic storm buffeting the country today consisting of oil price hikes, the continuous decline of the peso, the bearish mood at the stock market, among others, are caused largely by external factors that are pulling the country down. ....It has tried to wash its hands off the responsibility by hammering on the point that there's not much Filipinos can do but weather the storm. The Estrada administration, its officials have been telling the public, has done what it can, and can't do any better. ....Prof. Walden Bello, the nationalist economist, says the government's stance of official helplessness is an injustice to Filipinos. ...."What we are really confronted with at this point is a national economic emergency. Everything is unraveling. At the same time, there is a sense of helplessness. And the government, instead of providing leadership, has communicated this sense of helplessness and despair among the people," he said at a public forum on October 6. ...."There is this sense that we cannot do anything about the oil price increases, that we can't do anything about the currency crisis, and that, basically, the country is at the mercy of external forces. This is the sort of role the government is playing," he added. ....Bello said it doesn't have to be that way. The Estrada administration, he said, is not as helpless as it sounds. "There is a wide avenue for government to mitigate the impact of these forces against the country," he said. ....And all it takes is guts on the part of the government. Plus, he said, a little imagination, less reliance on doctrine, and loads of competence. Strategies on the peso crisis ....Bello calls the currency crisis, where the peso has dropped to an all-time low, a "continuous debauching of the peso." What the public is seeing here, he said, is a complete lack of leadership on the part of the Bangko Sentral ng Pilipinas and financial authorities. ...."The situation can be stabilized and the peso can, in fact, be made to appreciate again if the government is willing to take the decisive steps," he said. ....One of these steps is a serious implementation of the law against currency speculators. Bello cited the case of several banks, including foreign ones, that were accused more than a month ago of speculative transactions in violation of Philippine foreign exchange regulations. ....But nothing has happened to these cases, he said. "How can a punishment against economic sabotage be respected when measures are not taken against the speculators?" he asked. ....Another measure to protect the currency is the proposed Asean Monetary Fund (AMF). Bello said the government has the opportunity to work with the other Asean countries to make the AMF a reality. ....He cited the move by the G-7 countries to pool $6 billion dollars to prop up the euro, which had been taking a beating of late. That, he said, is "massive economic intervention." ....The wonder, he said, is that the G-7 countries are opposed to the idea of the Asean countries doing exactly the same thing. Bello said the G-7countries are loath to the possibility that Asean countries could pool their reserves, as well as those of Japan and China, to prop up their currencies when these are under attack by speculators. ...."What the Philippine government and the other Asean governments should be doing at this point is to make currency coordination against speculation a reality," Bello said. In fact, he said, there's already a "swap arrangement" among the Asean countries, involving a $1 billion fund that the members can theoretically dip into. ....But Bello said the fund should be increased to at least $10 billion for it to make a dent in the fight against speculators. This, he said, can be a stabilizing mechanism in the currency front. ....However, he bewailed the fact that the Philippines has not been pushing for the active use of the swap arrangement in the continuing crisis. He interpreted this to mean that the government does not have the nerve to do so for fear of offending the G-7 countries as well as the International Monetary Fund, which discourages any interventionist approach in the crisis, although it has acknowledged that intervention, as in the case of Malaysia, works. ....Another decisive step is for the government to increase the reserve requirements for banks. Although the government has announced that it was doing that, Bello said that the reserves should be in dollars, not pesos. Pegging the reserves on the greenback, he said, could stabilize the peso right away. ....A more fundamental approach to the currency crisis, Bello explained, entails fixed currency controls, such as the one implemented by Malaysian Prime Minister Mahathir Mohammad. Mahathir's move saved his country's economy from the ravages of the 1997 Asian financial crisis-something the IMF grudgingly admitted. ...."We really need to look more closely at the experience of countries that fixed their currency and implemented capital controls," Bello said. "It is clear that of all the countries in Southeast Asia, it is only Malaysia that took an opposite route to the IMF regulations." As a result, that country has recovered fairly vigorously, he said. ...."What I am saying is that there is room for maneuver on the currency front and that helplessness is not a viable answer. Those who are helpless don't deserve to be in leadership," he said. Strategies on the oil crisis ....On the oil crisis, Bello said that the laws on economic sabotage should now come hard on the big oil companies that are, he said, principally involved in manipulative operations. ....These companies, he said, are responsible for the oil crisis. "I think a serious invocation of these laws will end the oil crisis," Bello said. ...."We have to realize that our government has to be bolder in this case because there are now reports that the big oil companies are, in fact, making money at this point," he said. "It has always been the case that when there are oil price increases, the big oil companies make use of this to raise their pump prices. In fact, oil companies, according to international reports, are considering this year to be very good in terms of profits." ....Moreover, Bello said the implementation of the National Oil Exchange(OilEx) is a step in the right direction. Regardless of the controversy surrounding the OilEx, Bello said it needs to be implemented "because the alternatives are worse." ....More importantly, the OilEx, Bello said, would enable the Philippines to bargain directly with the members of the Organization of Petroleum-Producing Countries (Opec). The OilEx bill provides a mechanism for open bidding involving the world's suppliers of petroleum for the country's refined-petroleum requirements. ....Bello explained that Third World countries are treated differently by the Opec in terms of pricing, as compared to First World countries. He said that the Opec is not really aiming its prices at Third World countries but at the transnational oil companies (such as Shell and Caltex) that act as middlemen in the oil trade. This setup allows the oil firms to impose higher prices, as most middlemen do. ...."The OilEx will enable us to have a direct bargaining relationship with the Opec and this should be an advantage, a common solidarity that Third World countries can use so that Opec will begin to have multi-tier pricing structures with respect to different countries," Bello explained. ....As with the problem with the peso, Bello believes that there is room for the government to "squeeze" the oil companies. ....Again, he emphasized the need for bold leadership to deal with this problem. "The burden of leadership really is not to be cautious but to facedown these guys [the oil firms]. They will always threaten us that the Philippines is not an important market for them; they will always threaten that we have a limited demand and that they can always move out. Well, let them try," Bello said. ...He added: "I think the burden of leadership is brinksmanship on the part of government because brinksmanship is part of negotiations." ....Unfortunately, what the country has right now, Bello said, is "a government that is basically emasculated and is in terrible fear of external forces." Strategies on the budget deficit ....Bello said that the government has been acting "very cowardly" in dealing with the budget deficit, afraid of disappointing the IMF so that it cannot go beyond the P62-billion budget deficit "because the IMF is going to come in and refuse." ....The economist thinks that this attitude is unwarranted. "Inflation is quite under control. But the IMF and our technocrats have always been very concerned that even when the recession is already biting hard, inflation is their main target. I think this is the wrong priority at the wrong time," Bello said. ....In terms of higher budgetary expenditures, Bello said, "We need to move into looser monetary policy, an expansionary monetary policy. The important thing is to make the economy pick up by giving money to consumers to counteract the decline of the economy." ....But the administration, he said, can only do this through government spending. "So enough of this looking over our shoulders in terms of getting approval from the IMF," Bello said, pointing out that the IMF's contractionary policies "have already proven to be a disaster in the Asean case." ....Unfortunately, Philippine technocrats in both the finance department and the National Economic Development Authority, "haven't learned the lessons of the Asian financial crisis," Bello said. Piecemeal approach ....Bello bewailed the government's tack of portraying itself as a victim vis-à-vis these crises. "Government is painting itself as a victim, but it really has a piecemeal approach to all of these problems and is very technocratic," he said. ....What we need, is "a very bold strategy to deal with the problems. What we need is a strategy that is premised on a reversal of the neo-liberal strategy that has destroyed the buffers between the Philippine economy and the global economy," he said, referring to the mad rush toward liberalization, deregulation, and privatization. ...."We need a strategy to really firm up government and end cronyism. These are very central," Bello said. ....He added that if there is one thing he agrees with the IMF, it is the implementation of progressive income tax laws. "We really need an implementation of the tax laws so that the rich don't keep getting away with tax evasion," he said, obviously referring to Lucio Tan, who recently got away with a multi-billion tax evasion case on a technicality. ....Bello, an internationally renowned economist, was invited to the IMF conference in Prague two weeks ago to give a talk about the ravages of IMF policies and programs. ....He pointed out, however, that the problem with having a bold strategy is that it wouldn't work without "moral leadership." He was referring not to the vices of President Estrada, which include women, gambling and alcohol, but to "a larger sense" of moral leadership. ...."I'm afraid that this government has lost the moral leadership and I'm not talking at all about the moral qualities of the President. I'm talking about moral leadership in a larger sense, of being able to inspire people to give their best because you are also giving your best," Bello said. ....Bello thinks that, at the rate the President is going down, he will not be able to regain the moral leadership to steer the country back on course. This is why, Bello said, "I fear very much for the future of the economy. I personally am very much convinced that the only way to get out of this economic crisis is if the President resigns and the discredited Cabinet resigns." -Pan-Philippine News and Information Network