Philippine President Joseph Estrada has promised he
will make the country's economy less inefficient and more transparent.
But the Filipino businessmen who stand to benefit from reform remain skeptical
that he will deliver the goods. Philippines Business magazine, which is
published by the influential Makati Business Club, summed up Mr. Estrada's
performance since his election in May 1998 with one word: "lackluster."
It says foreign investment remains weak because of this lack of visible
progress.
So far the debate has centered around President Estrada's
biggest initiative, amending the Philippine constitution. The administration
says, correctly, that the hastily drafted constitution contains protectionist
prohibitions on much-needed foreign investment, and so it must be revised.
But is this the real story? Mr. Estrada's critics acknowledge the need
to remove protectionist barriers, but they worry that the president also
wants to kill the provision limiting presidents to a single term in office,
a charge he denies. Demonstrators summoned to the streets by former President
Corazon Aquino also point to Mr. Estrada's connections to crony capitalists
from the Ferdinand Marcos era like Lucio Tan and Eduardo "Danding"
Cojuangco, and accuse him of trying to take the Philippines back to the
bad old days of the former dictator.
Saying he wants to help the poor, Mr. Estrada talks
the reform talk. But he clearly lacks credibility. How can he boost his
free market bona fides? I have a simple plan. If he is truly serious about
reforming, there is no need to rush into changing the constitution. Just
dismantle a few of the protectionist quotas and tariffs that prevent competition
and hold back the Philippine economy.
For example, Mr. Estrada could break up the costly
protectionist pecking order linking chickens, corn and shipping. Thanks
to a domestic shipping cartel and inefficient ports, it is cheaper to
ship corn to Manila from Seattle than it is from Davao. Since Mindanao
corn is rendered uncompetitive, there is a protectionist quota to limit
cheap corn from the United States and elsewhere -- with a 65% tariff on
corn imports above the quota ceiling.
This in turn hurts the domestic chicken industry, which
can't get cheap cornfeed. So in order to protect the chicken farmers,
there is a quota on chicken imports, with a 50% tariff above that.Meanwhile,
cheap foreign chickens come in duty free at special free-trade zones at
the former U.S. military bases at Clark Field and Subic Bay. Foreigners
can buy these chickens, but not Filipinos, who are supposed to eat scrawny,
expensive domestic chickens at local restaurants.
Naturally, a brisk business of smuggling duty-free
chickens into Philippine restaurants has sprung up. The Estrada administration's
answer is to hunt down the smugglers -- and also to ban the duty-free
imports altogether, along with frozen meat, coffee beans, rice and sugar.
Each one of these commodities has its own protectionist scam, which the
president is still trying to reinforce.As an example take sugar, which
has an 80% tariff. Sugar protectionism (encouraged, alas, by U.S. sugar
quotas that prop up inefficient Philippine sugar barons) has led to a
ridiculous situation -- imported chocolates are cheaper pound for pound
than their principal ingredient, raw sugar. That's because foreign candy
has only a 10% tariff, explains Philippine economist Calixto Chikiamco.
Given his record of reinforcing protectionism, it appears
Mr. Estrada is unlikely to adopt my plan. He doesn't seem to be genuinely
concerned with making the economy more open, which leads many Filipinos
to suspect his constitutional amendments have an ulterior motive. The
president has only heightened fears of a return to Marcos-era abuses with
some of his other actions.
Take Mr. Estrada's plan to bring down the cost of shipping.
He wants to make Philippine ports more efficient by turning over control
of all port services to a private company. The catch: The contract for
the monopoly will be awarded in secret, with no public bidding. This sounds
like a deal President Marcos would have loved. Mr. Marcos also would have
approved of another Estrada idea: ordering that all government contracts
involving more than 50 million pesos ($1.25 million) be subject to approval
by the office of the president. President Estrada's press secretary declined
to respond to my written request asking for a list of all such contracts
that have been approved.
Mr. Estrada is seemingly untroubled by the perceptions
he is creating by forging close ties with Marcos cronies Lucio Tan and
Eduardo Cojuangco. They are unrepentant. I asked Mr. Cojuangco, in writing,
if in retrospect he agreed that government-created monopolies and protectionism
during the Marcos presidency had impoverished his country. "Mr. Cojuangco
believes that there are many reasons for the poverty that afflicts the
Philippines, but it would be unfair and inaccurate to put the blame principally
or only on former President Marcos," replied Mr. Cojuangco's lawyer,
Gabriel Villareal.
At least Mr. Cojuangco, who now owns 20% of San Miguel
Corp. and is its chairman, seems to be running the food and beer giant
efficiently. You can't say that about Lucio Tan and Philippine Airlines,
which is more than $2 billion in debt. According to a study by Development
Alternatives, Inc., the downsized PAL can only fly some 1.2 million international
travelers annually, about half the total number of tourists coming to
the country. To subsidize the uncompetitive PAL, the Estrada administration
has been pressuring foreign airlines from places like Taiwan and Hong
Kong to agree to designated ceilings, or quotas, on the number of passengers
they fly to the Philippines. If the foreign airlines wish to fly additional
passengers, they must subsidize PAL for the business that the Philippine
airline is not capable of flying itself.
Fortunately for the Philippine people, the economic
prospects for the next few years appear decent, if modest. The government
is optimistically forecasting growth of more than 5%. But if the future
is so bright, why are Filipinos and foreign investors alike so nervous?
It's time President Estrada took positive steps to reassure his critics
that he is not taking the Philippines back to the Marcos era. And the
best way to do that would be to eliminate the protectionism and sweetheart
deals that have burdened the Philippine economy for too long.
