I asked for, and got some, questions from you to answer. Let’s jump right in. What are the implications of this election? Most important has to do with the conduct of the third automated election. Will it be clean or dirty? And to what extent. There were questions about the first one and more questions about the next when the count was stopped at 80 percent. But the winner in the first was the most likely; so one could not care less about dodgy local elections then nor the outcome of midterm elections, likewise marked by fraud. As always with us Filipinos, we moved on. We do that a lot; can’t undo what’s done. But we keep an eye out for an unpleasant repetition.
If the question is: Is the Philippines a good place to invest? Your analysts are better paid to tell you that. We cannot explain what our vaunted 6.5-percent GDP growth rate consists of. I sit on the board of an international shipping company and we are puzzled. Exports are down and imports are lower. John Mangun, a colleague in the paper I write for, answered my distress call by saying: it is a diverse economy; 40 percent or more depending on the industry is underground. So if something’s growing big in our trousers—maybe we’re just happy to see you. One explanation is smuggling; and while its off-books, it must turn up in consumer spending and in expanded value-added tax (E-vat) revenue. Be all that as it may, the Philippines will always be inviting—though equally Filipinos will always be suspicious of those who turn up.
You’ll hear talk of sweeping reforms of society and business from those who don’t count for anything in either sector. Pay it no heed. Even our Marxists have a shallow understanding of what they profess. And our capitalists do not read. They just make money hand over fist, in the very environment you are in now. The Philippines is one of the most profitable countries on Earth, Mangun says. “The average net before-tax profit margins of our top 100 stock exchange listed companies is 12 percent.”
And we pay our debts. Even when we had the moral standing to do something right about a huge and anomalous foreign debt, we did not repudiate but repaid every dollar—largely by more borrowings, which, in turn, we are paying down to the last dollar. The previous administration was addicted to paying down foreign debt with any money at hand. It was a substitute for bold but uncertain policies and programs.
As the writer of the first president’s stirring speeches committing to pay back every dollar that was lent by foreign bankers with malice aforethought, we, in her Cabinet, thought it was too much of a bother to dispute the debt. But because of that experience, we hardly borrowed again internationally. Mangun assures me that our fiscal position is as good as it gets. We are not and never will be Greece by any means, nor Italy and Spain for that matter. “The Philippine banking system, by any stress test, is the strongest in the world.
The undercapitalization of some major banks is being answered through Asean integration investment,” Mangun says. Whatever weaknesses may have revealed themselves in the 25 years since democracy came back, they were addressed by the previous president’s fiscal reforms; which this president has respected.
After the revolution, and without skipping a beat, we adhered to the World Bank-International Monetary Fund programs imposed on the Marcos regime for its profligacy. We swallow the consequences even of malfeasance committed in our name and at our expense—but we remember.
Thus, I was in Congress when US Treasury pressured us to adopt new fangled financial schemes, like Securitization. We were lectured on what it entailed, which wasn’t clear even to the American lecturer. So instead of opposing it, which would have put pressure on us and being Filipinos, we warmly adopted the measure and proceeded to doctor it—to a degree of complexity that made it unusable. That spared us the fate of the US in the global financial crisis that broke out a year or so later. “Further, our banks believe that ‘if we don’t understand it, we don’t invest in it.’ With the collapse of Lehman Brothers, total Philippine bank exposure was $50 million,” Mangun says.
The international assessment then was that the Philippines was the least worst off. And just to make sure, Congress readily passed an onerous E-VAT to create a buffer for the Wall Street debacle, whose ruinous ripples continue to roll around the world.
Then US Treasury insisted on a stringent antimoney laundering law. The Bankers Association of the Philippines strongly opposed it as designed to drive good money and bad equally deeper underground, only to resurface in the banks of the very countries pressing us to adopt it. But the candor of the US Treasury people, who came over, won us over completely.
The Federal Reserve official said, “If you want a law full of loopholes, adopt the US law because it was one of the first. But you Filipinos listened to Robert Rubin who opposed antimoney laundering as violating free enterprise in all things. Since now we know better, we are proposing the latest version with the loopholes plugged and screws tightened further. We, in Congress, made two exceptions, purely gratuitously; no one asked us to, no one bribed us—or the House leadership pocketed it all. McKinsey made a presentation for the casinos promising to build a Disneyland here. That won us over. While Chinatown brazenly warned the committee that if we include tax evasion among the predicate crimes, they’d take all their money to Hong Kong and transact their smallest business here with letters of credit. I am not sure that can be done, but we are lawyers in Congress, we couldn’t take the chance.
We are a rational, sober, tolerant and a not-at-all demanding people. I can’t speak for government officials, with whom investors must deal. But a lot of the delay and obstruction that potential investors experience comes from strong local and foreign players already in place; thus, Telstra’s DOA. But there is no regulatory capture. A strong player can get preferential treatment for itself and discriminatory treatment of potential competitors but only on a case-to-case basis. Every path smoothed, and every path blocked, is a one-night stand, then left on the dresser when the client leaves the room he paid for. Nobody gets to sleepover. An official can be in someone’s pocket for one transaction, but he has not taken up residence there.
Among Filipinos, there is no popular identification of business with progress as there is among Americans of all classes. There is suspicion. Don’t get me wrong, Filipinos really are as welcoming of guests as they appear to be; but after their experience with foreign finance in the martial law years, they tend to count the silverware after the party. In summary, let me say, if you like the business environment today, and if you have made money out of it, that environment will stay. Nothing about it will change. We are just like that.
Back to automated elections, of which I was a main author and sponsor in the Lower House, as chairman of suffrage. If it turns out to be dodgy there will be some unrest. But it will be strictly politics. Business will be unaffected. We toppled a president elected with the biggest percentage of votes in the history of our democracy—without a hiccup. He left; life went on as usual; he went to jail and seemed to take well to it.
One thing about Filipinos, whatever happens, our people lose hope but they never lose it. Maybe because nothing really bad has happened to us, like Argentine defaults that wipe out savings. At any rate, we don’t off half million Chinese because our generals are quarreling over succession; or go berserk, as the Economist reports the natives doing in Malaysian plantations. We are a calm, circumspect and patient race, but we are not fools. We are too polite to turn away unexpected guests with uncertain credentials. But a serious investor must be big enough to push his own investment if there are strong players in place. He will meet delays but no overt resistance—just delay. The public-private partnerships’ failure to take off is partly due to competitors or indecision among them as to who takes what, when and for how much. But I credit, as well, an idiosyncratic but honest president, who’d rather not spend at all, than see public money stolen or wasted. Call it paralysis but it is not robbery of which we had some in foreign ventures.
As for electoral mandates, the notion of it was invented by half-educated journalists attempting an anachronistic comparison with Chinese emperors. Elections do not confer mandates on winners. All that elections confer is the job that was up for grabs.
Electoral victories don’t sharpen minds or effect a sudden increase in learning on the part of the victors; bad habits persist and worsen with the greater opportunities to indulge them. So again, there will be no surprises as you see the candidates today, so you will find them in office: with the same crimes and misdemeanors, the same inadequacies and qualifications, and the effects on them of their experiences such as those have been. All that is common knowledge and accurate.
But this must be said, the presidential office does imbue the holder with a sense of transcendent responsibility. When the previous president was pressured to adopt highly unpopular fiscal reforms, which made her safe retirement even more parlous, I suggested she repeal those onerous reforms before departing. That would leave the succeeding government scrambling for funds and unable to harass her. She said, “Oh, Teddy, Teddy, that’s such a smart idea—and so irresponsible. I am a president.” She is under detention by a government that has claimed all the credit for her reforms. So, in sum, you might say everyone is for sale but not all the time; they don’t stay bought; everyone is a free agent; and, of course, some things are outside the commerce of man. This president couldn’t buy congressional support for a law devised by Western diplomats to give away part of our country to Muslim terrorists.
Why are the candidates running for president?
Grace Poe because she is popular and I told her that when she topped the senatorial race, “Do nothing; start campaigning; take no hard line on any issue; press flesh.” She has a problem with citizenship because she was a foundling, but a foundling by definition cannot prove a nationality determined by unknown parents.
Jejomar C. Binay is running because he was far and away the leading candidate for the first four years after his unexpected victory as vice president. Now he is running for his liberty because of the accusations against him.
Rodrigo R. Duterte came out of left field and he’s still pitching from there. He made a big splash at the start—great foreplay you might say but he seems to be fading in the main act.
Mar Roxas is my friend. And that’s that. He trails in the polls but his stoutest supporters say, “So long as we are ahead of Miriam, in spite of our lousy yet overfunded campaign, that’s good enough for now.” They find it funny; I don’t. I hope I never have friends like that. Mar Roxas is the only candidate whose platform of government you must study because this guy means what he says—but sadly few like what he is saying. On the Trans-Pacific Partnership, you’d expect he’d be for this piece of elitist policy because of his New York connections, yet he came right out and said, “No way.” It will make the lives of most people miserable. He knows his stuff—the other candidates do not pretend to. But the worst part is that when he knows or rather thinks he’s right, he won’t change his mind, almost as if he cannot. And, of course, his decision won’t change either. Ideas take hold of his actions and don’t let go. This is good in theory and says something good about a man who takes ideas seriously; but for practical businessmen it is mostly bad. Mar doesn’t know, worse, yet, he doesn’t want to know how to deal.
Miriam Defensor-Santiago is ill.
The only concrete program is simple and came from Binay. He told the Chinese Chamber of Commerce that he would fire Kim Jacinto-Henares within 30 minutes of taking his oath. The response was nothing short of epic; old hands with liver spots fairly bled from the clapping and crippled businessmen stamped their feet repeatedly in rapture.
Some issues will be immediately addressed by all the candidates: the Metro Rail Transit (MRT) breakdown for sure—it is a catastrophe tantamount to a human-rights crisis. Hundreds of thousands have lined up for hours in the past two years for rides that don’t arrive, and when they do cannot move on. These are the people who really work for their pay. The idea of stopping the subsidy for the MRT was something out of the Washington Consensus. It was ignorant, cruel and a savage attack on Philippine productivity. The only important issue is China. What it does and what happens will severely impact business everywhere. Should the Philippines let itself be drawn into a deep hostility with China—the richest country in the world going by the money it spends on friends? And all for the sake of protecting freedom of navigation when we have nothing navigable to speak of.
The US has stated clearly. It will take no side in any territorial dispute. What if China claims the Philippines? The US insists it will take no side. As for the reefs, there’s nothing under it. I was with an oil exploration company combing that area for years. Nothing.
It doesn’t hurt to lodge a protest with The Hague regarding China’s odd program of making new islands out of seawater to which they lay the most ancient claims. It is sort of like making the claims come true; or staking the claims when there isn’t anything yet to claim.
If we win, China will ignore the decision and the West will accept its disregard. But we will be treated more carefully in the bilateral talks that China believes is alone consistent with its new sense of self-importance after a century of humiliation and depredation at the hands of Japan and the rest of the West. Why is China suddenly so assertive? The leading expert on Deterrence explains that it is nothing personal, or national if you wish: it is just the unstoppable logic of growing national wealth. The richer a country gets, the bigger the military it will build—to address the basic insecurity of all nations. And that always looks aggressive.
There is nothing malicious about it; either wealth creates power or just more wealth—wealth that another nation can take from it.
It is not true that in war everyone is a loser. War has winners and the prizes are real and big. Conquests pay. Just because the world’s premier superpower has only come to grief in Vietnam, Central America, Afghanistan and Iraq doesn’t mean wars are losing propositions. United Fruit won while the conflict lasted; Lockheed; and the sons of the American rich who were appointed to run down the economy of Iraq and take a lot of the money the US taxpayer poured into it.
It is not just natural resources but industry, commerce, infrastructure, financial services (as the shift of Hong Kong from Britain to China shows), even ways of doing business successfully, and, of course, the subject population—humans are still smarter and cheaper than robotics all told; all these are seamlessly incorporated by the country that conquers and added without a hitch to its wealth. Japan became richer from wide swathes of China and its major cities; Germany even more when it owned most of Europe; and Britain is still living off the dividends of Empire. Quibble all you like about the cost of it to the common Englishman, but the English elite enjoyed the dividends.
A recent study by Edward Luttwak argues that China has adopted a counterproductive strategy in translating increasing amounts of its still growing wealth to more military purposes. This is self-defeating, he argues, because the more you arm the more your apprehensive neighbors arm, as well; and that cancels some of the advantage of militarizing. Striking the balance of power, you discover that, as much as military power as you acquired, is as much military security you lost when neighbors answer your buildup with their own. But that’s not true. There’s military buildup and there’s military buildup. What China can afford with money, technology, population and industrial wherewithal, perhaps, only Japan and South Korea can begin to match. But only begin. The Himalayan height of the wealth of the Indian elite rises on a sea of destitution without sight of land. Asean is a military joke.
A Southeast Asian country that never fought war, not even its own insurgency, and had the British do all the fighting for them, can place an order for a submarine and a thousand howitzers—but they won’t know how to use them under the stress. A 200-man Sulu royal army of sorts landed in Borneo and achieved a radius of control of 150 kilometers within a week of landfall, in the teeth of 10,000 soldiers with artillery before a news blackout went into effect. The last report was that the 10,000 were being hit by their own artillery. And the US is too far away and China too close. When it comes to power projection, the stopping power of water, says Mearsheimer, is like wading in drying concrete at that distance.
What Luttwak is suggesting is that the richer China gets, and the more it is in an economic position to translate riches into power, the more weak and powerless it should appear to the world, so it will be taken for granted rather than suspected and subjected to economic sanctions. Really? Then say good-bye to Walmart and Apple.
Luttwak suggests to China, “Why fight when you can grovel while making more money and spending it on making even more money after that?”
But no big country in the world has ever been like that; even Switzerland has built up a credible defense. Mearsheimer argues, to the contrary, that countries grow rich to be strong enough to take what they want from other countries, rather than suffer what they must at their hands. This is wisdom from Thucydides, who wrote it 2,500 years ago, about the war between Athens and Sparta: still the template of international studies now as when it was dogma in the Cold War, which ended in 1998. But it is autumn and it will soon be winter again.
What is the role of the Philippines in all this? Nothing but to keep away from fights not its own. It is all well and good to call a reef by a local name, but is it worth inviting Chinese animosity when there is nothing between China and us, but the ambivalence of America and the self-interest of the other Southeast Asian countries and Japan, who will strike their own deals with China after using us up as a bargaining chip?
The only American interest is the unrestrained freedom to navigate in the South China Sea. But this is perfectly congruent with China’s interest to allow that freedom without exception—but only out of courtesy to foreign guests in what established cartography has long called the south Chinese sea. “Please help yourselves to the water,” China is saying, pretty much as sheiks allowed desert travelers at Bedouin wells. “You are welcome to the water as guests.”
Should the Philippines join a regional group against Chinese pretensions in the South China Sea? No. We don’t need a group hug with the powerless. We enjoy what countries on the Asian mainland do not: the stopping power of water that kept even England free across a narrow channel.
Should the Philippines deal with the Chinese problem in tandem with another great power? The answer is no. We can do that more competently by ourselves because as much as another power can help us in dealing with our powerful nextdoor neighbor, it can also sell us up river to China. This neutrality may annoy the US but is the posture that all future Philippine governments will take.
Image credits: Jeremae Jumao-as