2010 Midyear 15 July

Midyear Briefing, July 15 and 16, 2010 UP Balay Internasyonal, UP Diliman

Quezon City

MIDYEAR 2010: Aquino Rising,

Change Underway?

2 IBON Economic and Political Briefing 15-16 July 2010

IBON Foundation is an independent

development institutionestablished in 1978

IBON Economic and Political Briefing 15-16 July 2010 3

MIDYEAR 2010:Aquino Rising, Change Underway?

The start of a new administration after the May 10, 2010 national elections has raised public hopes of a break from the past. Various crises marked the last decade

under the Arroyo administration: highest-level graft, corruption and electoral fraud, breaches of the rule of law, systematic human rights violations and political repression, and greater economic misery of the people. These were due to the Arroyo government, which is over, but as well to other deeper and more daunting underlying conditions.

The Philippines faces serious challenges on many fronts: tens of millions in chronic poverty, extremes of social inequality, a recurring fiscal emergency, eroded long-term economic viability amid a still unfolding global crisis, severe political repression, weak and undemocratic institutions of governance, systemic corruption, armed conflict, and lack of national sovereignty.

There could be an interlude of relative calm in the country especially compared to the persistent turmoil of past years as a new government coalesces around the Aquino administration with its fresh and solid mandate. Yet undercurrents of possible tension remain: intra-elite rivalries, fragile public finances, an unbalanced economy, and unremitting demands for social, political and economic justice. If new and significant directions are not quickly and decisively charted, the country could easily revert to its accustomed instability.

It is only two weeks into the new administration but initial efforts of the Aquino government in this critical early stage, measured against the gravity of the accumulated problems, do not yet give reason to be optimistic over the long-term. There are still no signs that major failed economic and political policy directions of the past are going to be reversed. Corruption is the banner issue of the Aquino campaign but even here, there have only been modest steps so far.

Real change requires a major confrontation with entrenched political and economic elites that have long dominated the country – in government, the big business community, and also major international powers such as the United States (US). This is difficult but the Aquino administration is pressed to set clear directions showing that it is not just a break from the old Arroyo government but also the start of change from the long-standing problems of the country. High expectations do bring a danger: if the people’s condition keeps deteriorating the icon of discontent against Arroyo may himself become the subject of discontent in the years or even just months to come.


LEGACY OF FAILED POLICIES

The Arroyo presidency is over at last, and if only for that, the Filipino people should be relieved and hopeful on the changes promised by the newly elected Aquino presidency. But one of the legacies that President Arroyo leaves behind is an economy in shambles, which she fails to conceal for the last time in her burnished accomplishment reports and farewell speech. The Philippine economy is at an advanced stage of its long-standing crisis and requires comprehensive and radical solutions.

This will be the most severe test to the leadership of Pres. Benigno “Noynoy” Aquino III and to the simplicity of his approach to poverty. His campaign slogan “Kung walang corrupt, walang mahirap” rode on anti-Arroyo sentiments and launched the unaccomplished senator son of ‘democracy icons’ to the presidency. But as a tool of analysis on the roots of poverty and as a framework to achieve real changes in the lives of the Filipinos, it is painfully inadequate.

The new Aquino administration in effect takes ‘good governance’ as its guiding principle, in contrast to its predecessor that long ago erased public accountability and service from its language. But overly focusing on ‘good governance’ has the tendency to shift the blame for the country’s economic problems to corruption alone and away from the globalization policies that have deepened the Philippine crisis and benefited only a narrow elite. It eventually allows the Aquino administration to continue and even intensify the implementation of these undemocratic policies. It would also be self-defeating at the minimum if, after all, Pres. Aquino fails to prosecute high officials accused of large-scale corruption, including former president Gloria Macapagal-Arroyo.

The people’s euphoria at this point is understandable. The country is reeling from a decade of worsening crisis and poverty and getting over a regime that brazenly represented foreign and elite interests as well as its own preservation agenda. The euphoria, however, is not based on the idea that democracy is working since the country has a long way to go in that regard. It is simply coming from the smooth transition of power that happened even if this was only from one elite faction to another. The challenge therefore for the new presidency is to sustain this euphoria through concrete actions on more profound issues of the people.

Even before his inauguration as the country’s 15th president, Pres. Aquino said his first order of business on July 1 would be: List down all problems. The country’s problems are far more fundamental than how they were trivialized during the elections. One of the defining marks of a genuine leader for change is to recognize this fundamentality and commit to resolve it, and Pres. Aquino is most expected to do this.


Table 1. Labor Force Survey (LFS), April 2008-2010 (population in '000, rate in %) Indicator IBON Estimatesa Officially Reportedb 2008 2009 2010 2008 2009 2010p Population 15 Years Old and Over 57,700 59,074 60,562 57,700 59,074 60,562 Labor Force 37,909 39,284 40,031 36,450 37,824 38,508 Employed 33,535 34,997 35,411 33,535 34,997 35,411 Underemployed 6,625 6,621 6,298 6,625 6,621 6,298 Unemployed 4,373 4,287 4,620 2,914 2,827 3,097 Not in the Labor Force 19,791 19,790 20,531 21,250 21,250 22,054 Labor Force Participation Rate 65.70 66.50 66.10 63.17 64.00 63.58 Employment rate 88.46 89.09 88.46 92.00 92.53 91.96 Underemployment rate 19.76 18.92 17.79 19.76 18.92 17.79 Unemployment rate 11.54 10.91 11.54 7.99 7.47 8.04 Note: Details may not add to total due to rounding. a - Since figures for 2008, 2009 and 2010 according to the old LFS definitions are unavailable even upon request to NSO, IBON made rough estimates for labor force and correspondingly unemployment by assuming a labor force participation rate (LFPR) of 65.7% in 2008, 66.5% in 2009 and 66.1% in 2010. These assumed LFPR figures were derived by applying the changes in official reported LFPR in 2008, 2009 and 2010 to the LFPR in 2007 that was computed using the old unemployment definition – i.e., 1.3% reduction in 2008, 0.8% increase in 2009 and another reduction of 0.4% in 2010. b - official data based on new LFS definitions. p - preliminarySource: Income & Employment Statistics Division, Household Statistics Department, National Statistics Office

Unemployment, marginalization, diaspora

The first five years under Arroyo (2001-2005) saw joblessness in the country worsen to unprecedented levels with a yearly average rate of 11.4% as against 10.1% (Cory Aquino), 9.3% (Ramos), and 10.4% (Estrada). The Arroyo government was able to tame the worsening unemployment beginning in 2005 only by removing the number of discouraged workers from the labor force population. The ‘new definition’ drastically tapered the reported annual average unemployment rate to just 7.8% in 2005-2009 by removing around 1.34 million people every year from the ranks of the jobless and categorizing them as “not in the labor force”.

The Philippines has around 4.62 million unemployed as of April 2010, compensating for the revised definition. The true unemployment rate has reached 11.5% as of April 2010 and the number of jobless people increased by 7.7% from only a year ago. (See Table 1) In reality, the decade under Arroyo has been the longest period of sustained high unemployment in the country’s history with an annual average rate of 11.2% as against 10.2% in the 1980s and 9.8% in the 1990s.

There are currently 6.30 million underemployed Filipinos which brings the total number of job-starved Filipinos to around 10.92 million, an increase of 1.37 million since Arroyo came to power. This figure even understates the gravity of the employment situation since 16.1 million (46%) of the 35.4 million employed are own-account and unpaid family workers in the informal sector. Available jobs are thus of low quality, insecure, low-paying, and without workers’ benefits. (See Table 2)


Table 2. Number of Employed Persons, April 2008-2010 (in ‘000) Employment Category 2008 2009 2010p Total Employed Persons 33,535 34,997 35,411 By Sector Agriculture, Fishery and Forestry 11,905 12,314 11,509 Agriculture, Hunting and Forestry 10,450 10,841 10,057 Fishing 1,454 1,472 1,452 Industry 5,001 5,088 5,489 Mining and Quarrying 151 166 212 Manufacturing 2,883 2,841 3,045 Electricity, Gas and Water 123 130 142 Construction 1,843 1,951 2,054 Services 16,630 17,595 18,414 Wholesale and Retail Trade 6,322 6,681 6,870 Hotels and Restaurants 924 976 992 Transport, Storage & Communications 2,575 2,628 2,727 Financial Intermediation 366 389 390 Real Estate, Renting & Bus. Activities 953 1,023 1,062 Public Administration & Defense, Compulsory Social Security 1,661 1,794 1,948 Education 1,028 1,068 1,169 Health and Social Work 384 408 460 Other Community, Social & Personal Service Activities 843 907 992 Private Households w/ Employed Persons 1,572 1,718 1,806 Extra-Territorial Organizations 2 3 - By Status of Employment Wage and Salary Workers 17,724 18,170 19,299 Own Account 11,608 12,228 11,934 Self-employed Workers 10,064 10,869 10,694 Employers 1,544 1,359 1,275 Unpaid Family Workers 4,203 4,599 4,178 By Hours of Work 40 Hours and Over (Full-Time Employment) 20,748 19,824 21,707 Less than 40 Hours (Part-Time Employment) 11,954 14,334 12,960 Did Not Work 833 838 744 Note: Details may not add to total due to rounding. p - preliminary Source: Income & Employment Statistics Division, Household Statistics Department, National Statistics Office

The wage and salary workers who comprise more than half of the employed are in no better position. Based on the 2008 Informal Sector Survey (ISS) of the National Statistics Office (NSO), which was reported in end-2009: out of 10 workers in this category, only around seven were covered by contracts, whether written or verbal; less than four had social insurance; less than three had paid leaves; six were protected against dismissal; and only three would be compensated when dismissed.

Out of the total employed in April 2010, 13 million were part-time workers or worked for less than 40 hours during the reference week. Of the total underemployed, on the other hand, 1.89 million (30%) worked for 40 hours or more and still wanted additional work.


Table 3. Deployed Overseas Filipino Workers, 2000-2009 Year Deployed OFWs

2000 841,628 2001 867,599 2002 891,908 2003 867,969 2004 933,588 2005 988,615 2006 1,062,567 2007 1,077,623 2008 1,236,013 2009 1,422,586

Source: Philippine OverseasEmployment Administration

All these trends that have not significantly changed over time – and may even have worsened (the ISS for instance was conducted before the global economic crisis erupted) – point to the conclusion that around 81.6% of the Philippine labor force population are currently unemployed, underemployed, in informal work and do not have job security. Even using the re-defined ‘unemployed’, yielding a lower rate of 80.8%, can no longer hide the severity of the jobs crisis. The International Monetary Fund (IMF) has recently acknowledged that, re-definition notwithstanding, the Philippines has the worst employment situation in Asia.

The population is not only deprived of productive, quality and secure work but also marginalized from land, capital and other resources that are crucial in making a living. Over 23 years after the Mendiola Massacre (a low point in the Filipino farmers’ historical struggles for land) and after the Comprehensive Agrarian Reform Program (CARP, the centerpiece of the elder Aquino administration), seven out 10 Filipino farmers still do not own the land they till. They are still charged high rental fees and usurious interest rates by big land owners and loan sharks when they access land and resources.

Of the Php3.1 trillion outstanding loans of the Philippine banking industry in 2009, 40% was owed by the real estate industry and the banks themselves for their financial activities. Only 11% went to agriculture, mostly to foreign and big local agribusiness. The law that mandates the banks to allocate at least 15% of their loan portfolio to agriculture has long been forgotten.

Meanwhile, the National Irrigation Authority (NIA) reports that only 49% of the total irrigable area of 3.13 million hectares has been irrigated. Of the irrigated area, the NIA accounts for only 52% while the rest is operated by communal and private systems. The NIA even charges as much as 12 cavans per hectare for its diversion, reservoir and irrigation systems and as much as Php5,000 per hectare for its national pump irrigation systems. The Arroyo government could not even respond promptly when the country experienced one of the worst episodes of the El Niño weather phenomenon in 2009.

The combination of jobs crisis, marginalization from basic livelihood resources, marginalization from credit and capital, and lack of government support for gainful work has forced millions of Filipinos out of the country. There were officially 1.42 million overseas Filipino workers (OFWs) deployed in 2009, an increase of 15.1% from the same period in 2008 and of 69% from a decade ago. (See Table 3)

The average annual growth of OFW deployments, 6.7% in the 1991-2009 period for instance, has been faster than the average annual population growth of 2.3% in the same span. Looking at five-year annual average growth rates beginning in 1995 would show that the last five years were the most frantic years for OFW deployments: 3.4% in 1995-1999; 2.2% in 2000-2004; and 9.0% in 2005-2009.

Service workers overtook production workers in 1998 as the dominant type of deployed OFWs, and the shift would last until 2007 and 2008 when production workers comprised 39.4%, on the average, while service workers comprised 35.7% of OFW deployments. The skill levels are reflective of the quality and pay scales of the jobs to be had overseas and that are reserved for migrants.

The latest stock estimate of OFWs is 8.19 million (2008, according to recently changed methodology by the Commission on Overseas Filipinos) of which more than half


(53%) are temporary and irregular or those typically known as “OFWs”, while the other half (47%) are permanent or those interpreted as immigrants. The total stock is equivalent to almost 9% of the Philippine population – but more than 10% without the change in methodology – and 20% of the current labor force population.

For whatever reason that 3,890 Filipinos leave the country every day – which if they stayed jobless in the country would push true unemployment to 14.6% in 2009 – the trend speaks much of their desperation and the backwardness of economic activity in the country that has failed to create meaningful jobs.

In 2004, Pres. Arroyo promised the creation of “more than 6 million, perhaps even 10 million jobs” as one of her 10-point legacies by the time she stepped down. According to her “Beat the Odds Performance Report”, the Arroyo administration had supposedly created 14.2 million jobs by 2009, although Arroyo herself admitted in her farewell speech that only 9 million jobs were created. Her infrastructure projects, including farm roads, were allegedly the biggest job generators, creating 3.96 million jobs out of the 14.2 million. Housing construction and government-aided micro enterprises produced 3.78 million and 3.5 million jobs, respectively. However not only are these jobs obviously seasonal and own-account work, they are also subject to double counting.

However these figures do not tally with official employment statistics that show only 5.25 million jobs created from 2004 to April 2010. Most of the jobs created were laborers and unskilled workers (38%), followed by government personnel (30%) and service and shop workers (21%). By industry, most of the jobs created were in wholesale and retail trade (1.26 million), followed by domestic helpers (652,000); agriculture, forestry and fishery (577,000); and construction (438,000). These figures indicate the quality and seasonality of work, as well as the corresponding pay, that the Philippine economy is capable of generating for now.

Even the much-touted business process outsourcing (BPO) industry, notably call centers, has apparently not yet created enough jobs to merit an industry classification in the employment statistics. The Arroyo government claimed to have created some 387,734 jobs from 2004 to November 2009 in the “information and communication technology” sector where the BPO industry presumably belongs. The employment statistics shows that “transportation, communication and storage” where BPO industry may be assumed to belong created only 317,000 jobs between 2004 and April 2010. The figure is only about 60% of the added number of household helpers in the same period.

Failing to create

The Philippine economy’s eroded capacity to create jobs is a fundamental issue that can no longer be covered up by good governance rhetoric. It is the net effect of decades-long backwardness amplified by globalization and elite-serving policies. Opening up the Philippine economy to foreign trade and capital has taken its toll on domestic production and the basic requisites for industrialization. Even the hyped infrastructure projects of the Arroyo administration have been put in place only to facilitate foreign business.

Philippine manufacturing is down to just 21.8% of gross domestic product (GDP) from its peak of 29.1% in 1974. (See Chart 1) It may be argued that the 1974 ‘manufacturing boom’ was due to the aggressive creation of export processing zones. But the country has since remained dependent on exports production to propel economic growth and the decline in manufacturing’s share in GDP to a size as small as in 1955 remains lamentable.

The bulk of manufacturing activity occurs in the export sector which has low value-added and is vulnerable to the uncertainties of global markets. Manufacturing has only created 13,000 jobs annually


since 2001, almost seven times fewer than the jobs created for household help. Yet, in contrast, 5,018 jobs were lost yearly from 2000 to 2008 in the so-called economic zones (ecozones) reporting to the Philippine Economic Zone Authority (PEZA). In fact, jobs in the PEZA ecozones are increasing in the information technology but have been on a constant decline in manufacturing.

The Arroyo government could not even arrest the mass retrenchments in the first months of the global economic crisis of more than 10,000 workers in long-time and well-established export corporations such as Amkor Technology, Integrated Microelectronics Inc., Texas Instruments (Philippines) Inc., Intel Corp., and Triumph International (Philippines) Inc. and its sister company Star Performance, Inc.

On the other hand, the share of agriculture in GDP has shrunk to 18.1% in 2009, or the smallest in history and less than half its size when the country was granted nominal independence in 1946. The agriculture sector created 106,150 annually from 2001 to 2009. More than half (55%) of the jobs created were unpaid family workers and 25% were own-account workers, making agriculture the number one generator of informal jobs.

The Philippine economy is undergoing de-industrialization and its agrarian backwardness is being aggravated by ‘free market’ policies of globalization that have prioritized the entry of foreign products, capital and corporations over national development. It is going through de-nationalization with foreign corporations, for instance, accounting for 45.4% of the total earnings of the country’s Top 1,000 corporations in the last decade. In 2008, almost 60% of revenues in the manufacturing sector were accounted for by foreign transnational corporations (TNCs).

The globalization policies staunchly embraced by the Arroyo government – liberalization of the economy, privatization of state assets and deregulation of key sectors – have promoted over-reliance on exports, foreign investments, foreign debt, and workers’ remittances to compensate for the erosion of the economy. Among the capital flows, workers’ remittances are the most significant for the government and are equivalent to almost one-third of exports and significantly higher than foreign investments and official development assistance (ODA). They are also not canceled out by huge outflows unlike exports that have corresponding import costs or foreign investments and ODA that have corresponding outflows of profit repatriation and interest payments.


Chart 2. OFW Remittances, 2000-2010 March(in million US$)

P

p - preliminarySource: Bangko Sentral ng Pilipinas

p

p

Remittances reached US$17.35 billion in 2009 which was equivalent to 10.8% of the GDP and while slightly lower than the 10.9% share in 2008 is still significant by any standard. Remittances reached US$4.34 billion as of March 2010 or an increase of only 7% from the same period last year, which is the slowest first-quarter growth of remittances since 2004. (See Chart 2) The slowdown observed in recent years underscores how reliance on remittances is not a sustainable strategy for national development.

Migration and remittances may create the illusion that nothing is wrong with the economic base. They may support capital outflows and make up for basic needs and services of households that otherwise cannot be provided by the local economy and the government. But they will never compensate for massive unemployment and the erosion of productive capacity. Remittances have a significant role in family incomes, welfare and consumption but contribute little to boosting domestic economic production. Migration brought about by massive joblessness in the country even reinforces the inability of the economy to create jobs. It cuts off workers’ knowledge and efforts from the local economy, transferring these abroad, and drains the country of its own social investments composed of the time and resources devoted to educate and train its citizens. Also serious, and on top of these, is the abuse and exploitation of migrant workers while leaving the country and when they are abroad, and the disintegration of families.

Unlike the Arroyo administration which urged Filipinos to be globally competitive and explicitly promoted the labor export policy, Pres. Aquino seemingly changed the approach and emphasized in his inaugural speech the urgency to generate jobs so that Filipino workers would no longer need to go abroad. He was quick to add, however, that government agencies created to support the labor export policy should perform better for the OFWs. He was also quick to go back to the old and bankrupt strategy in creating jobs of “leveling the playing field” in order to attract business, as if such leveling does not already work so much in favor of foreign and big local corporations.

Widening, deepening poverty

The jobs crisis and people’s marginalization from basic resources account for the widening and deepening poverty in the country. The number of poor families increased by 16% since 2003 to reach 4.7 million in 2006, based on the 2006 Family Income and Expenditure Survey (FIES). (See Charts 3 and 4) The 2009 FIES is due to be released in October 2010.

The number of poor Filipinos reached 27.6 million in 2006 as an additional 3.1 million people fell below the poverty line from 2003 to 2006. Likewise, there were 12.2 million hungry Filipinos in 2006 which was


Source: 2000, 2003 and 2006 Family Income and Expenditure Survey, National Statistics Office

Chart 4. Hungry and Poor Filipino Families, 2000, 2003 and 2006 (in millions)

Source: 2000, 2003 and 2006 Family Income and Expenditure Survey, National Statistics Office

Chart 3. Hungry and Poor Filipinos, 2000, 2003 and 2006 (in millions)

an increase of 1.4 million. The 2006 FIES concluded that poverty worsened from 24 poor families out of 100 in 2003 to reach 27 poor families out of 100 in 2006. The incidence of poor people – 33 poor people out of 100 – was similar to the poverty situation in 2000. This poverty picture is even moderated since the Philippine government uses an incredibly low poverty threshold of Php41 per person per day. Using the approximate Php86 a day for the assumed international standard for moderate poverty would instead show that 66 million Filipinos – or 79 out of 100 – were poor in 2006. Half of the population actually struggled on Php18-54 a day.

The 19% nominal increase in average family income was easily offset by a 38% increase in prices, causing real incomes to fall by 20% since 2000. According to the National Statistical Coordination Board (NSCB), in 2006, poor families on the average had a higher shortfall of 29% of the unreasonably low Php206-a-day poverty threshold for a family of five. Income inequality also worsened where the share of the top 10% families in the income pie was at 36% even higher than the 35% share of the bottom 70% families. In the


same year, the cumulative Php801 billion net worth of the 20 richest Filipinos – including close Arroyo allies Lucio Tan, Enrique Razon, Jr., Eduardo Cojuangco, Enrique Aboitiz and others – was equal to the combined income of the poorest 10.4 million Filipino families.

The regional disparity of Philippine poverty is also glaring. More than half of the families in ARMM (55%), 45.5% in Caraga, and 43.7% in Region IV-B were poor. In contrast, the National Capital Region (NCR) had 7.1% poor families, followed far behind by Region IV-B (16.8%) and Region III (16.7%). Meanwhile, Regions VI and V had the biggest share (18.1%) in the total number of poor families. An urban-rural differentiation of the official poverty statistics also shows that 14 out of 100 urban dwellers and 45 out of 100 rural people were poor in 2006. Rural areas account for some 75% of Philippine poverty.

The last family living wage estimate of the National Wages and Productivity Commission (NWPC) was in September 2008 when it was already Php917 in the NCR at a time that the minimum wage was only Php382, or a wage gap of Php535. Across regions, the nominal wages were on the average only 32% of what the NWPC estimated as living wages. The NWPC figures did not yet include the newly created Regions IV-A. IV-B and Caraga where the majority of the population were considered poor in 2006.

The minimum wage in the NCR increased by just Php154 over the entire duration of the Arroyo presidency. This amount has been greatly eroded by inflation to only Php5 in real terms (based on 2000 prices) compared with a Php82 increase over the first Aquino administration, Php16 under Ramos, and Php22 under Estrada. The last nominal wage increase of Php22 in NCR was announced at the tail end of Arroyo’s term and, in being so low, only reminds Filipino workers how wages have been frozen and depressed over the years. (See Table 4)

Table 4. Real Wages, 1986-2010 (2000=100; in PhP) Daily Real Increase Period Minimum Minimum in Real Wage Wage Wage 1986 February 37.00 120.92 1992 June 118.00 203.10 82.18 1992 July 118.00 201.02 1998 June 198.00 216.63 15.61 1998 July 198.00 216.16 2001 January 250.00 238.10 21.94 2001 February 250.00 237.42 2010 June 404.00 242.35 4.93 Source of basic data: National Wages and Productivity Commission

In the country’s regions, the highest wage rate in the non-agriculture sector is only Php320 (Region IV-A), and rates elsewhere can go as low as Php196 (Region V). In agriculture, the legislated rates vary from Php295 (Region IV-A) to as low as Php198 (Region IV-B) in plantations and from Php275 (Region IV-A) to Php178 (Region IV-B) in non-plantation.

These nominal wage rates are unfortunately often violated. For instance, around 15% of inspected establishments in the country do not give the mandated minimum wages. In agriculture and in the rural areas, farmers face underpricing as reported by the Kilusang Magbubukid ng Pilipinas (KMP). Small sugar farmers usually bring home Php59.33 a day which sometimes falls to as low as Php20.50 a day. Rice farmers who own land may earn as much as Php366.17 but those who simply rent take home Php130 a day, while those who rent and owe some money incur a deficit of Php365.96 a day. In Southern Tagalog, male farm workers are paid Php180, females earn Php80, and indigenous people are given Php30 or just something to eat.


Non-compliance with legislated wage rates and underpricing of workers and farmers are the norm and not just an aberration, which is not surprising in an economy dominated by informal jobs. The NWPC estimates that 2.8 million workers are directly benefited by wage orders, which represents only 15% of the number of wage and salary workers. An additional 3 million workers are benefited by correction for wage distortions which, if added to the 2.8 million workers, accounts for only 16% of the total employed.

Profits and inequality

There is an apparent wage and employment inelasticity to economic growth in the Philippines which is puzzling even to international economists. The supposed momentum of 36 straight quarters of GDP growth trumpeted by the Arroyo government has not been accompanied by corresponding increases in real jobs and decent wages. What has instead grown with the economic expansion is an increase in the profits of the Top 1,000 corporations from Php116.4 billion in 2001 to as much as Php686.3 billion in 2007. Profitability or the rate of profits against revenues also increased from 3.2% in 2001 to 11.7% in 2007. There was a decrease in profits to Php415.1 billion in 2008, presumably due to the global economic crisis, but there was still a 7.02% profitability alongside a zero percent wage increase. (See Chart 5)

The increasing profitability of foreign and big local corporations explains where the benefits from economic growth are going and, since it is happening inversely with historic joblessness and flattening-out wages, also partly explains where the economic growth is coming from. Super-profits are derived from the backward, globalized economy through cheapened wages and underpricing of the toiling population, where the conditions for this are created by massive unemployment and the huge proliferation of informal sector jobs. Backwardness and over-reliance on foreign capital has also increased interest rates, whether on formal or informal credit, and perpetuated the vicious cycle of marginalization and usury. This also partly explains why despite the shrinking of manufacturing and agriculture, the economy continues to register an increase in output.

Spiraling prices and fees

The other source of super-profits, which completes the puzzle of economic growth and also explains the shift from the productive base to trading and other services, is monopoly pricing. Prices of basic commodities have increased tremendously since 2000 with the consumer price index (CPI) for all


commodities across income classes increasing by 65.9 percent. The CPI for fuel, light and water registered the highest increase at 114.5%, followed by services (88%) and food, beverages and tobacco (65.8%). (See Tables 5 and 6)

Table 5. Consumer Price Index By Commodity Group, May 2010 (2000=100)Commodity Group CPI All Items 165.6 Food & Beverages 165.2 Clothing 135.9 Housing & Repair 145.7 Fuel, Light & Water 215.7 Services 187.3 Miscellaneous 131.1 Source: National Statistics Office

Table 6. Increase in Prices Rice prices since 2008 Well milled PhP 25 to PhP 34 Raw milled PhP 23 to PhP 31 NFA PhP 18 to PhP 25Electricity Rates since 2001 Residential 50% Commercial 29% Industrial 20%Water Rates since privatization in 1997 Maynilad 449% Manila Water 845%Oil prices since deregulation in 1996 139 times or every two weeksSources of basic data: National Food Authority,Manila Electric Company, Metropolitan Waterworks and Sewearge System, Department of Energy

Average inflation rates have been erratic since 2001 with slowdowns (2001-2003; 2006-2007) and remarkably steep rises (2003-2005; 2007-2008). In these episodes of steep price increases, food prices had the steepest increments and drove the overall price movement. The government always blames supply shortages for increasing food prices but it can be noted that once food prices rose they no longer go back to their previous levels even if supply has allegedly stabilized.

Local prices of commercial grade rice types jumped between 27% and 43% in 2008 following unprecedented increases in rice prices in the international market, allegedly due to a production shortfall. However price speculation is the more likely cause and this has already become the subject of international inquiry especially after the eruption of the global financial crisis. Local prices however have remained high. The price of regular milled rice increased from Php23.31 per kilo in January 2008 to a peak of Php35.70, and now hovers around Php31. The price of well-milled rice increased from Php25 to a peak of Php38.76, and is being sold at P34.25 per kilo on the average. Even the price of rice from the National Food Authority (NFA), which is meant to influence pricing, increased from Php18.25 prior to the crisis and has stayed at Php25 per kilo.

Over the decade under the Arroyo government, price increases especially in food commodities have gone beyond what so-called market fundamentals, i.e. demand and supply, can justify. Some observe that 30-50% of the price movements for cereals for instance is only due to speculation. These observations point to the existence of trade cartels which control supply and dictate prices, especially in food commodities such as rice.

The Arroyo government has also increased the economic dominance of foreign corporations and domestic elites through the privatization and commercialization of public utilities which has increased fees for such services as power and water beyond the reach of the already impoverished nation. The Electric Power Industry Reform Act (EPIRA), an Arroyo legacy, has allowed private corporations including power


TNCs to take over the country’s power generation and transmission assets and the service of electricity distribution. Contrary to the promises of EPIRA, electricity rates have increased steeply especially for residential customers. The Philippines, according to a survey by JP Morgan Chase in 2009, has the highest power rates in Asia which surpasses even Japan’s.

The rates of Meralco, the biggest distribution utility in the country and partly owned by the Lopez family, have gone up by around 62% since the start of the Arroyo administration. This does not yet include the various charges slapped on consumers and those illegally collected in the past that Meralco still has to rebate.

The EPIRA has so disempowered the public that Meralco and other distribution utilities in the country can increase rates even without public consultation or despite public opposition. For instance, despite the fresh overcharging allegations of around P7 billion made by the Commission on Audit (COA) in its report made public in February this year, the Energy Regulatory Commission (ERC) approved Meralco’s petitions to increase rates by 44 centavos per kilowatt-hour (kWh) in February, Php1.83 in March, and Php1.20 in April. Customers were shocked in April to find soaring bills – residential customers consuming 101-200 kWh found their bills increasing from Php1,938.63 in March to Php3,294.63 in April, or an increase of 70 percent. As of this writing, Meralco has increased its rates again by 5.8 centavos, which will be reflected in the August billing.

Water rates have likewise continued to increase since privatization with the two concessionaires of the privatized Manila Waterworks and Sewerage System (MWSS) increasing their basic charges by 449% (Maynilad) and by 845% (Manila Water). Yet until today, less than 60% of Maynilad’s service area (west zone) have 24-hour water service. Manila Water claims 99% water supply coverage in its service area (east zone) but does not specify the portions with individual and direct household connection and those serviced by private water suppliers.

The onslaught of monopolies on the toiling people has been most visible in the behavior of oil prices. Contrary to the promise of deregulation, oil prices have increased 139 times since deregulation in April 1996 to 2008, or in effect every two weeks. From 2009 to mid-2010, gasoline prices increased 40 times (cumulative P36.00 in adjustments) and decreased 25 times (cumulative P18.25 in adjustments) while diesel prices increased 33 times (P30.25) and decreased 34 times (P23.50). Up to the end of Arroyo’s term, the issues of price speculation, transfer pricing and overcharging – which are manifestations of monopoly pricing and super-profits of oil TNCs – have not been resolved.

Skyrocketing prices of basic commodities, exorbitant user-fees, and overpriced fuel products have aggravated the country’s poverty situation. After food, the three items that typically occupy family spending are: house rental; transportation and communication; and fuel, light and water. Filipino families spent less on food in 2006 (from 43.1% in 2003 to 41% in 2006) but increased spending on transportation and communication (7.3% to 8.2%) and fuel, light and water (7.3% to 8.2%). Yet 36 out of 100 families in the bottom 30% still do not have electricity in the houses they live in while 16 out of 100 families in all income classes still do not have access to safe water.

Poverty is directly linked to the existence of monopolies which has intensified with the privatization of public assets and stepping aside of the state in favor of big private corporations and elite families. Poverty in this sense is a symptom of a deeper exploitative system that has been aggravated by globalization policies and even goes far beyond what government officials pocket from the liberalized economy.

The challenge for the Aquino administration is to reverse these policies and start instituting economic democracy. The challenge is made bigger with how the Arroyo administration leaves behind an aggressive privatization process that has so far benefited mainly power and water TNCs as well as elite families such


as the Lopezes and the Cojuangcos. The Arroyo administration rushed the sale of Napocor power plants and dams including the Tiwi-Makban geothermal complex in the Bicol region and Angat Hydroelectric Plant that provides 97% of Metro Manila and some parts of Rizal’s water supply. The Laiban dam, Angus and Pulangi hydropower plants, and several other big tickets are next, according to the EPIRA.

Dismal, disappearing social services Philippine wages are said to be higher than those of Vietnam and China. But these cannot be used to compare poverty situations because the diminishing social services in the Philippines adds to poverty here. Vietnam and China may be losing social services now as well, especially with their turnaround from socialism, but the Philippine government holds the record for being the lowest spender on education, health and housing in Asia.

The nominal increase of Php265.2 billion in the budget allocation for social services from 2001 to 2010 cannot cover up the decreasing shares of education, health and housing in total expenditures. From a peak of 19.9% of the total budget in 1998, education shrank to 15% in 2010; health, from the already minuscule 3.4% in 1992 to 2.5% in 2010; and housing from 1.2% in 2000 to 0.35% in 2010. In contrast, the share of interest payments for debt increased from 20.6% in 2000, to a peak of 32% in 2005, then down to 22% in 2010. (See Chart 6)

Per capita spending in real terms (or what every Filipino gets, taking inflation into account) on education declined by 16%, health by 30%, and housing by 38% from 2000 to 2008. It fell again in 2010: by Php106.70 in education; by Php32.40 in health; and by Php3.30 in housing. In contrast, defense gets a higher budget of Php783 per capita than the Php403 per capita for health. Debt servicing increased by 47% in real terms from 2000 to 2008 and by another 8.8% in 2009-2010, amounting to a Php7,937 debt burden for every Filipino. (See Chart 7)

Generally acknowledged international standards set benchmarks for recommended education spending at 5-6% of GDP and 18-22% of total public expenditure. But public education spending in the Philippines only comes to 2.8% of GDP and 15% of the total national budget. Public health expenditure is equivalent to only 0.5% while adding private health expenditure brings this amount to only 3.2% of GDP, which is far lower than the supposed World Health Organization (WHO) norm of 5% of GDP/GNP. The country ranks 175th in 192 countries worldwide in the share of health spending to GDP.ww


Shortages of classrooms, textbooks and teachers have increased over the years. The Department of Education (DepEd) computes a shortage of 61,343 classrooms, 816,291 million seats, 54,060 teachers, and 44.2 million textbooks in school year 2010-2011. The budget provided to fill in the resource gaps is short by Php91.54 billion. The DepEd merely implemented double- shifting to make it appear that the close to ideal 1:39 and 1:54 classroom-to-students ratios in elementary and high schools, respectively, were achieved. Yet it is not uncommon, in NCR for instance, for 77 high school students to crowd into a classroom or for one teacher to teach two classes or two subject areas simultaneously.

Philippine education fell into a much deeper crisis during the Arroyo administration. Net enrollment rate declined while the dropout rate at the basic education level increased between school years 2004-2005 and 2008-2009. According to the Alliance of Concerned Teachers (ACT), there were about 1.87 million out-of-school children between the ages of 6 and 15, which grew by 78% to 3.33 million in 2007. The percentage of out-of-school youth to total youth population increased from 3.2% in 2001 to 14.9% in 2009.

Achievement rates in math, science, Filipino, English, and social sciences are far below the passing grade of 75%, especially in secondary education where the achievement rate in science is only 42.9 percent. They had increased only slightly from school year 2004-2005, except for math which fell further from 51 to 42 percent.

Meanwhile, there are only 13 hospital beds for every 10,000 population, and one government doctor and seven government nurses and midwives for every 30,000 population. This is ironic for a country that is the biggest exporter of nurses and second biggest exporter of doctors in the world. Around 70% of nursing graduates and 68% of Filipino doctors work abroad. Yet in the closing months of the Arroyo administration the military even illegally detained 43 community health workers and medical practitioners and accused them of being insurgents.

The thrust of the government in the health sector is privatization which has made user-fees exorbitant for the indigent patients. Even some public hospitals have implemented the “pay first policy” and refused to attend to patients or let them use laboratory facilities. In a survey of 1,005 respondents in seven major government hospitals conducted by Kilos Bayan Para sa Kalusugan, a health sector formation, it was found out that seven out of 10 patients were not immediately attended to either because they had no money, there were no beds available, or no doctor was present to attend to them. Five out of 10 were not

2000-2010 (2010=100; in PhP)


able to have needed laboratory procedures because they did not have the money, and four out of 10 had to borrow money to pay for their bills.

One of the most serious impacts of privatization and state neglect is that almost half (48%) of total spending on health – including government, private sources and social insurance – now comes from the patients’ own pockets,. Health outcomes such as early childhood mortality rates and nutrition ratios are then much worse for the poorest families most unable to pay for health services. For example, under-five mortality rates are more than three times higher for children belonging to the poorest 20% of families than for children of the top 20% families.

Housing service has long been privatized and whatever service from government is through housing loans payable in 25-30 years but available only to families with regular employment. The Arroyo government noted a housing need of 3.7 million units for the period 2005-2010 yet its annual achievement for 2001-2006 was only 123,732 units. Assuming the rate was maintained to the end of its term, the Arroyo government leaves behind a 3.2 million housing backlog.

As it is, 35 out of 100 families in the poorest 30% of the population do not own their houses. The ratio is higher in the NCR where 69 of 100 families either rent or occupy their dwellings without owners’ consent. There are officially just 1.1 million informal settler families in key urban areas nationwide, according to the Philippine Commission for the Urban Poor (PCUP) of which 66% are in Metro Manila.

This dismal condition of urban poor families worsened under the Arroyo administration which saw large-scale demolitions of urban poor communities, the most notable of which is for the Northrail-Southrail Linkage Project which is estimated to displace 150,000 families by the time it is finished. Pres. Arroyo’s ambitious infrastructure program -- tagged ‘Super Regions’ in her 2009 State of the Nation Address (SONA) – has been its biggest demolition program as well. The building of ports and highways displaces thousands of urban poor families either through ‘negotiations’, use of violence, or upon fires of undetermined causes.

State neglect of basic social services which aggravates poverty conditions and people’s helplessness is not just due to the corruption of public officials. It is true that the estimated Php100 billion revenues lost to corruption could have built 88,889 low-cost houses, 41,901 classrooms and 36 hospitals; purchased 16.7 million desks and 200 million textbooks; and paid the annual salary of 118,277 teachers. Or it could have paid for the enrollment of 2 million children at Php25,000 a year and paid for the five-day hospitalization of 12.3 million patients in a government tertiary hospital. But this lack of revenues is among the effects of giving up trade taxes, import tariffs, investment and corporate income taxes, public assets and others in the name of liberalization.

The challenge for Pres. Aquino is to recognize that the “daang matuwid” (straight path) he campaigned on is actually the road less traveled. The challenge for him is to restore social services as people’s rights and state responsibilities, which can start to be done by substantially increasing allocations for social services and deferring debt payments and repudiating those that did not benefit the Filipino people paying for them now. There needs to be stop to demolitions which unjustly displace entire communities.

Worsening government bankruptcy

The Arroyo presidency is leaving behind the worst fiscal deficit in the country’s history. The Php298.53 billion deficit of in 2009 is a 103%-deterioration from the deficit level in 2001 and worse than the crisis-level fiscal position in 2002. The running deficit of Php162.1 billion as of May 2010 is already a 32%-increase from the same period in 2009 and more than half of the full-year 2009 deficit. (See Table 7)


Press Arroyo envisioned a legacy of a balanced budget. The full-year 2009 deficit was still higher than the already re-programmed Php250 billion ceiling, and was equivalent to 3.9% of GDP. This reprises Arroyo’s early years after which she eventually pushed higher taxes, particularly the regressive value-added tax (called reformed VAT or RVAT), to cover for the government’s bankruptcy.

The severely deteriorating fiscal deficit cannot be blamed on either election spending or, much less, supposedly significant stimulus spending. The brewing fiscal crisis started earlier in the last months of 2007 up to the first quarter of 2008 and as soon as the effects of Arroyo’s infamous RVAT tapered off.

The budget crisis and its underlying causes are chronic – the Philippine government was able to record a surplus in the years 1994-1997 only upon aggressive privatization and temporarily increased revenues from an unsustainable growth period. Liberalization has greatly depleted government coffers through reduced tariffs, liberal fiscal incentives to foreign investors, relaxed tax rules on big business, and letting the private sector take over even viable public corporations and utilities. This liberalization of the economy also created conditions for systemic and historically large graft and corruption.

The revenue shortfall is perennial. Revenues in 2009 were short of the target by Php115.9 billion with collecting agencies “under-performing”. The failure to meet targets is not new but what happened for the first time in a decade was that collections actually fell in absolute terms by 6.6% from its level in 2008. As of May 2010, revenues are still 12% off targets for the first semester of 2010.

Taxes comprise 87% of government revenues. But the tax effort, or taxes as a percentage of GDP, has averaged just 13.4% over the last decade. Among the ways the Arroyo government compensated for the failure to improve tax collection is with an unprecedented privatization effort – in 2007, for instance,

Table 7. National Government Cash Operations Report, 2001-2010 April (in million PhP) Particulars 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Jan - Apr Revenues 567,481 578,406 639,737 706,718 816,159 979,638 1,136,560 1,202,905 1,123,211 390,292 Tax Revenues 493,608 507,637 550,468 604,964 705,615 859,857 932,937 1,049,179 981,631 352,510 Bureau of Internal Revenue 388,679 402,742 427,350 470,329 542,697 652,734 713,605 778,571 750,287 265,054 Bureau of Customs 99,981 99,322 117,201 127,269 154,566 198,161 209,439 260,248 220,307 83,354 Other Offices 4,948 5,573 5,917 7,366 8,352 8,962 9,893 10,360 11,307 4,102 Non-tax Revenues 71,882 69,717 88,071 101,680 110,456 119,598 203,473 153,601 141,389 37,574 BTr Income 46,413 47,194 56,657 64,690 70,597 74,446 67,932 63,681 69,912 18,878 Fees & Other Charges 24,296 21,932 18,635 19,574 18,978 16,761 21,637 16,409 19,253 7,335 CARP 0 0 0 0 0 0 0 0 0 0 Privatization 1,173 591 567 420 2,430 5,815 90,619 31,289 1,390 95 Marcos Wealth 0 0 0 8,854 7,300 8,358 0 0 0 Others 0 0 12,212 8,142 11,151 14,218 23,285 42,222 50,834 11,266 Grants 1,991 1,052 1,198 74 88 183 150 125 191 208 Expenditures 714,504 789,147 839,605 893,775 962,937 1,044,429 1,149,001 1,271,022 1,421,743 521,872 Surplus/(Deficit) (147,023) (210,741) (199,868) (187,057) (146,778) (64,791) (12,441) (68,117) (298,532) (131,580)Without privatization income Surplus/(Deficit) (148,196) (211,332) (200,435) (187,477) (149,208) (70,606) (103,060) (99,406) (299,922) (131,675) Source of basic data: Buereau of Treasury


Php90.6 billion worth of state assets were sold off, which was nearly as much as had been sold off in the previous 15 years spanning three administrations. But privatization is not a sustainable revenue source and, as it is, proceeds fell from the peak in 2007 to just Php1.4 billion in 2009.

Liberalization has also shaped the nature of government expenditure which makes it impossible for a revenue program to solve the fiscal deficit on its own. Debt servicing (interest payments) accounted for an average of 23% of total spending in the period 2001-2009 which was consistently higher than spending for local government units. Graft and corruption estimated to be around Php100 billion annually further depletes allocations for government operations. Military spending is also a priority despite being essentially unproductive spending. These were all at the expense of budgets for social services.

The whole picture of the fiscal crisis is completed by the government borrowing which finances the budget deficit. The Arroyo administration is passing on an outstanding debt of Php4.46 trillion as of March 2010, more than double the Php2.17 trillion inherited from the Estrada administration. (See Table 8)

Table 8. National Government Outstanding Debt, 2001-2010 March (in million PhP) Year Total Domestic Debt Foreign Debt 2001 2,384,917 1,247,683 1,137,234 2002 2,815,468 1,471,202 1,344,266 2003 3,355,108 1,703,781 1,651,327 2004 3,811,954 2,001,220 1,810,734 2005 3,888,231 2,164,293 1,723,938 2006 3,851,506 2,154,078 1,697,428 2007 3,712,487 2,201,167 1,511,320 2008 4,220,903 2,414,428 1,806,475 2009 4,396,639 2,470,040 1,926,599 2010 March 4,458,083 2,536,667 1,921,416 Source: Bureau of Treasury

The Arroyo administration in its first six years quickly claimed the distinction of being the biggest borrower among previous administrations, borrowing an annual average of Php280.8 billion. It managed to lower the outstanding debt only after paying a huge Php5.1 trillion over the period 2001-2009, which is almost triple the debt payments made by the Aquino, Ramos and Estrada administrations combined.

The public debt is equivalent to 57% of the GDP. For every peso earned in revenues, 55 centavos goes to debt servicing. For every peso spent, 35 centavos is to service the debt. The Arroyo government improved on these indicators which were much higher in 2001 but this came at the heavy price of spending compression in social and economic services. The recent increase in government non-debt spending was already significantly lower than pre-2008 levels.

The new Aquino administration is faced with a serious fiscal crisis that could deteriorate rapidly or compel severe austerity if the revenue effort does not quickly improve. The government will be forced to resort to the conventional approaches of higher taxes and debt if it is not radical enough to confront the roots of the fiscal crisis, which in large measure are due to globalization. Unfortunately, the Aquino administration appears to be working within the same framework which prevents it from coming up with solutions that are more viable and sustainable. It could for instance look to where the leaks are coming from. The Aquino administration, for instance, can consider stemming: the estimated Php200 billion potential revenues lost to tariff reduction including perhaps Php12.5 billion lost annually under the Japan-Philippines Economic


Partnership Agreement (JPEPA); the Php43 billion lost as redundant fiscal incentives to foreign investors; the Php16 billion lost from decreasing the corporate income tax; and around Php170 billion lost from leakages in the tax collection system. Not yet even adding the potential revenues lost from graft and corruption, these amount to Php429 billion which will go a long way to cover the government deficit target of Php325 billion in 2010.

Shallow economy

The Arroyo government hypes “beating the odds” with a supposed momentum of economic growth that lays “sound fundamentals” and which has helped the country “escape recession”. Yet this appears not to consider how the people’s condition has worsened.

The domestic economy grew by 7.3% in the first quarter of 2010 which is the fastest reported first-quarter growth rate in 15 years. (See Table 9) But it should also be mentioned that economic growth averaged only 4.4% per year over the past nine years which lags behind the average rates of neighboring economies like China (10.2%), India (7.3%), Vietnam (7.0%), Malaysia (4.5%) and Indonesia (4.9%).

Table 9. National Income Accounts By Industrial Origin, First Quarter 2009 and 2010 (at constant 1985 prices; in million PhP) Industry Group 2009 2010Agriculture, Fishery, Forestry 65,745 64,132 Agriculture, Fishery 65,497 63,810 Forestry 248 323 Industry Sector 101,348 117,226 Mining & Quarrying 7,780 8,358 Manufacturing 69,032 83,325 Construction 14,131 14,749 Electricity, Gas & Water 10,405 10,794 Service Sector 167,168 177,394 Transport, Communication, Storage 32,311 32,541 Trade 50,048 54,283 Finance 22,812 24,244 Occupational Dwellings & Real Estate 16,464 17,287 Private Services 30,418 33,301 Government Services 15,114 15,737 Gross Domestic Product (GDP) 334,260 358,753 Net factor income from the rest of the world 46,967 58,682 Gross National Product (GNP) 381,227 417,435 Source: National Statistical Coordination Board

There have also been marked slowdowns such as in 2005 and 2008, and tepid growth such as the 1.1% rate in 2009 which was much slower than population growth. (See Chart 8) The high reported growth in the first quarter of 2010 raises expectations of a real economic recovery. But aside from this likely having been artificially boosted by election-related spending and by now-fading stimulus spending in the country’s main export markets, the nature of Philippine economic growth is in general shallow and unsustainable. The surprise growth was pushed by the revival of manufacturing. The last time the sector registered double-digit growth rate was in the fourth quarter of 1988. Manufacturing swelled in the first quarter of 2010 however primarily because of the recovery of ‘losses’ from petroleum products (a price effect) and


the rebound of exports production from a decline in the same period last year. Electricity and water also expanded, largely due to the increase in electricity rates. Manufacturing was also boosted by election-related spending.

The services sector was also likely boosted by election spending. Private services posted the highest and fastest growth, specifically recreational services which include the broadcasting media which grew by 31.4% compared with 1.3% in the same period last year. Trade also drove services growth, coming back from a negative performance last year, mainly due to increased retail trade.

Yet, agriculture contracted by 3.2% in the first quarter of 2010, with palay and corn falling by 11.4% and 16.8%, respectively. The government was still caught unprepared despite the predictability of the El Niño phenomenon a year before it strikes. Irrigation was still not given ample support and even the supposed budget allocated by the Arroyo government to mitigate the impact of El Niño was pocketed by local officials, according to farmers’ groups. Even the weather bureau, Pagasa, speculated that the local officials exaggerated the projected impacts so they could avail of the contingency funds. Indeed, agriculture remains in chronic crisis.

Overall, the economy remains boosted by net factor income from abroad, notably OFW earnings. OFW earnings grew by 30% at current prices in the first quarter of the year but this is actually a marked slowdown from the 40% growth in the same period last year. Remittances are showing how they are an unsustainable and unreliable source of meaningful long-term growth. In essence, the country still lacks the basic requisites for genuine national economic development. Much of the economy’s growth comes from personal consumption boosted by OFW remittances, while capital formation remains erratic and dependent on the whims of businessmen. In many respects economic growth is largely a measure of how much prices have increased translating to higher profits for exporters, foreign investors, private utilities corporations, and even broadcast media.


Vulnerability to the worsening global crisis

This is the shaky ground that Pres. Aquino is standing on – an economy in disarray whose backward features and dependent links to the global economy have been aggravated by globalization policies. It is an inequitable economy that has further lost its productive and income-generating capacity, is mired in debt, and has a bankrupt government. Pres. Aquino is challenged further as this vulnerable economy continues to be threatened by the global economic crisis that appears to still be unraveling.

The global capitalist crisis has reached the limits of debt- and speculation-driven growth and is for now prevented from again resorting to financial excesses to boost growth. Governments of advanced capitalist countries spent huge amounts for bailout funds and stimulus packages beginning in 2008 to save failing financial institutions at the expense of the working people and taxpayers. These counter-productive solutions have caused a mounting public debt crisis. The recent bailout of Greece by the European Union (EU) and the International Monetary Fund (IMF) amounting to €110 billion marks the world’s entry into the next phase of the capitalist crisis.

Governments of the advanced capitalist countries have already spent US$11.1 trillion worth of stimulus funds. The US has spent, loaned or plans to spend or lend some US$13 trillion, which is almost equal to the US full-year GDP. But at best these provide momentary spurts to the economy and to corporate profits, at the expense of inflated public debts which, when they burst, will start a deeper, more severe meltdown. Public deficits in the US and the EU have already reached critical levels, measured against the sizes of their economies, and Group of Seven (G7) debt-to-GDP ratios are nearing 100% which is alarmingly close to the level right after the Second World War.

The contradictions of global capitalism are getting more and more severe. Either effort of big power governments – whether instituting austerity measures to be able to pay their debts or continuing to inflate demand through stimulus packages – will not lead to sustained recovery and can only aggravate the already dire situation of the working people. Global unemployment has reached 210 million, an underestimated but still unparalleled figure, while cutbacks in social services are unprecedented.

The situation has tremendous repercussions on underdeveloped countries such as the Philippines. In 2008, the country immediately felt drastic declines in foreign trade and capital flows that the country has become so reliant on for growth. OFW remittances also slowed down as the uncertainty of global employment fell heavily on migrant workers.

The decline and slowdown in exports receipts and net foreign direct investments (FDI), respectively, have not yet recovered. Exports fell by 2.8% in 2008 and deeper by 21.9% in 2009. Net FDI, on the other hand, which declined by 0.17% in 2007 and further by 47.1% in 2008, increased by 26.2% last year which is still slower than the 57.5% growth registered before the decline. The slowdown in remittances which started in 2006 (from 25% in 2005 to 19.4%) has gone on for four years now, with the 2009 growth rate at only 2.8 percent. In the first quarter of 2010, exports receipts showed signs of recovery with a 43.5% increase from the same period last year although net FDI declines by a large 49.2%; remittances had the slowest first-quarter growth since 2004. (See Table 10)

The more concrete and more severe impact is on the Filipino workers and toiling people. These cold statistics translated to real job losses for long-time workers in the export sector and more job insecurity for the already job-starved population. The crisis also immediately became a convenient excuse for employers and the Arroyo government to freeze wages further and call for ‘sacrifices’. Prices of food and other basic commodities were also dragged into the speculative game and increased in the consumer markets. User-fees for electricity and water increased and social services suffered further.


The impact of the global economic crisis on the Philippine economy is still unfolding. Although the country “weathered the storm”, according to the outgoing Arroyo government on the narrow indicator of GDP growth, further untoward developments in the global economic crisis will expose the backwardness and vulnerability of the Philippine economy. The severity of the protracted global crisis should underscore how the exports-led, FDI-dependent, debt-driven economy, kept afloat by remittances, is not an option for real development. The Philippine economy’s integration into the global economy has, if anything, increased its vulnerability and aggravated unemployment, poverty and marginalization.

Fiercer globalization, foreign plunder, policy blunders

The next phase of the global economic crisis could lead to an intensified globalization offensive where foreign corporations and financial oligarchs become even more aggressive in cheapening Third World wages, raw materials, exports, and interest and currency rates, and in relaxing domestic rules on trade and investments. This race-to-the-bottom approach translates to intensified foreign plunder and natural resources extraction.

The domestic economic crisis is characterized by low production and productivity, backwardness, elite-based and exclusionary growth and colonial ties. Manufacturing, even of exports products, and agriculture have shrunk while local investment and capital formation has been tepid and mainly for light industries. Yet, the Arroyo government is leaving behind a legacy of policy errors that have increased the domination of foreign and big local corporations and investors in the economy.

The Arroyo presidency subverted land reform in a systematic way according to the demands of globalization. First, it submitted itself to the World Bank (WB) principle of “market-oriented land reform” which promotes ‘voluntary land transfers’ and direct land deals between buyers and sellers, minimal government role, and borrowed foreign funds to help potential buyers pay the prevailing market prices. Then, it reflected this principle in the country’s agricultural plan and the extension of the pro-landlord Comprehensive Agrarian Reform Program (CARPer). Finally, the Arroyo government passed the proposal for corporate farming in rice and corn to complete the promotion of privatization and corporatization of agricultural lands.

After 22 years of the CARP, the accomplishment rate in land distribution is just at 81% by end-2009 which is almost stagnant for around 10 years. The figure is even overstated since it includes land distributed under the Marcos dictatorship, double-counts land distribution, and does not consider land reconcentration. The Arroyo government has over a decade only distributed 1.1 million hectares or 24% of the 4.17 million hectares supposedly distributed. The total area distributed in 2009 (59,595 hectares) was actually the lowest annual accomplishment in the history of CARP.

Land grabbing cases have marked the Arroyo presidency, whether legally as allowed by the introduction of various corporate schemes such as stock distribution options (SDOs) or illegally as aided by the military and as allowed by the general absence of social justice. The most recent case occurs upon the entrance of

Table 10. Net FDI, Exports and OFW Remittances, 2004-2010 (in million US$) Indicator 2004 2005 2006 2007 2008 2009 2010a Net Foreign Direct Investments 750 1,181 1,324 1,949 1,235 1,806 102 Exports (freight on board value) 39,681 41,255 47,409 50,465 49,077 38,335 11,330 OFW Remittances 8,550 10,689 12,761 14,450 16,427 17,348 4,339 a - January-March only except for Net FDI amount that is January-April. Source: Bangko Sentral ng Pilipinas


the Aquino presidency – Hacienda Yulo in Canlubang, Laguna, which has been tilled by generations of farming families since the American colonial period but whose farmers are now being evicted by the Yulo family. This adds to the still-unresolved cases of: Hacienda Looc in Nasugbu, Batangas by Fil-Estate and the Manila South Coast Development of Henry Sy; Bgy. Tungkong Mangga in San Jose Del Monte City, Bulacan by the Araneta family; San Miguel, Bulacan by Rep. Luis Villafuerte; Calatagan, Batangas by Zobel-Araneta-Madrigal; Negros province by Danding Conjuangco; Fort Magsaysay, Nueva Ecija by the Armed Forces of the Philippines (AFP); and many others.

Land-grabbing is a sticky issue for the Aquino presidency. The controversial Hacienda Luisita in Tarlac, which exemplifies the social injustice of land reform in the country, is co-owned by the Aquino family with the Cojuangcos. Hacienda Luisita was placed under the SDO scheme, displaced 1,000 farmers and farm workers, reduced the working days to almost only once a week, and has been paying its farm workers peon wages for years. The farmers were demanding higher wages when the Hacienda Luisita massacre happened in 2004 and the victims’ families seek justice to this day.

Aside from practically abrogating land reform, the Arroyo government leaves behind a whole package of flawed ‘free market’ policies that have opened up the economy to foreign traders, investors, monopolies, miners, land speculators and others. Negotiations in the World Trade Organization (WTO) have been stalled for the most part of Pres. Arroyo’s term. The Arroyo government could have used the opportunity to re-institute tariffs which would have benefited Filipino entrepreneurs and farmers, as well as generated revenues for social services. On the contrary, the Arroyo government even pursued free trade agreements (FTAs) that advanced capitalist countries have pursued as alternatives to the WTO agreements.

The Aquino government inherits the JPEPA which is the most unequal international trade deal that the country has entered into in the post-colonial era and which has a far-reaching effect on its agriculture, industry, environment, and migrant workers. It is also taking over numerous ongoing FTA negotiations including those with the EU and the US as well as commitments made under the ASEAN. The ASEAN already has a 2010 deadline to liberalize agro-based products, air travel, automotive, electronics, fisheries, health care, logistics, rubber-based products, textiles and garments, tourism, and wood-based products – the ultimate goal being to prepare the ASEAN to forge FTAs with countries outside the region.

The Arroyo government also took down barriers to foreign investments and offered generous incentives including embarking on a grand infrastructure program. The ‘Super-Regions’ plan gave multiple benefits for foreign investors and the Arroyo government by providing lucrative contracts for infrastructure which would then eventually be used mainly by foreign and big local businesses. Power plants and utilities were privatized, mining liberalization upheld, high-charging water TNCs defended, tourism ventures pushed, agro-chemical TNCs allowed to experiment bio-technology in Philippine agriculture, and the liberalization of fisheries continued. These have led to one of the world’s worst environmental degradations and – as the world enters an ecological and climate crisis – the Philippines registers as one of its ecological hotspots with an unacceptably high climate vulnerability index.

The EPIRA will always be remembered as one of Arroyo’s biggest policy blunders. Aside from turning over to the private sector the social responsibility of bringing power to industries and citizens, the EPIRA also paved the way for TNCs and domestic elite including Arroyo’s allies to own the country’s natural resources. Corporations from the US, Germany, Japan, Korea, Singapore, Malaysia as well as the corporations of the Lopezes, Cojuangcos, Aboitizes and others are rushing in to own land and water resources used in generating power. The EPIRA, along with the mining liberalization, raises the issue of national sovereignty.


Heavy but doable tasks

Taking over the economy from Pres. Gloria Macapagal-Arroyo is a difficult task. The Arroyo administration made huge policy mistakes and its legacy is an economy in disarray, with its long-standing crisis features aggravated by the insistence on globalization, gets in the way of any fresh mandate.

The policies however were aligned with the interests of foreign and domestic elites holding economic and political power in the country. Big corporations and foreign investors were favored, landlords kept their hold on land, foreign creditors were assured payments, and big power governments (like the US) and international financial institutions were allowed to dictate economic policies.

Any new president taking over, therefore, must have a revolutionary vision and spirit – one who recognizes the basic weaknesses of the economy and strikes at the roots of the country’s problems. He must be a leader with a vision of a progressive Philippines – a country with a solid economy and sustainable growth propelled by developed agriculture and vibrant industry. It must be a vision of a country that does not have to be deeply integrated into the crisis-ridden global capitalist system just to survive, but one that is self-reliant and sovereign to chart its own development path.

The new president must recognize that globalization policies have failed. Opening up the economy to foreign products and corporations and relying on foreign capital and workers’ remittances happened in place of genuine agrarian reform and national industrialization. Privatization of public services, deregulation of key sectors, and allowing monopolies to reign was at the expense of the people’s welfare. These policies have built an undemocratic, inequitable, unjust economy that has pushed the people deeper into poverty. The new president must recognize that the nation’s income and resources are in the hands of only a few families, he must be bold enough to recognize that wealth must be re-distributed to have genuine economic democracy and deliverance from poverty.

The Aquino administration came to power on the promise of change. The task before the next president is indeed difficult but not unattainable if the revolutionary resolve to repudiate undemocratic structures and globalization policies is there. The economic crisis has deepened to the point that urgent relief measures are already necessary even as it is studied how to implement the long-term strategic measures.

Whether reforms are instituted while maintaining old structures or while the structural problems of the economic crisis are directly uprooted, there must be immediate relief for the economy and the people. These reforms include relieving the people of regressive taxes such as the VAT and finding more creative pro-people alternatives to raise revenues, increasing allocation for social services and doing away with the automatic appropriation for debt service, increasing wages to decent levels, and reviewing privatization and deregulation laws that have increased service user-fees beyond the reach of the people. Immediately cancelling the Hacienda Luisita SDO and distributing the land to the farmers will send a signal of resolve to implement real agrarian reform.

Pres. Aquino said in his inaugural speech that the age of sufferance is over. Indeed Filipinos have had enough of anti-people and undemocratic policies, abuses and oppression, autocratic and corrupt governments, false hopes and empty rhetoric. Pres. Aquino must realize, however, that the Filipino people have not taken foreign and elite domination, feudalism and anti-people governments sitting down. The country has one of the world’s most vibrant people’s movements, characterized by a high level of organization and militancy, and indeed sufferance is not among its characteristics. If Pres. Aquino does not live up to expectations there is always the Filipino people’s movement to remind everyone that good governance after all is people’s governance.


PROSPECTS FOR CHANGE

Pres. Benigno “Noynoy” Aquino III was elected with the biggest mandate in the post-Marcos period, amid the novelty of the country’s first automated elections, and implicitly promising sweeping

change from political and economic distress under the previous administration. The Aquino win restores the government’s political legitimacy at least to what it was before the controversy- and scandal-ridden Arroyo administration. In principle, these suffice to be a starting point for genuinely meeting the country’s challenges.

Unfortunately, there is already reason to be skeptical. The last elections did not see a significant departure from the country’s tradition of elected national leaders coming from the ranks of established structures of power and patronage. The built-up image of a sincere, incorruptible, austere and popular leader is not even unique and Aquino merely reprises the image his late mother played during her term.

The Aquino victory was in large measure an expression of discontent against Arroyo buoyed by a promise of change. However it was also a victory despite a formless platform and on that account has no deeper progressive meaning. If the campaigning since last year and the last two months since the elections are any guide, the new administration appears short of a vision and commitment for real change. Moreover its electoral mandate is not even as strong, massive, popular or overwhelming as hyped by its more enthusiastic supporters. It also has to deal with figurative booby traps, landmines and rearguards left behind by the outgoing administration.

The Philippines is often described as a vibrant democracy and even Asia’s oldest democracy. But the country has yet to see a real political triumph at the national level by a genuine working class leader and there is, if anything, violent resistance to efforts by the Left to take positions at even just the congressional and local levels. In itself this is telling of the rigidity and resistance of oligarchic rule. This stifling of progressive politics goes far in explaining why the external features of democracy – including regular, high-turnout and citizen action-intensive elections – can coexist for so long with deep social cleavages, economic backwardness and lack of real sovereignty.

There is so far little indication that the new administration can lead to changes in the systemic weaknesses underpinning so many of the country’s problems. In the absence of an ambitious reform agenda and genuine political will to push this, and while progressive groups still amass political strength, the inertia of the past and continued domination of entrenched elites is more likely. This also implies that the root causes of the country’s recurring crises cannot but eventually reassert themselves and the second Aquino watch will likely go the way of the first Aquino stint – starting with a semblance of stability but later imploding from the weight of its own contradictions with intra-elite squabbles, economic decline, social unrest, and the nation hardly better off.

Election post-mortem: Verdict on automation

The country in general welcomed the May 2010 elections and the peaceful transition to a new administration. The elections were portrayed as generally credible and there is public relief that none of the more extreme scenarios that the Arroyo government prepared for pushed through.

Still there are grounds to be guarded about the supposed success of the automated elections. The public was initially awed with early results of the May 10 elections released just hours after the close of polling. Yet this wonder just as quickly diminished as various problems surfaced in the weeks that followed. These have already resulted in a critical report by the House Committee on Suffrage and Electoral Reforms – chaired by previously staunch supporter of poll automation Makati Rep. Teodoro Locsin, Jr. – and the


filing of an electoral protest at the Presidential Electoral Tribunal (PET) by losing vice presidential bet and close Aquino ally Senator Manuel “Mar” Roxas II.

The main rationale of the Automated Election System (AES) was that the tedious process of manual elections was susceptible to fraud and it was claimed that automation would prevent this, aside from providing speedier results. But it turns out that the automated system put in place was also susceptible to fraud with the fatal disadvantage of being much less transparent. Key transparency measures were even denied (such as a real independent source code review) or disabled (such as on-screen or printed voter verification of their ballots) – breaching the basic principle in any electoral democracy of “private voting, public counting”. The findings of the congressional report and some of the reasons for Roxas’s protest are consistent with concerns raised since last year by electoral watch groups such as Kontra Daya 2010, AES Watch and the Computer Professionals Union (CPU).

Taken altogether, they support the conclusion that the AES failed to ensure the integrity of the May 2010 elections. Fraud was clearly possible during the elections including, directly contrary to the intent of AES, by and through the automated system itself. There were conditions allowing results to be manipulated. The congressional investigation for instance found gross inconsistencies in time and date stamps where various audit logs showed voting outside voting hours, no voting at all during voting hours, and voting before and after May 10. There were also audit logs of transmissions at improbably late hours or days after the elections, as well as instances where the count “underwent sudden and radical reverses”.

Independent scientists group AGHAM in turn noted vulnerabilities due to: unencrypted transmissions; disabled security tokens and digital signatures; and non-certification of national and back-up servers, modem firmware and the ballot production tool. These vulnerabilities even caused speculation that the frantic mass recall of 76,000 compact flash (CF) cards nationwide less than a week before elections was exploited to replace them with “customized” or “pre-programmed” CF cards. Misgivings were further stoked by how canvassing servers even erroneously counted registered voters of 153 million and even over 250 million, which was three to five times the actual number of registered voters (50.7 million).

No evidence of automation-related fraud has yet surfaced which could be because none occurred or perhaps, alarmingly, because they occurred invisibly. In any case the vulnerabilities and irregularities were apart from the observed persistence of more traditional forms of fraud including coercing voters through violence, vote-buying, ballot substitution and pre-shading, padding of voters lists and others. Concerns were also raised of how disorderly election day conditions such as delayed precinct opening, unclear or unfamiliar procedures, unmanageable numbers of voters, and machine failure caused bottlenecks and disenfranchisement. Large-scale disenfranchisement has been estimated as possibly reaching three to five million voters due to bottlenecks, misread ballots and other anomalies.

Aside from these, the May 2010 automation experience also highlights the danger of decreased public control over the election process due to, in effect, privatization of elections with the Commission on Elections (Comelec) outsourcing one of its vital Constitutional functions to a private foreign firm. Elections are among the most public of public interest matters and in being so vital an aspect of governance have to be conducted in the most transparent and credible manner possible. For instance, an independent source code review is among the requisites for real transparency in the May 2010 elections yet the Comelec blocked this in deference to proprietary control by private firm Smartmatic over its software.

Executive power

General public acceptance of the election results was not due to confidence in the innate soundness of the AES but rather because of the comfortable Aquino win, which was not the case with the narrow winning margins of Ramos over Defensor-Santiago in 1992 and of Macapagal-Arroyo over Poe in 2004.


This general acceptance is also what gives the Aquino administration its all-important base of political legitimacy.

Pres. Aquino’s win has been hailed as the largest post-Marcos era presidential mandate. He won with 15.2 million or 42% of votes and a 16 percentage point lead (equivalent to 5.7 million votes) over his closest rival, former president Joseph “Erap” Estrada – this 42% mandate being the largest among the four regular presidential elections in the post-Marcos period (1992, 1998, 2004 and 2010). Yet while not an insubstantial electoral base, the hyped Aquino victory is not really as overwhelming as it has been made out to be.

Aquino’s performance at the polls is not that far from Estrada’s in 1998 when he got 40% of the votes (10.7 million) and actually a significantly larger 24 percentage point lead (equivalent to 6.5 million) over the second placer at the time. As it is, Aquino’s 2010 presidential victory really only looks exceptional compared to the narrow wins of Ramos in 1992 (24% of total votes and 3.9 percentage point lead) and Arroyo in 2004 (40% of total votes and a 3.5 percentage point lead which is the slimmest in the post-Marcos era).

Looking at the apparent election results in a little more detail gives further reason to doubt that the Aquino administration has anything near an overwhelming mandate for reform. According to media outfit-sponsored exit polls, Aquino was the preferred choice of the upper and middle classes with about half of the so-called ABC income group giving him votes more or less equivalent to the next three candidates (Estrada, Villar and Teodoro) combined. The ABC socioeconomic class however is said to represent less than 10% of the population. Among the lower DE income class voters – an income group constituting over 90% of the population – a still large but relatively less number voted for Aquino with less than four out of ten choosing him.

Put another way, six out of ten of the broad masses making up the overwhelmingly largest part of the population and about half of the highest income groups were not swayed by the Aquino campaign hype and sought ‘change’ from other candidates. Even by the partial indicator of election results, the Aquino presidency did not win by a “huge landslide” and cannot claim a “massive mandate” or “immense popularity” with just four out of ten voters choosing him – more so in the context of the fractiousness of the country’s political elites and the diversity of public opinion. In any case, some doubts have already been raised over how large the Aquino lead really is with allegedly dubious results such as Aquino winning over Estrada even in his home city of San Juan, zero votes for presidential candidates other than Aquino in several Montalban precincts, and others.

At any rate Sen. Aquino (Liberal Party, LP) convincingly took the presidency despite an undistinguished political background and a belated decision to run at all, impelled mainly by a momentum of public sympathy upon the death of his mother, former president Corazon “Cory” Aquino, and of nostalgia for an imagined era of sincere governance during her time. Aquino capitalized on reflected glory from his parents’ supposed democratic legacies, mobilized substantial political and financial support from various elite interests, supplemented this with some spontaneous public support, and built up an effective image of being anti-corruption and anti-Arroyo. By the end of the campaign period Sen. Aquino managed to portray himself as the candidate who best represented the public’s discontent with the previous Arroyo administration and all it stood for.

In contrast, not only did Aquino’s erstwhile biggest challenger Sen. Manuel “Manny” Villar (Nacionalista Party, NP) fail to channel public anger and disappointment with Arroyo, but he was even unable to shake off the innuendo of being associated with her. What started out as a strong campaign despite well-publicized allegations of C-5 corruption peaked in January 2010 and started waning after February upon the “Villaroyo” tag and accusations of exaggerating poverty in his youth. Villar grossly mishandled these


issues, mounted feeble counterattacks, and notably failed to seize the opportunity to define himself as standing for meaningful socioeconomic reforms. A more visible projection of the progressive platform with Left coalition Makabayan “In Response to the People’s Concerns” for instance would have given his candidacy a quality that none of the other leading contenders had. By the end of the elections, Villar was overtaken by Estrada and dropped to third place, garnering just 5.6 million or 15% of votes.

Former president Estrada (Partido ng Masang Pilipino, PMP) came in at a strong second with 9.5 million votes or 26% of the total, which was only 1.2 million less than his winning stock of votes in 1998 over a decade ago. Estrada showed that despite a plunder conviction and upon an Arroyo presidential pardon he still has a solid core of supporters and remains a political force to reckon with. He also opportunistically seized the opportunity to draw non-Aquino anti-Arroyo votes from Villar when the latter’s campaign started to falter, launching his own demolition job. Administration candidate former defense secretary Gilberto “Gibo” Teodoro (Lakas-Kampi-CMD) came in fourth with 11.3% of the vote with a national campaign reputedly underfunded by his party in favor of local battles in Congress and local governments.

The other five presidential candidates took a combined 1.8 million or 4.9% of votes (Villanueva, 3.1%; Gordon, 1.4%; Perlas, 0.2%; Madrigal, 0.1%; and delos Reyes, 0.1%). Most of these candidates, such as Sen. Maria Ana Consuelo “Jamby” Madrigal, were more earnest than the leading candidates in running on the basis of fleshed-out platforms of governance which highlights the skewed campaign priorities of the country’s ‘legitimate’ contenders for power. For an era when mass media is more pervasive than ever and new information technologies are meteorically on the rise, it is ironic that there was still a dearth of substantive discussion during the elections and choices were still far from being presented or made on the basis of issues, perspectives, programs and platforms.

Makati City mayor Jejomar Binay (PDP-Laban) was the surprise winner of the vice presidential race with 14.6 million or 42% of total votes, which was a slim 727,084 or 2.1 percentage point lead over Sen. Roxas (LP). The Aquino camp was controversially divided during the campaign by the Roxas and Binay candidacies with some of Aquino’s own relatives reportedly breaking ranks and supporting Binay. The former mayor is said to have skillfully used the resources of Makati City, the country’s second richest city (after Quezon City) and hosting its financial and business center, to build a network of sister cities and towns in the provinces.

Post-election terrain: Consolidating rule

With the elections out of the way the Aquino government is in the process of consolidating its rule through Cabinet appointments, placing trustworthy officials in the uppermost ranks of the military, and building alliances in the Senate and the House of Representatives (HOR). It is also trying to remove as expediently as possible any unreliable holdovers from the Arroyo government and the administration’s first executive order was appropriately aimed at giving the new government the legal basis for removing such officials.

The elite character of the new administration is manifest. Pres. Aquino is building from his political core of trusted long-time close-in support group, the so-called Hyatt 10 (at least four of whom are already back in the Cabinet), Roxas-led LP officers and members, remnants of his mother Cory’s yellow brigade, Kamaganak Inc, and Kaklase Inc. with backroom support from the influential so-called Sisters, Inc. Executive power resides in Pres. Aquino and he will certainly have decisive control over this branch of government.

An early crack though is along the Roxas-Binay divide creating the possibility that the executive branch will be divided at its very top. Vice Pres. Binay is likely seen as a strategic threat by the LP who have a well-founded fear that his holding the Department of Interior and Local Government (DILG) portfolio – with its influence over local governments and control over the Philippine National Police (PNP) – will


be used to lay groundwork for a future presidential bid. The vice president is reported to have declined other positions offered him. His marginalization by hostile members in the Aquino clique could however backfire and stoke his well-established independent streak.

With former senator Roxas expected to assume a key Cabinet post when the ban on appointments of 2010 candidates expires next year, how the Roxas-Binay rivalry plays out directly and in proxy form could create the first visible large fissures in the new government. This could conceivably be magnified to the extent that the vice president has loyalists or alliances in the country’s sprawling network of local government units (LGUs).

By the time the 15th Congress opens, it is likely that Pres. Aquino will have reasonable control of the HOR on the basis not just of his solid electoral legitimacy but mainly through the president’s inherent and apparently undiminished control over the country’s patronage-inducing pork barrel system. In an early divergence already from resolute anti-corruption posturing, Pres. Aquino has already declared that the Priority Development Assistance Fund (PDAF) will remain which he even defended as “an equalizing distribution system” of government resources.

Former president and now Pampanga Rep. Macapagal-Arroyo’s administration-supported Lakas-Kampi-CMD and allied partylist groups took some 120-130 seats in Congress during the May 2010 elections (from around 170-200 district and partylist candidates running) compared to LP which fielded much less and won only around 40 seats, the NP which has about 30 members in the House, and Nationalist People’s Coalition (NPC) with reportedly around 40 members. Smaller traditional parties, independent congressmen and partylist groups make up the rest of the HOR.

The HOR will have 287 members including district and partylist representatives and, as things stand, it appears that the LP bet for Speaker of the House, Quezon City Rep. Feliciano Sonny” Belmonte, will retake a position he held previously in 2001. Aside from at least 60 Lakas-Kampi-CMD members switching to Pres. Aquino’s LP to better access political largesse, it is reported that there are also NPC, NP and PDP-Laban members voting for Belmonte. The start of every Congress expectedly sees spectacles of political opportunism with House members dealing with the dominant party and power blocs, jockeying for committee chairmanships and vice-chairmanships, and placing allegiances according to where patronage resources are to be found.

At the Senate the main fight for the Senate presidency is ostensibly between the LP’s Sen. Francis “Kiko” Pangilinan (backed by senators Drilon, Recto, Guingona, Escudero, Osmeña, Estrada and Enrile) and the NP’s Sen. Villar (supported by Arroyo, Defensor-Santiago, Pia and Alan Peter Cayetano, and Marcos Jr.) but in the case of a deadlock may also include Sen. Juan Ponce Enrile (PMP). Sen. Edgardo Angara meanwhile claims a swing-vote bloc of seven senators – including himself, Legarda, Zubiri, Revilla Jr., Lapid, Sotto III and Honasan – and has so far been shrewdly giving ambivalent signals.

Pres. Aquino also has to deal with formidable rearguards that former president Arroyo has left behind. The constitutionally independent Ombudsman expected to act as prosecutor in government corruption cases, Merceditas Gutierrez, has well-publicized ties to the former first family and has been scored for her inaction on prominent cases, such as the Php728 million fertilizer scam and euro generals scandal, and for clearing former first gentleman Mike Arroyo in the NBN-ZTE scandal. The Aquino administration has already taken a hostile stand and publicly decried Gutierrez’s bias for Arroyo as well as announced that it is studying ways to remove her from office. Gutierrez has responded that she will not leave before her scheduled departure in 2012. There is a similar situation with the Supreme Court (SC) that is expected to be the final arbiter on legal cases. All its members are Arroyo appointees including, in a widely criticized midnight appointment, the position of chief justice given to former Arroyo aide Renato Corona. Pres. Aquino has already initiated a confrontation with Corona, with his opting to break tradition by not being sworn in by the new chief magistrate during his inauguration.


Oligarchic politics and challenges

The May 2010 elections and the new government being formed show the serious inadequacies of the country’s political system and confirm the persistence of its oligarchic and elite character. The presidency is a key position but only the tip of an inequitable structure of power in the country. If there is to be real progress in the country’s lack of democracy there needs to be considerable changes in political configurations in national and local government and in the balance of economic power at large. A presidency can only be as progressive as the breadth of the social forces underpinning it – which is what currently limits the Aquino administration.

Even after the May 2010 elections the same political and economic elite continues to wield power which has merely changed hands from one section to another. The country’s peasants, workers, urban poor, indigenous peoples and other marginalized sectors remain grossly underrepresented in the elected government – including the presidency, vice-presidency, Senate, HOR and the LGUs – which highlights how elections do not yet provide a sufficient mechanism for initiating change.

Elections clearly remain elite-dominated and the preserve of the wealthy and powerful. Campaign spending for instance runs from at least a few million pesos for mayors (much more for large cities), many tens of millions of pesos for governors and congressional representatives, up to the hundreds of millions for senator and vice president, and billions for the president. As it is, internal estimates of the National Economic and Development Authority (NEDA) are that candidates for national and local government positions spent Php10.2 billion during the elections covering campaign materials, media spending, transport, food, lodging and other administrative expenses. This may still be a conservative figure.

The Philippine Center for Investigative Journalism (PCIJ) for instance estimated that total ad spending by national candidates and partylist groups alone totaled Php4.3 billion (78% of which was for TV ads) during just the official 90-day campaign period – breaking down into Php1.1 billion by the top five presidential candidates, Php653 million by the vice presidential candidates, Php131 million by presidential-vice presidential tandems, Php1.6 billion by senatorial candidates, Php598 million by partylist groups and Php277 million for party/omnibus ads. Candidates for local elective positions spent Php162 million. PCIJ earlier reported that the presidential candidates spent Php992 million just on TV ads in the November 2009 to January 2010 period. This pattern of spending also reflects the growing power of media to influence public perception of candidates and attitudes towards them.

The sheer amount of financial resources involved underpins the dangerous intersection of politics and big business, and of the systemic compulsion towards corruption, especially at the highest levels of power. One telling indication of the class character of Philippine politics is the wealth profile of HOR members where three out of four representatives are either double- or triple-digit millionaires with personal net worth running from Php10.5 million to Php947.9 million. There is a perverse self-selection in what is supposedly a democratic election process. Narrow wealthy interests exploit and upon victory even bolster their inherent advantages, while poorer groups with more progressive agenda are constantly marginalized. Another indicator is how presidents and their cabinets are ever closely linked to domestic big business with the current administration visibly allied with among the country’s richest families: Cojuangco, Lopez, Ayala, Zobel, Consunji, Araneta, Sy, Gokongwei, Aboitiz, Pangilinan, and others.

The recent elections also affirm the reign of old political dynasties in the country starting from the very top with the victory of Sen. Aquino as president. The Cojuangco-Aquino clan has already taken two presidencies (1986 and 2010), a vice presidency (1943), at least five senate spots, and dozens of congressional, gubernatorial and mayoral posts including while ascending to higher office. Former president Arroyo, herself the daughter of a president is now a member of the HOR along with at least one son and a brother-in-law. Also emblematic is the political return of the family of the late dictator Marcos


with former first lady Imelda Marcos a congresswoman, daughter Imee a governor and son Bongbong a senator.

Policy studies outfit Center for People Empowerment in Governance (CenPEG) notes that 16 of the 24 senators (67% of the Senate) and at least 130 members of the HOR (60% of its regular seats) come from political clans – not yet counting those who used the partylist system as another way into Congress – while at least 53 winning governors and 26 vice governors come from political families. Media group VERA Files in turn reported that political families won multiple posts in at least 34 of the country’s 81 provinces. In contrast, the defeat of two acclaimed mainstream reform-minded gubernatorial candidates Grace Padaca (Isabela) and Ed Panlilio (Pampanga) after just a term each further underscores the stubbornness of clan rule over local politics.

The most potent challenge to the elite undemocratic rule comes from the mainstream Left which is the largest and most organized political force with a consciously progressive social agenda in the country. The Makabayan senatorial bid on the NP slate was a well-founded if difficult choice for the mainstream Left seeking greater electoral and political victories. Among all the candidates for national positions Representatives Satur Ocampo of Bayan Muna (BM) and Liza Maza of Gabriela Women’s Party (GWP) offered the most serious, substantive and progressive option to the Filipino people but their prospects dimmed in proportion to the weakening of NP standard bearer Sen. Villar’s campaign. In the end, the Makabayan alliance appeared to give more to the Villar campaign in terms of votes than it gained in return – affirming the Left as a significant and growing electoral force even if not yet on its own account able to take national positions. Rep. Ocampo garnered 3.5 million votes and Rep. Maza 3.8 million votes, or some 10% of voters going to the polls.

Despite the below-target Senate showing the Left parties nonetheless still claimed creditable victories. The progressive partylist groups greatly increased their cumulative votes from 2.3 million in 2007 to 3.2 million in 2010 which affirms that there is a critical and even growing core of dissent against the country’s elite- and foreign-dominated political and economic system. Five Leftist partylist groups placed in the winning Top 20 – BM, GWP, Anakpawis, Kabataan and ACT Teachers – with seven nominees taking House seats. These successes were in the face of widespread and systematic attacks on their nationwide machineries including black propaganda, harassment and violent assaults. They also had to contend with traditional means of fraud against them and, possibly, even automated fraud.

Aquino’s governance framework

The Aquino administration confronts political and economic problems resulting from the previous administration as well as due to long-running structural defects. The problems of poverty, economic backwardness, human rights violations, undemocratic governance, and others are serious and deep-rooted. The administration is clear about its framework for dealing with all this. In his inaugural speech Pres. Aquino repeated their campaign slogan “Kung walang corrupt, walang mahirap” (“If no one is corrupt, no one will be poor”) and enshrined this as a defining principle and foundation of his administration, adding that “Our foremost duty is to lift the nation from poverty through honest and effective governance.” This focused message also runs through the declared Aquino campaign platform, “A Social Contract With The Filipino People: The Platform of Senator Benigno ‘Noynoy’ S. Aquino III”.

At first glance they are unobjectionable and the only problem seems to be that that there is no corresponding articulation of policy nor setting of tangible targets – hence making them fall short of constituting the transformative vision that the Philippines, with all its deep-seated problems, needs. Yet this can be remedied in principle. However, more serious for being irremediable is that the central premise is popular but wrong. It is not corruption, and not even mainly corruption, that causes poverty. There will still be poverty even if the government is not corrupt if the wrong policies continue to be implemented.


Public opinion has been nurtured to believe that corruption and the personal unethical behavior of government officials, high and low, is at the root of all the difficulties that people suffer. While positive in drawing attention to what is certainly a serious concern it dangerously oversimplifies the reality of people’s troubles. It is understandably more difficult to explain globalization policies as the real cause of joblessness, low incomes and deteriorating social services but this is necessary to even begin to make real progress.

Corruption is admittedly pervasive, long-standing and has always reached to the highest levels of government. It is also true that this drains public resources and in so many ways undermines sound economic management and stifles productive activity. But while corruption certainly causes damage, it is important to see the deeper and greater damage from for instance neoliberal ‘free market’ policies of globalization.

For example, whatever is said of governance under the Arroyo administration it is clear that it was able to efficiently push globalization policies (in large measure through a high degree of political repression especially of the militant groups most critical of these). The neoliberal policies of previous administrations were completely maintained and it pushed more measures up to or arguably even beyond the bounds of Constitutionality. The country entered into its first full-fledged post-colonial free trade and investment agreement with the JPEPA. Oil industry deregulation was aggressively defended during the 2008 peak oil crisis. Liberalization of mining and foreign exploitation of natural resources was affirmed and pursued. New regressive taxes were passed to be able to repay debt. Education, health and housing budgets were greatly diminished in misguided pursuit of privatization of social services.

Coming on top of previous decades of globalization policies – removing trade barriers, taking away investment controls, privatization of public utilities, education, health and housing, deregulation of the economy, and continued debt payments – these eroded local manufacturing and agriculture, diminished social services, caused record joblessness and rising poverty, and forced millions of Filipinos abroad.

Worsening unemployment due to globalization means many hundreds of billions in pesos in lost potential output every year from idle manpower aside from the human misery that joblessness causes. Privatization and austerity measures mean a hundred billion less pesos spent annually on health, education and housing. Meanwhile unceasing debt service sees interest and principal payments steadily approaching a trillion pesos a year. The amount skimmed off public funds by corrupt officials is considerable – with some estimates placing this at up to Php100 billion a year – but nonetheless still pales in contrast to the social losses due to wrong economic policies of globalization.

Corruption is a convenient but flawed proxy for the problems Filipinos endure. Such misdirection is however advantageous for the elite interest groups surrounding the Aquino administration and it will allow them to continually push for globalization polices that they benefit from, having successfully laid the blame for the vast damage these policies cause merely on the proliferation of bribes, pay-offs and misuse of public funds. While it is possible for the Aquino watch to see less visible corruption that in the past had so brazenly reached to the highest levels of government and the presidency itself, it is unlikely that all-out graft can be contained by a government that in the end merely seeks business-as-usual. Economic change?

The Aquino economic agenda will be formally and comprehensively articulated when the new Medium Term Philippine Development Plan (MTPDP) is released in the second semester but there are already signs that this will be fully continuous with the failed plans and policies of the past. The Aquino camp has not been able to set new economic policy directions whether during the long months of the official


and unofficial campaign period, in the weeks after the May 10 elections that an Aquino presidency was imminent, or upon the inauguration and in the weeks afterwards. Overarching promises were made about ending poverty, creating jobs, taking care of overseas workers, addressing classroom shortages, providing families shelter and the like. But with every government promising these – including the previous Arroyo government as well as of Aquino’s own mother decades ago in 1986 – it is conspicuous that there is a dearth of fresh ideas on the economy.

On the contrary what clues there are from statements during the campaign period, from the inaugural speech, and in the choice of Cabinet indicate more of the same. Pres. Aquino has been very specific about responding to demands of big business groups both foreign and domestic. He has spoken about ending corruption in the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC), cutting red tape, and improving the infrastructure for transport, trade and tourism. The stress on a predictable and consistent investment climate and for a “level playing field” in particular responds to foreign capital’s preference for a domestic business environment that it can dominate using its often unmatched accumulated expertise and capital.

Yet Pres. Aquino has been conspicuously silent on fundamental social justice and economic development issues most relevant to the people: land reform, higher wages, activist trade policy, national industrialization, direct public responsibility for social services, and supporting the right of workers and peasants to struggle for their economic rights. On this count, the violent dispersal of Central Luzon and Southern Tagalog farmers at Mendiola Bridge near Malacañang Palace just three days after the president’s inauguration, where 42 people were arrested, is symbolic. The demonstrators were demanding genuine agrarian reform starting with the immediate distribution of Hacienda Luisita in Tarlac. Offered instead are palliatives or selective showcase measures that never scale up to a nationwide level -- such as emergency employment programs, universal health care through health insurance schemes, and giving farmers irrigation, extension and marketing services.

The choices for the Cabinet economic team do not bring new economic strategies into the government’s executive processes. The economic planning secretary returns to a post from which he spearheaded Cory Aquino-era globalization, the finance secretary reclaims a position he vacated soon after pressing higher taxes through RVAT, the trade secretary brings with him a record of providing ever greater incentives for foreign investors, the environment secretary has a background of pushing mining sector liberalization, and the public works and energy secretaries each come in from the helm of the two companies that benefited most from water privatization.

To be sure, the selection of cabinet and other officials is not made in a vacuum according to just perceived competence or incorruptibility. The selection process reflects lobbying of political forces around the presidency with those advancing the agenda of big business interests most advantaged while those going against these are in general excluded. This explains the proliferation of recycled appointees, who already went through such a vetting, and the absence of radical reformers and alternative perspectives.

Political progress?

Three key pressing political issues will define the trajectory of the Aquino presidency. The first is the investigation and prosecution for corruption of former president Arroyo and other officials of her administration. Pres. Aquino’s main effort here so far is the proposed Truth Commission reportedly to be headed by former chief justice Hilario Davide, Jr. Its scope of work will be extensive if it means to cover the range of controversies under the Arroyo administration including at least 16 major corruption cases with kickbacks, ill-gotten wealth and payoffs worth as much as P21 billion, over a thousand extrajudicial killings, hundreds of enforced disappearances, abuses of executive power including declarations of emergency rule and martial law, and electoral fraud up to the level of the presidency.


Concerns have already been raised. The commission it appears is merely investigative and recommendatory. Davide’s independence is questioned because of his purported ties to Arroyo including swearing her in at EDSA in 2001 – which set the grounds for a judicial precedent about the legitimacy of her rule – and his appointment as permanent representative to the United Nations (UN) in 2007. There is also the worry that an under-supported commission would be overwhelmed by a tremendous workload and the difficulties in dealing with still-powerful and entrenched interests (not least being the principal respondent herself and her allies).

The appointment of former Commission on Human Rights (CHR) head Leila de Lima as justice secretary has been justifiably hailed given her strong record of denouncing and exposing human rights abuses. De Lima is expected to push the prosecution of anti-corruption and other cases against Arroyo and in effect has the burden of restoring confidence in law enforcement agencies that was ruined under the previous administration which was perceived as acting with impunity across a wide range of issues.

It remains to be seen if these initial tentative steps in the right direction will go further and lead to real determination in pursuing cases big and small. For now many are hopeful that the relative conservatism so far is because the government is still marshalling resources, accumulating evidence, building cases and plotting legal strategies. The country’s track record given its stubbornly reactionary political configurations is however not encouraging.

Pres. Aquino’s mother had a year of revolutionary rule in 1986 with sweeping powers to overhaul the three branches of government and even the Constitution – yet 2 ½ decades later the Marcos hidden wealth remains largely hidden and the Marcoses themselves are politically rehabilitated and back in power. In contrast Pres. Aquino has no such powers, a much less overwhelming base of political and popular support, and even an Achilles heel in the legally-disputed Hacienda Luisita. He will also have to deal with the rearguards left by former president Arroyo, particularly in the Ombudsman and SC, who could cause gridlock as much as facilitate compromise deals.

The second key issue is the unrelenting State-sponsored or -sanctioned violent attacks on Leftist leaders, grassroots organizations and political activists. Independent human rights group Karapatan tallies 1,205 extrajudicial killings and 206 enforced disappearances over the entire Arroyo administration from January 2001 until June 2010. These have been attributed – including by the United Nations (UN) Special Rapporteur on Extrajudicial Killings and scores of local and international groups – to official government policy expressed in its counterinsurgency (COIN) plans.

The militarist approach is deep-seated. The Armed Forces of the Philippines (AFP) 2001 National Internal Security Plan (NISP) and National Military Strategy (NMS) called for intensified military operations and mobilizing even civilian resources for COIN purposes (e.g., grassroots intelligence, civil-military projects, working with civil society). This approach was implemented through internal security operational plans Bantay Laya 1 and 2 (OBL 1 and 2, or Freedom Watch) from 2002-2006 and 2006-2010, respectively. The explicit targeting of “insurgent political-military structure” has been widely criticized as giving justification to attacks on civilians and has resulted in alarming numbers of human rights violations.

It remains to be seen if the Aquino administration can go beyond a superficial recasting of AFP COIN programs as more sensitive to human rights to directly addressing the problem. For now the militarist approach appears intact. The Aquino government is only ten (10) days into its term but has already presided over three (3) extrajudicial killings: Bayan Muna-Aklan provincial chairperson Fernando Baldomero was shot on July 5 while on his way to bringing his child to school, peasant agrarian reform advocate Pascual Guevarra, 78, of the Alyansa ng mga Magbubukid na Nagkakaisa 3100 (Almana) was shot in his home in Nueva Ecija on July 9, and Masbate public school teacher Mark Francisco, 27, of ACT


Teachers partylist was shot by motorcycle-riding gunmen while on his way home with four co-teachers also on July 9. Pres. Aquino has conspicuously missed using key opportunities – such as his inaugural speech, the AFP turnover, and the first AFP command conference of his administration – to send a strong signal about determination to stop these killings and abuses.

The sustained attack on progressive groups has a significance above and beyond being a serious human rights issue. Their grassroots-driven struggles for democracy are the most meaningful political opposition in the country in consistently upholding people’s demands in a way that political parties, elite business groups, or even many civil society organizations are unable to. More than any other political force they take up the continuing challenge to transform spontaneous public outbursts into stable and organized efforts for real social change. Unfortunately their sustained awareness-building and assertion of demands has long been met with violence and repression and, absent a change in official government policy, this can only get worse as the economic crisis deepens and political struggles correspondingly intensify.

This makes Pres. Aquino’s efforts in putting a stop to the systematic attacks – widely believed to be by State military forces and paramilitary groups – the litmus test of his government’s commitment to democracy and the key to making a break from the long record of human rights violations by the previous administration.

The third matter is the peace process with the major armed groups in the country – the Communist Party of the Philippines-New People’s Army-National Democratic Front of the Philippines (CPP-NPA-NDFP) and the Moro Islamic Liberation Front (MILF). These talks have been derailed by among others the Arroyo government’s insistence on the so-called Disarmament, Demobilization, Reintegration (DDR) framework and on repeatedly invoking “the framework of the Constitution” to justify belligerence on substantive points under discussion. A similar tack by the Aquino administration will likely lead to an intensification of war rather than resolution of the armed conflicts. IBON-monitored armed confrontations between the NPA and government forces have markedly increased in the first semester of 2010 at 146 incidents which is 28% more than in the same period last year, and already more than the tallies for the whole year in 2001 (90 incidents), 2002 (55), 2003 (130), and 2007 (64). (See Annex)

The Aquino administration needs to take a clear-cut contrary stand if it is to remedy the militarism increasingly institutionalized in the country’s defense and security establishment over the last decade. Unfortunately, initial statements are more consistent with taking a war-footing rather than a reformed approach to dealing with the root causes of armed conflict. During his inaugural speech Pres. Aquino declared that he will strengthen and increase the numbers of soldiers and police and, a few days later, new AFP chief of staff Lt. Gen. Ricardo David announced a target to defeat “terrorism and insurgency [within] three years”.

Such declarations are confrontational and undercut informal government offers to resume peace negotiations. Formal talks with the CPP-NPA-NDFP have been stalled since 2004 although there have been sporadic informal talks. However defense secretary (and retired Lt. Gen.) Voltaire Gazmin has provocatively declared that peace talks with the Maoists will resume only if they first “put down their arms”, a precondition that the NDFP has consistently rejected as a violation of previous signed agreements which place the cessation of hostilities as following agreements on socioeconomic and political reforms. For its part, the MILF issued a statement about Lt. Gen. David’s “threatening stance” and the possible “change of policy by the Aquino administration from a peaceful approach to the use of brute force”.

Global context: US in the Philippines

The role of the United States (US) in the transition from an Arroyo to Aquino presidency has been conspicuous and has deep underlying geopolitical motivations. US superpower interest in Southeast Asia


and in the Philippines is noticeably increasing. Given the country’s chronic lack of independent foreign policy and long history of being under US influence, this has far-reaching and likely adverse implications on the country’s trade, investment, diplomatic, and security policies.

Amid growing concern that moves by the Arroyo administration to retain power would inadvertently threaten US interests in the country – for instance by triggering another People Power upsurge that further strengthens organized nationalist and democratic political forces – the US had since the middle of 2009 visibly pushed for elections in 2010 and a conventionally legal transition of power. Various high-ranking US officials made public statements to this effect under cover of principled attention to the country’s “democratization”: the US defense secretary (June), Central Intelligence Agency (CIA) head (July), a US senator influential in Asia-Pacific affairs (August), and Pres. Barrack Obama himself upon then president Arroyo’s US trip (July).

From broadly hinting that elections were preferred, these efforts also subtly started to take the form of a deliberate campaign to influence public opinion about an Aquino presidency – albeit carefully managed to not appear to be blatantly crossing diplomatic boundaries, impinging on Philippine sovereignty, or dictating events. Their impact has been significant by reining in Arroyo’s ambitions, bolstering Aquino’s candidacy and asserting the May election’s legitimacy. These political and diplomatic efforts were also calculated to establish that the US significantly contributed to putting the Aquino administration in place.

The publication of a Time magazine cover story in the run-up to the elections is illustrative especially in coming from a US firm which is among the largest news media conglomerates in the world with enormous influence in shaping local and foreign public opinion. The US has a long-running and extensive involvement in the domestic electoral process – including, tellingly, its automation through various United States Agency for International Development (USAID), National Endowment for Democracy (NED) and The Asia Foundation projects – while the May 10 polling themselves were closely monitored by the US government which fielded 120 observers across the country. Ostensibly on this basis, the US embassy in Manila swiftly released a statement on May 11 hailing the automated elections and looking forward to the transition to a new government. On May 21 – even before Congress convened to begin the official canvassing towards proclaiming the winners in the presidential and vice presidential elections – the new US ambassador Harry Thomas, Jr. and other high ranking embassy officials publicly visited Sen. Aquino in his home and said that they expected bilateral ties to improve under his administration; visits by others in the diplomatic corps soon followed.

US government involvement in the electoral system is extensive. USAID for instance funds the International Foundation for Electoral Systems (IFES) which pushed automation of Philippine elections as early as 2004, the Philippines Election Reform Project (2007-2009) which involves the Comelec and a wide range of other government and civil society stakeholders aside from also supporting automation, and the National Democratic Institute (NDI) which among others has worked to improve public confidence in the automated elections.

US hard and soft power

The US’s interest is to consolidate and deepen the Philippines as a key Southeast Asian ally in support of its overall East Asia agenda. The US seeks to maintain its position as the Asia-Pacific region’s predominant power in the face of an economically ascendant and militarily powerful China, long-standing defiance by nuclear armed North Korea, costly occupations of Iraq and Afghanistan, and domestic financial and economic troubles since 2008. The Philippines contributes greatly to giving the US a formidable military presence in the region through joint military exercises, basing opportunities, and country-wide logistical support. The Philippines also proxies for the US in Asian forums that it is formally excluded from, such as the Association of Southeast Asian Nations (ASEAN), and gives the US additional leverage in forums even where it is present, such as in the Asia-Pacific Economic Cooperation (APEC).


US foreign policy in Asia openly declares China as a major concern including, of particular significance to the Philippines, increased Chinese trade and investment links with Southeast Asian countries and more insistent Chinese assertion of territorial claims in the South China Sea. The US is more aggressively securing its alliances for various China countermeasures: a continuous military presence in the region, economic deals with ASEAN, and if possible even a comprehensive Trans-Pacific Partnership through APEC, and running interference for the US against China especially in Asian forums where the US is absent. The US also has major direct economic interests in Southeast Asia. ASEAN is the US’s fifth biggest trading partner after Canada, Mexico, Japan and the European Union (EU) with US$203 billion in goods and services trade. It is also the largest destination for US investments in Asia where the over US$130 billion here is even more than in China, Japan and India. Reflecting the region’s geostrategic importance, US attention to Southeast Asia markedly increased after 9/11 in 2001, accelerated since 2006, and has further intensified since 2009.

As it is the US maintains an uninterrupted military presence in the country through some 600 special forces troops indefinitely stationed in small “forward operating bases” especially but not only in Mindanao, who are regularly and frequently augmented by up to 6,000 additional troops during scheduled “exercises”, of which there are at least 25 major exercises nationwide annually. There are also so-called “cooperative security locations” scattered across the country. This armed presence is alongside similar land-based deployments in Thailand, Malaysia, Indonesia, Singapore and naval operations in the region’s oceans.

The US greatly increased its long-standing influence on the Philippine military with the Joint Defense Assessment (JDA) program initiated in 2000 and which in 2003 defined far-reaching long-term institutional changes in the AFP, with significant American support and involvement, aside from serving as a mechanism for immediate intervention. The far-reaching JDA studied and identified ten key areas of intervention including the critical security areas of planning, training, doctrines development and logistics procurement.

Also resulting from the JDA are the US-designed and -supported Philippine Defense Reform Program (PDR) and AFP Capability Upgrade Program (CUP) which underpin the annual Php5 billion national budget request for AFP modernization and the US$427.2 million in US military aid officially reported as for the Philippines in the period 2001-2011 (although a recent Heritage Foundation report estimated US$1.34 billion in “Foreign Military Sales” that the AFP used to buy defense equipment, training, and services). The VFA Commission confirms the US commitment to share in the expenses for JDA implementation – costing approximately US$400 million over a ten-year period – and reports the AFP already receiving at least 28 helicopters, a transport aircraft, 3 ships, 6 boats, 433 trucks, 1,400 vests, 25,140 helmets, 30,000 M-16 rifles, aside from other assorted equipment for military use.

These significant points of US security engagement with the Philippines also provide the links to US culpability for serious human rights violations by the AFP. At the very least it is alarming that the discernible increase in human rights violations against civilians since 2001 coincides with the marked heightening of US engagement with the AFP including on counterinsurgency matters.

This US financial, equipment and logistical support also directly serves the US objective of increasing its overall regional capacity to militarily contain China. It is unlikely to be merely coincidental that the AFP target for strategic defeat of the internal CPP-NPA-NDFP threat – initially by 2010 and now supposedly by 2012 – corresponds with a CUP target to transition from internal security to external territorial defense over the period 2012-2018. The US for the same reason is likely to have welcomed Pres. Aquino’s pronouncement of increased spending on the military even if, as is likely, this will be at the expense of already resource-starved social and economic services.


Astride visible US militarism is its “soft power” offensive including deepening ties with allied governments through more active calculated involvement in various realms of governance: anti-corruption, elections and democratization. US bilateral “democracy assistance” to the Philippines has so far taken the form of aid in support of electoral processes, good governance practices, anti-corruption reforms, building the legal system, assisting law enforcement agencies, promoting a free press, local governance and decentralization. The USAID supports and itself implements projects as do the State Department-funded organizations NED and The Asia Foundation. The US also works through multilateral efforts by the World Bank (WB) and UN agencies.

Aquino redux?

History may not repeat itself exactly but there are interesting parallels between the first (1986) and second (2010) Aquino administrations despite being decades apart. Most obvious is that both succeed long-running, corrupt and politically and economically repressive regimes: Ferdinand Marcos (1965-1986) and Gloria Macapagal-Arroyo (2001-2010). One major difference though is that former president Arroyo leaves a tough rearguard in the heads of two Constitutionally-independent bodies and actually remains in government with an active clique of family and allies also in office. But both faced deep economic problems of, each in their own time, record unemployment and poverty and corresponding social crises. They similarly take power during a world economic crisis: the 1980s global debt crises and 2000s financial and economic turmoil.

Both are hailed as providing democratic impulses to the country, including by the US which takes a stronger and visible interest in “democratic” electoral outcomes: Corazon Aquino dramatically restores formal democratic processes after the Marcos dictatorship while son Benigno Aquino III remedies democracy backsliding under Arroyo. Both combine popular support and spontaneous appeal with visible support by big business elites (albeit both less so in the case of the son). They also each cobble together a hodge-podge of traditional politicians and civil society groups; on both occasions, large portions of civil society hoped to influence the direction that the government takes.

The 1986-1992 Aquino administration in the end was not as progressive as many had hoped and it resulted in: the failed Comprehensive Agrarian Reform Program (CARP) dragging on until today; the “honorable debtor” policy on foreign debt which remains untouchable; opening up to trade (through 1986-88 and 1991-95 import liberalization programs) and investment (with the Foreign Investments Act of 1991); higher taxes (VAT through EO 273 in 1988); and wage suppression (Wage Rationalization Act of 1989).

Six months after taking office, Pres. Corazon Aquino told the US Congress of her readiness to take up the “sword of war” and another six months later she famously declared at the Philippine Military Academy (PMA), “The answer to the terrorism of the Left and the Right is not social and economic reform but police and military action” and that it was necessary “to take out the sword of war” – unleashing a wave of human rights violations. US military aid meanwhile poured in while Pres. Aquino pushed, unsuccessfully, for the continued indefinite presence of the US bases. Marcos-centered cronyism was merely replaced by an Aquino-centered variant and spawned the likes of Kamaganak, Inc.

The coincidences could be dismissed as superficial if there was not aside from these the persistence of deep-rooted political, economic and social forces – yet oligarchic rule, an undemocratic economy, recurring crises of global capitalism, and imperialist aggression also endure.


TRANSFORMING THE COUNTRY

A new administration always brings the promise of a break from the past. Many see the Aquino government as marking the beginning of a new period of political stability, institutional reform and,

implicitly, social and economic progress. But so far it has yet to set new and meaningful directions for dealing with the people’s most vital issues. There are also signs that it is compromised by a continuity of elite interests from the old one.

In any case the Philippines needs radical economic and political reforms to achieve far-reaching improvements in the people’s welfare. The country faces seven major tasks:

1. Give immediate social and economic relief to the people;2. Avert the fiscal crisis in a way that does not further burden the poor; 3. Address the jobs crisis of record high unemployment, poor quality work and low earnings; 4. Rectify severe inequalities in income, wealth and assets (including of land); 5. Promote real democracy and human rights;6. Curb pervasive corruption including electoral fraud; and 7. Restore the country’s sovereignty in its international economic and political affairs.

The country’s problems cannot be solved overnight but immediate steps can still be taken that define progressive directions and establish the intent for change. The momentum to decisively address these can only come from a new approach that radically breaks from the inertia and business-as-usual of the past.

Building momentum for economic change

The country needs a progressive and ambitious development agenda to break its decades of stagnation and underdevelopment. The overall track must be to expand economic democracy and build the foundations of a strong, self-reliant and sovereign local economy. This means discarding failed neoliberal policies as well as taking all necessary measures – including state regulation and intervention – to develop domestic agriculture and build local industry.

The collapse of global markets and the looming sovereign debt phase of the crisis of capitalism bolster the argument for greater emphasis on expanding domestic markets and local economic activity. The severe inequality amid mass poverty justifies more actively redistributive policies and measures to combat the centralization of benefits to a few. Important first steps include the following:

1. Cancel the Hacienda Luisita stock distribution option (SDO) scheme and distribute the land to the farmers – this will also be an important signal of political will to implement genuine agrarian reform. It is also necessary to have a credible accounting of the real extent of land distribution and any subsequent land reconcentration.

2. Implement an immediate across-the-board nationwide wage hike of Php125. 3. Repeal the regressive VAT Reform Law (RA 9377). Study alternative sources of revenue including

higher corporate income taxes and wealth/estate taxes.4. Repeal the automatic appropriation for debt service by amending Section 31 of PD 1177 that provides

for this, and also by amending Section 26, Chapter 4, Book VI of EO 292 (Administrative Code of 1987) that reiterates in toto Section 31 of PD 1177.

5. Ensure a budget of at the very least Php281 billion for education, Php39 billion for health and Php13 billion for housing in the 2011 national government budget to bring social services to their most recent respective annual peaks of education spending per school-age child (1998), health spending per capita (1997), and housing spending per capita (2000). In general the government must aim to account for the


largest part of conventionally acknowledged recommended spending levels of “6% of GDP/GNP” for education and “5% of GDP/GNP” for health.

6. Draw up a deliberate, explicit and strategic national industrial policy consistent with the country’s resource endowments and existing capacities, and that will be coordinated with its trade, investment and financial policies.

7. Suspend and review the Japan-Philippines Economic Partnership Agreement (JPEPA) and the Partnership Cooperation Agreement (PCA) with the European Union (EU).

8. Convene a multi-stakeholder review of government negotiating strategy and of deals approved in talks as part of ASEAN (i.e., Japan, China, Korea, Australia-New Zealand, India, EU, US and the ASEAN Trade in Goods Agreement).

9. Convene a multi-stakeholder review to identify local products that can be given increased tariff protection initially up to the simple average bound tariff already allowed under WTO rules of 25.8% (from the simple average applied tariff of only 7.1%).

On economic matters the Aquino administration can go in one of two directions (ruling out a third option of revolutionary social overhaul). The first alternative is a continuation of neoliberal ‘free market’ policies of globalization. This is the option most favored by domestic big business and the country’s major international partners including the US, Europe, Japan and even China. They are reinforced by influential local technocratic and intellectual elites unable to conceive an alternative socioeconomic program. This will however create problems for the economy given the turbulent global economic context.

The second alternative is to implement more progressive economic measures including redistributive domestic policies and being more assertive in international trade deals. This would bring about immediate gains for the majority of Filipinos and working classes. However this entails the Aquino government surmounting its own elite character and confronting powerful local and foreign interests that benefit from retarded land reform, wage repression and liberalization of trade, investment and finance. While the Aquino government’s political alliances with old entrenched forces make this unlikely on a broad scale, it may still implement some aspects upon sufficient pressure and to try and moderate social unrest.

Building momentum for political change

The country’s persistently weak democratic institutions are not necessarily substantially improved with a new administration. If anything the May 2010 elections even affirmed the extent of the problem: political parties lacking substance and organizational integrity, a corrupted electoral system that has become even less transparent, shallow electoral politics and irrelevance of substantive platforms, key government positions in the hands of local elites, and a military establishment tasked to attack the most active democratic forces in the country.

In particular, the efforts of political groups with well-defined alternative agendas that are understood and embraced by organized constituencies is a requisite of the democratic process. Yet these grassroots organizations have been subjected to systematic attack to decimate them or otherwise keep them at the fringes of political power. It may still be possible to press the Aquino administration for measures to arrest the rapid political decline and oppressiveness of the previous administration. Among the demands already articulated by mass-based organizations, social movements and progressive civil society such as Pagbabago! People’s Movement for Change include:

1. Investigate and prosecute former president Gloria Macapagal-Arroyo for: electoral fraud and the various corruption scandals during her administration involving herself, her family and allies; and implementation, as commander-in-chief, of the Oplan Bantay Laya (OBL) and other military campaigns that resulted in extrajudicial killings, enforced disappearances and other serious human rights violations.


2. Investigate and prosecute military and police officials for their direct or indirect involvement in extrajudicial killings, enforced disappearances and other serious human rights violations under the OBL and other military campaigns. Transmit the 1998 Rome Treaty of the International Criminal Court (ICC) to the Philippine Senate for ratification.

3. Order an independent probe of the May 10 elections to address doubts on the credibility of the automated polls and to convincingly resolve any questions on the legitimacy of the Aquino presidency, to exact due accountability from Comelec officials and Smartmatic, and prevent a repeat of the problems and glitches in the next elections.

4. Suspend and review the Visiting Forces Agreement (VFA) with the US and, in the meantime, expel all US military personnel in the country and stop all on-going or planned operations, trainings, exercises, projects and other activities involving US forces.

5. Immediately resume formal peace talks between the Government of the Republic of the Philippines (GRP) and the National Democratic Front of the Philippines (NDFP), consistent with agreements already made and to allow discussions on comprehensive social and economic reforms, and between the GRP and Moro Islamic Liberation Front (MILF). As a confidence-building and goodwill measure, government must immediately and unconditionally free all political prisoners, including but not just the Morong 43, and drop the trumped-up charges against them,

New Directions

Real change is possible in the country but various elements which do not happen spontaneously have to be in place: a genuinely progressive political and economic agenda; a core of national and local leadership willing to overturn deeply embedded unjust structures; and a strong social movement as the only viable counterfoil against entrenched interests that will oppose major and controversial structural reforms. These all begin from organized action and determined activism by grassroots sectors who will always be the most potent catalyst for serious change.

As things stand, the Aquino administration is challenged to take decisive steps to show that is able to initiate a process for social transformation. However among the reasons making this difficult or unlikely is its alignment with various elite vested interests opposed to radical reforms in the country, aside from its lacking a viable development program to begin with.

There will always be pressure for change as long as there is a progressive movement demanding this, driving debate on the issues that really matter for the people, and challenging the government to take on a more ambitious agenda. These make it vital for democracy to flourish in the country. The last elections and the transition to the current administration show the limits of leadership change in itself as the means to fix the country’s problems. Change in the country is possible – but the government itself will have to be the end result of this change and not, as naively thought, its starting point. The social, economic and political changes so needed by the people will depend primarily on the growth and strength of their organized forces rather than on superficial changes such as that in the presidency.n


Annex

2010 Midyear 15 July

Documents

Transcript of 2010 Midyear 15 July