The 1997 Asian Financial Crisis and the Revival of Populism/Neo-populism in Philippine Politics1

By Renato Cruz De Castro

During the height of the Asian financial crisis, a number of analyst and scholars

attributed this regional financial meltdown to the existence and operations of

interventionist Asian developmental states. They maintained that economic globalization,

as manifested by the crisis, was bringing these states to heel. Commentators argued that

the crisis is wrecking havoc on the Asian developmental states and forcing them to

reconfigure themselves along the attributes of the Western-style liberal-regulatory state.

This view, however, doesn’t apply in the Philippines case for the simple reason that the

Philippine state has never been construed as developmental. During the crisis, instead of

transforming itself to a Western-style liberal regulatory state, the Philippine government

initiated a number of populist economic and political policies. Then in the midst of the

crisis, a populist candidate, Joseph Estrada, was elected as president. Estrada’s

ascendancy to the presidency paved the way for the revival of populism/ neo-populism in

Philippine politics. This paper argues that the crisis created the opportunity for the

reemergence of populism/neo-populism in 21st Century Philippine politics.

1 Paper to be read in the international conference “Ten Years after the Asian Financial Crisis: Changes in Continuity,” 23-24 February 2007, Thammasat University, Bangkok, Thailand. Preliminary draft—for conference use only. Strictly not for quotation nor citation.

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The 1997 Asian Financial Crisis and the Revival of Populism/Neo-populism in Philippine Politics

By Renato Cruz De Castro

“The Philippines has often been depicted as a piece of Latin America located offshore of East Asia…”2

Michael Yahuda, 1995 “For most part of the past three decades, economic growth in the Philippines lagged behind that of its Asian neighbors, earning the country us sobriquets as the “sick man of Asia and the Latin America of Asia…”3

Marcus Noland, 2000 The May 1998 election was a watershed in Philippine political history. It was the

second presidential election since the country became a liberal democracy again after

more than a decade of authoritarian rule under President Ferdinand Marcos. More

significantly, most observers and analysts were fascinated and amused by the fiercely

contested presidential derby where a politically-astute candidate, then Congressman Jose

De Venecia, backed by governmental resources and organization was challenged and

defeated by a former actor and an extremely popular candidate, Joseph Estrada. The

election ended with a landslide victory for the underdog former movie actor. Mr. Estrada

garnered about 40 percent of the total vote. This was translated to about 6.4 million more

2 Michael Yahuda, The International Politics of Asia-Pacific, 1945-1995 (London; New York: Routledge, 1996).p. 31. 3 Marcus Noland, “The Philippines in the Asian Financial Crisis: How the Sick Man Avoided the Pneumonia,” Asian Survey XL, 3 (May/June 2000). p. 401.

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votes than what his closest competitor got in this hotly contested election. Estrada’s

margin of victory is the widest in Philippine electoral history.

President Estrada took the reins of power with a strong populist appeal and

agenda. The 1997 Asian Financial Crisis had wreck havoc on most Southeast Asian

economies with the exception of the Philippines. Thus, the Philippine economy was

expected to be the first to recover from the regional economic slow-down. There was

high expectation in the air, especially among the ordinary Filipinos, as the country on 30

June 1998 inaugurated a former action star who strongly identified himself with the poor.

In his inaugural speech, President Estrada declared that the “new day of the Filipino

masses has dawned when one of their own is finally leading them.”4 In less than three

years, however, the Philippine economy began to fail as crime and the country’s chronic

insurgencies began to intensify. President Estrada was eventually impeached by the

House of Representatives on allegations of pay-offs. The following year, a popular

indignation galvanized into street revolution in the capital city, and this led to his ouster

from office. The vice-president, Gloria Macapagal Arroyo, became the president

replacing the populist President Estrada as the country’s chief executive on 20 January

2001.

In her few months in office, President Arroyo tried to put the economy back on a

modest growth track by continuing the market-oriented policies of then President Fidel

Ramos (President Estrada’s predecessor in the early and mid 1990s). She made a number

of serious efforts at effecting difficult market-oriented reforms during the early years of

her term. However, she was not able to generate effective governance and economic

4 Amando Doronnila, The Fall of Joseph Estrada: The Inside Story (Pasig City: Anvil Publisher, 2001). p. 2.

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development that could be at par with the country’s neighboring states. Eventually, like

her populist predecessor, the Arroyo Administration has to contend with a powerful

opposition trying to undermine her regime and a military institution that has become a

breeding ground for politicized and ambitious officers who are continuously plotting to

overthrow the government. Since 1998, Philippine politics shows a pattern wherein a

popularly installed president would assume power, promise to deliver economic goods

and development, by instating redistributive measures to the broad sector of the

population, fail to his or her promises, and later, generate popular frustration and

discontent leading to chronic political instability. 21st century Philippine politics

resembles certain features similar to contemporary Latin American populist/neo-populist

regimes. Like most Latin American countries, the Philippine state is in a situation where

it must deliver concrete material results for a broad sector of the population despite being

faced by an economic crisis and by the general state of its underdeveloped productive

capacity.5 Without such result, this sector of the population will again be frustrated and

will be drawn to different political banners. Hence, the society is in a constant state of

chronic political instability. 6

It has often been assumed that an international crisis is a kind of a crucible that

weeds out the strong states (by enhancing their capabilities over their society) from the

weak ones (eroding their capabilities and discrediting them to their people). However,

there could also be another possibility—a crisis provides an opportunity for a state to

redefine itself in the face of an adversarial environment. Defining the nature of the Asian

5 See Michael Shifter and Vinay Jawahar, “Latin America’s Populist Turn,” Current History 104, 679 (February 2005). pp. 51-57. 6 Ibid. p. 57.

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Financial crisis cannot be done simply by examining its causes; but also the way states

took advantage of the situation and in the process, mitigate the harsh effects of the crisis.

This paper addressed the following questions: What is the relationship between the Asian

financial crisis and the revival of populism/neo-populism in Philippine politics? How did

the 1997 Asian financial crisis provide an opportunity for the Philippine state to adopt

populist/neo-populist policies? What is the relationship between neo-populism and the

exigency to adopt drastic and painful economic reforms in the Philippine context? And

what is the future of populism/neo-populism in Philippine politics?

The Developmental State vs. the Populist/Neo-populist State

Despite the integrating effects of economic globalization on various national

economies world-wide, states still play a vital role in mediating between the global

economy and the national society. States try to coordinate and mange change by

minimizing economic vulnerabilities that may expose their population to severe external

shocks. Aside from this function, states also perform day-to-day business of managing

the economy which ranges from the formulation and implementation of macro-economic

policy, the provision of basic welfare and economic services, taxation, and the

maintenance of law and order that insures the continuous operation of the market.

In many areas outside of North America and Western Europe, states set

themselves a series of economic development goals—to maximize economic growth, to

maintain full-employment, to secure price stability, to manage a favorable balance of

payment in international trade and finance, and to pursue general policies which assume

would deliver an economic cornucopia to their respective national societies. Many of

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these states would generally strive for maximum levels of overall economic growth,

consistent with their state/nation building goals. Active state involvement in economic

development eventually gave rise to an important debate in Political

Science/Development Studies regarding the issue of what ought to be the relation of the

state to the society with regard to development. On one side the model of the East Asian

development state is considered as the appropriate prescription for rapid economic

development because it is free from social forces and public pressure. On the other side,

there are those who see the populist\neo-populist state as the promoter of market-oriented

reforms that will eventually lead to economic growth coupled with urgent social agenda

and appeals to the popular sector of society.

A popular concept in East Asia is the notion of a developmental state. A

developmental state is conceptualized as a state having both the necessary structural

capacity to enhance its interest vis-à-vis society and a strong commitment to economic

development. Accordingly, for a developmental state to function, it must have autonomy

vis-à-vis society. This concept argues that the state should be able to resist the myopic

and narrow interest and the rent-seeking activities of various social groups, overcome the

problems of collection action, and most importantly, insulate itself from particularistic

interests.7 It must rest with the embedding of relatively autonomous governmental

institutions within key social structures and be able to negotiate with strong social-

economic classes. 8 If these features are present, a developmental state can pursue

7 Steve Chan, Cal Clark and Danny Lam, “Looking Beyond the Developmental State,” in Beyond the Developmental State: East Asia’s Political Economy Reconsidered (eds.) Steve Chan, Cal Clark and Danny Lam (London, the UK: Macmillan Press, 1998). p. 2. 8 Linda Weiss and Jhn M. Hobson, “State Power and Economic Strength Revisited: What So Important about the Asian Financial Crisis,” in Politics and Markets in the Wake of the Asian Crisis (eds.) Richard

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transformative projects and the developmental prospects for the economy are mutually

enhanced. Thus, a developmental state is seen as a strong state, insulated from pressures

from below and able to resist societal tendencies from rent-seeking behavior. 9

To pursue its goals, a developmental state must also limit political opposition and

domestic dissent and must also possess authoritarian tendencies. It must intervene in the

market by convincing the private sector to accept its developmental goals without

questions. It then should consolidate its autonomous position through excessive zealous

policies designed to convince the private sector that it should be serious and determine to

achieve its national economic developmental goals.10 With its autonomy and

determination, a developmental state can assume the “commanding heights” of the

economy and can mobilize and direct the physical and human resources to one overriding

objective—economic development. A developmental state is assumed to be able to cope

and manage their external environment. They can control foreign access to the domestic

political and economic areas, whereby weak and captured states are unable to achieve any

of these goals and are thus vulnerable to being influenced by foreign and domestic

interest groups.11

At the opposite end of this conceptual spectrum is the populist/neo-populist state.

As a term in the social sciences, the definition of populism seems unclear and in fact is

Robison, Mark Besson, Knesh Jasauriya and Hyuk-Rae Kim (London and New York: Routledge, 2000). p. 54. 9 S. James Maswood, “Developmental States in Crisis,” in Reconfiguring East Asia: Regional Institutions and Organizations after the Crisis (ed.) Mark Besson (London: RoutledgeCurzon, 2002).p. 37 10 Ibid. p. 37. 11 Chan, Clark, and Lam, op. cit. p. 2.

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very much contested.12 Most scholars and analysts, however, observed that the term

populist refers more to a style of a regime wherein a political leader exercises a

personalistic style of political leadership.13 The terms populism (from the Latin tern

populis) connotes a movement, a regime, a leader or even a state which claims close

affinity with the people.14 Commonly observed in Latin America from the 40’s to the

60’s, populism was equated with personalistic regimes that thrive in societies where the

development of organizations and institutions has been particularly muted or retired.15

Without any established political institutions and procedural methods to facilitate the

ascension of ambitious personalities to the position of power, these societies would have

to rely on personal will-power, willingness, connections and loyalties, social prestige, and

charisma and oratorical skills to recruit its political leaders.16

Populist regimes maintain power through their mobilization of a social base, an

urban middle class movement or a broad alliance of urban classes that is sustained by the

provision of material incentives—the pursuit of expansionary fiscal policies and

extension of welfare benefits.17 During the 1950s, developmetalist and nationalistic

economic policies, along with generous social programs for the masses were considered

12 See Alan Knight, “Populism and Neo-populism in Latin America,” Journal of Latin American Studies, 30, 2 (May 1998). p. 22. 13 Kurt Weyland, “Clarifying a Contested Concept: Populism in the Study of Latin American Politics, Comparative Politics, 34, 1 (October 2001). p. 2. 14 Ibid. p. 5. 15 Mehran Kamrava, Politics and Society in the Third World (London and New York: Rout ledge, 1993). p. 15. 16 Ibid. p. 15. 17 Weyland, op. cit., p. 5.

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as the indispensable definitional attributes of populism.18 Thus, scholars and analyst

have often equated populism with nationalistic and inward looking policies, which

existed and flourished during the “easy” stage of import-substitution industrialization

from the 1930s to the 1950s. Economic definitions of populism emphasize expansionary

economic policies and programs that distribute material benefits to the poor without

taxing the rich, thus undermining budget equilibrium and fueling inflation.19

Populist regimes disappeared in Latin America in the 1960s and 1970s as military

coups overthrew these personalistic regimes and began replacing them with military led

juntas. However, populist politics survived the assault and made a stunning revival in the

1980s and 1990s in a totally different socio-economic context and new economic

strategies. In Brazil, Peru, and later in Eastern Europe, new forms of populism became

apparent. These regimes used the political strategies of classical populism but enacted

neo-liberal/ market oriented policies that diverged significantly from the economic

programs of classical populist regimes and sought to eliminate the socio-economic

legacies of earlier populism. Called neo-populism, these regimes combined political

populism and economic liberalism to enact drastic economic adjustment without

provoking massive unrest. Thus, authoritarian/developmental state rule is not required for

imposing market-oriented but painful economic reforms.

Based on the Latin American and Eastern European experience, populist leaders

and neo-liberal economists form an alliance in several countries faced with economic

crisis. Severe economic conditions facilitated the emergence of populist leaders by

18 Ibid. p. 5. 19 Kurt Weyland, “Neoliberal Populism in Latin America and Eastern Europe,” Comparative Politics, 31, 4 (July 1999). p. 387.

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discrediting established politicians and providing an opportunity for demonstrating

charisma.20 On the other hand, grave economic difficulties also induce populist leaders to

rely on neo-liberal economists who offer some remedies for addressing the crisis through

bold economic reforms.21 Neo-liberal economist use populist political leaders to criticize

“special interests” to combat state interventionism, while populist politicians employ

modern and rational recipes of economic liberalism to undermine intermediary

association, entrenched bureaucrats, and rural politicians to restrict their personal

latitude.22

The alliance uses populist tactics in guaranteeing that the necessary popular

support for the painful and risky neo-liberal economic reforms is maintained.

Personalistic leaders garnered the backing by boldly addressing the severe economic

crisis and forestalling a complete collapse of the economy.23 Both groups then seek to

strengthen the executive and weaken the legislature. However, despite their anti-state

intervention rhetoric, neo-liberal economists try to fortify the core of the state, especially

the presidency in order to be able to formulate and implement structural adjustments.24

Describing the dynamics of a neo-populist state, American academic notes:

In sum, populist leaders and neo-liberal economic experts coincide in their incessant efforts to concentrate power at the apex of the state. Neo-liberals seek to enact market reform in a top-down-

20 Weyland, op. cit. p. 382. 21 Ibid. p. 382. 22 Ibid. p. 382. 23 Weyland, op. cit. p. 17. 24 Weyland, op. cit., p. 382.

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fashion and populist presidents want to strengthen their personal leadership. 25

Many scholars and analysts tend to view the East Asian Development state and

the Latin American populist/neo-populist state as dichotomous. However, a careful

analysis of their evolutions and many primary goals are the same. Both types of states are

not really generic political entities like a liberal democratic state or a totalitarian one.

Both are actually general political strategy any type of state may adopt in addressing

economic expediency. Political strategy is characterized by the principal “power

capability” that a prospective or an actual state may deploy. The East Asian

developmental state evolved to address the political and economic realities of East Asia

during the Cold War.26 The Latin American Populist/Neo-populist state emerged to face

the harsh economic realities of the 80’s and 90’s with the specific goal of “softening the

rougher edges of policies associated with market reforms by political actions aimed at

addressing concerns for social agendas and appeals to the popular sectors of society.”27

Both are products of specific historical/geographic settings and both embraced multi-

domain notions of economics and politics. Both are strategies that are components of the

tool box states use to win and maintain governmental power in the face of domestic

challenges and external economic exigencies. The challenge now is to determine why

Philippine politics engender a specific response to the 1997 financial crisis that seems to

set it apart from its East Asian neighbors. 25 Alan Knight, “Populism and Neo-populism in Latin America, Especially Mexico,” Journal of Latin American Studies 30 2 (may 1998). p. 224. 26 Bruce Cummings, “The Asian Crisis, Democracy, and the End of Late Development,” in The Politics of the Asian Economic Crisis (Ed). T.J Pempel (Ithaca and London: Cornell University Press, 1999). pp. 17-44. 27 Shifter and Jawahar, op. cit... p. 57.

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The Early Death of an Incipient Developmental State

Populism is not new in Philippine politics. The exclusiveness of the Filipino

family, the importance of the patron-client ties in society, the lack of a stable political

party system, and the resilience of regional and linguistic affinities in conspired to make

Philippine politics highly personalistic and potentially, populist. The fierce, expensive,

and often time violent competition for the highest position in government—the

presidency—and the high voter turn-out during presidential elections are indications of

the prestige and popularity of this office on the general populace. Consequently, the

constitutional powers of the presidency have been often enhanced by the prestige,

personality, and charisma of the president. Presidents Manuel Quezon, Ramon

Magsaysay, and Ferdinand Marcos were popular presidents who were able to exercise

substantial leverage over Congress and exert considerable influence over economic

policy and patronage.28 Without his charisma and his popularity among the general

population, any Philippine president would be politically incapacitated given the absence

of a strong and supportive political party structure, the presence of a dynamic and jealous

congress, and a relatively small amount of government money allocated for pork-barrel

programs of hundreds of legislators.

The seeds of contemporary Philippine neo-populism were planted during the

Ramos Administration. This is ironic since this administration began its term with

pronouncements and policies directed at strengthening the state so as to enable it to start

28 See David G. Timberman, A Changless Land: Continuity and Change in Philippine Politics (Singapore: ISEAS, 1991). p. 41.

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and sustain a liberal/reformist economic policy agenda. From its perspective, the

Philippine state is ill-equipped to implement economic changes because it is constrained

by penetration by oligarchic elite families and its exclusive nature of its democratic

institutions and practices that, in turn, reinforces this type of elite domination. The

Ramos Administration then began to articulate intense anti-oligarchy rhetoric and to

initiate a comprehensive reform agenda aimed at circumventing the country’s rent-

seeking family based oligarchs, which have long maintained their stranglehold on the

state through a combination of patronage, clientelism, and chronic violence.

To address the problem of state weakness and penetration, President Ramos

formed a “Coalition for Compact for Change” that advocated the reform of the tax and

fiscal systems, the fostering of economic competition and equity issues through public

investment, and the promotion of effective and democratic governance.29 President

Ramos also adopted many reformist ideas, combined them with occasional advocacy of a

“strong state” (to counter oligarchic dominance and imbibe lessons from Northeast Asian

NICs), and pushed through the resulting program (Philippine 2000) with very clever and

well-planned maneuver in the rough and tumble arena of Philippine politics. But the most

drastic and far-reaching reform the Ramos Administration initiated were the market-

oriented policies aimed at turning the Philippine economy from being the “sick man of

Asia” to a convincing tiger cub deserving its place in the region of “tiger economies.30

29 Jeffrey Riedinger, “The Philippines in 1994: Renewed Growth and Contested Reforms,” Asian Survey, 35 2 (February 1995). p. 210. 30 Alexander R. Magno, “Between Populism and Reform: Facing the Test of May 1998,” Southeast Asian Affairs (Singapore: ISEAS, 1998). p. 199.

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To achieve these ambitious goals, President Ramos combined measures of tax

reforms, economic liberalization, privatization, and infrastructure development with

concerted attacks on what his liberal reformers commonly called as “cartels and

monopolies.” He managed to persuade the Philippine Congress, particularly the

opposition dominated Senate, to pas a law expanding the coverage of the value added tax

aimed at addressing the country’s perennial budget problems.31 His administration also

passed a liberalized foreign investment law with the deletion of negative list that had

been used to exempt industries from 100% foreign equity. The minimum capital

requirement for full foreign ownership of enterprise was also lowered. The government

also privatized a large number of government corporations to increase the state revenue

and generate budget surplus for the economy. Eventually, the privatization receipts

reduced the government’s borrowing requirements and contributed to the overall decline

in interest rates.32 The Ramos Administration also deregulated the highly protected

sectors of the economy such as telecommunications, transportation (air, water, and land)

and the oil industry.33 It also opened them up for new entrants. 34 This administration

also undertook a creative means of undertaking much needed infrastructure projects by

relying on the use of build-operate-and-transfer (BOT) arrangements with several foreign

private firms more notably in the power-generation and transportation sectors.

31 “The Philippines” in Asia 1995: A Review of the Events of 1994 (Hong Kong: The Far Eastern Economic Review, December 1994). p. 193. 32 “The Philippines,” Asia 1997: A Review of the Events of 1996 (Hong Kong: Far Eastern Economic Review, December 1996). p. 195. 33 Maria B. Lamberte, The Philippines: Challenges for Sustaining the Economic Recovery Discussion Paper Series No. 2000-02 (Makati City: The Philippine Institute for Development Studies, 2000). p. 4. 34 Ibid. p. 4.

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This package of economic reforms was undertaken to transform the Philippine

economy from its inward-looking import substitution orientation, made possible by

decades of protectionism, to one that is trade-driven and export-oriented. Consequently,

the Ramos Administration’s efforts directed at privatizing and liberalizing the economy

and deregulating foreign investment were met by intense resistance from highly protected

industries, ideologues of economic nationalism, and populist political groups mainly from

the organized left.

Despite his efforts at projecting his reformist/strong state agenda, President

Ramos also showed some populist inclinations. For one, his electoral victory in 1992 was

made possible through his reliance on patronage and sharing victory spoils with his

oligarchic patrons. His political style included provincial meetings with local governors

and ordinary people to hear their grievances. These meetings, however, usually end up as

events where local officials and peasants asked for more roads and telephones with

President Ramos handling down checks to his clients and supporters. Observing President

Ramos’ populist political style:

It is rather line a noisy revivalist church meeting, except that it is Ramos, not some higher authority, who is expected to provide; and it reflects the deeply ingrained dependency culture which held back the Philippines for so long. The ruling elite, whether in business or politics, doled out favors to ordinary people, thus perpetuating a feudal society.35

President Ramos never became a part of any political party, but instead he relied

on a coalition of two political parties (the Lakas-NUCD and the Laban ang

Demokratikong Pilipino or The Struggle for a Democratic Philippines) to advance his

35 Paul Markille, “Steady Eddy,” The Economist 339. 7965 (May 11, 1996). p. 2. http://proquest.umi.com/pqdweb?index=21@&did=9644365&srchmode=1&sid=38Fmt=3...

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efforts to reform the tax and fiscal system, hasten economic competition, increase public

investments and enhance effective and democratic governance. However, the Ramos

Administration’s reform efforts suffered a number of setbacks in its failure to expand the

coverage of the value added tax, to pass the comprehensive tax reform program, and to

eliminate government subsidy on petroleum products. It also failed to take concerted

actions against people who tax officials publicly alleged were big-time tax evaders,

which added perception that President Ramos, despite his rhetoric of a strong state, was

actually ineffectual.36 Assessing the efforts to create a strong/developmental state in the

mid-1990s, one American scholar notes:

Attempts at political or economic reforms that pose a significant threat to this class (the oligarchic families) are generally obstructed or diluted; if the promulgation of such reforms cannot be blocked, they are derailed in the implementation stage. The central government-even under the relatively enlightened leadership of a Ramos…has not succeeded in significantly weakening this entrenched network’s grip on the functional apparatus of government.37

Then in the midst of the Ramos Administration’s efforts to reform the country and

establish a strong state, the country was suddenly caught in the contagion effects of the

1997 Asian Financial Crisis. In July 1997, exchange rates and stock prices in many East

Asian economies plunged unexpectedly and rapidly. With the financial shock wave

emanating from Thailand, the crisis spread in the region with a speed that seems

unimaginable in the mid-1990s. By the early 1998, the Indonesian rupiah fell down by

36 “The Philippines” Asia 1995: A Review of the Events of 1994 (Hong Kong: The Far Eastern Economic Review, 1994). p. 192. 37 Steven Rogers “Philippine Politics and the Rule of Law,” Journal of Democracy 15, 4 (October 2004). p. 31.

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more than 80% against the dollar, and currencies of Thailand, Malaysia, and the

Philippines all fell by 30 to 50 %.38 Eventually, the financial crisis in East Asia was

compared to the Great Depression of the 1930s in terms of the scale of the decline in

production and consumption and the rapid increase in poverty and employment.

Countries in the region were pulled down from the hierarchy of world income to where

they were a decade before and more in terms of per capita income measured at current

exchange rate.39

Miraculously, the Philippines was sparred from the harsh effects of the Asian

contagion compared to its more developed and economically prosperous neighbors. The

depreciation of the Philippine peso was not as drastic as most East Asian currencies; the

country’s Gross Domestic Product (GNP) in fact even grew by 5.3% in the first half of

1997, although this was lower than the 5.6% percent generated by the economy a year

earlier.40 Growth in manufacturing and agriculture went down but construction, financial

and the housing sectors boosted the overall GDP despite the Asian contagion.41 At the

height of the crisis in 1997, there was even a flurry of major build-operate-and-transfer

government projects in Manila. Among them were the Metro rail Transit Project and the

Skyway Project over the South Expressway. Consequently, the boom in the country’s

construction sector continued despite the peso depreciation and the Asian Financial

38 Peter A. Coclan and Tilak Doshi, “Globalization in Southeast Asia,” Annals of the American Academy AAPSS, 570, (July 2000). p. 59. 39 Robert Wade, “The Asian Crisis and the Global Economy: Causes, Consequences and Cure,” Current History 97, 622 (November 1998).pp. 361-362. 40 For details of the rapid economic recovery of the Philippines in 1998 see Lamberte, op. cit., p. 8. 41 “The Philippines,” Asia 1998 Yearbook: A Review of the Events of 1997 (Hong Kong: The Far Eastern Economic Review, 1997). p. 186.

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Crisis.42 Thus, a year after the crisis, Philippine economic figures showed that the

country was in a relative good light compared with its worse affected neighbors but with

a substantial slowdown in real output.43 The Asian Development Bank 1999 Report

observes:

The [the Philippine] economy has demonstrated more reliance than neighboring countries, which experienced severe contraction in output and employment. Factors favoring the Philippines include greater attention paid to improving the banking and financial sector since the late 1980s, continued demand stimulus through export and private consumption that helped offset the contraction in private investment, and adroit handling of the crisis by the monetary and fiscal authorities.44

The Philippines was actually sparred from the harsh contagion effects of the

Asian Financial crisis primarily because of its laggard status among the Southeast Asian

countries in terms of economic growth and development. The Philippine economy has

the slowest economic growth rate in Southeast Asia. Thus, it is less exposed to short-term

foreign credit and direct investment. The fact that the country is not an attractive haven

for foreign direct investment saved its economy from experiencing massive capital

outflow and its consequent currency depreciation. Compared to other Southeast Asian

economies, the Philippines was always at the bottom in terms of attracting foreign capital

flows. Specifically, it was less exposed Japanese banks and investment managers tend to

42 Segundo E. Romero, “The Philippines in 1997: Weathering Political and Economic Turmoil,” Asian Survey 38, 2 (February 1998). p. 29. 43 Gerardo Sicat, “The Philippine Economy in the Asian Crisis,” ASEAN Economic Bulletin, 15, 3 (December 1998). p. 1. http://proquest.umi.com/pqdweb?Index=26&sid=2&sid=2@srchmode=1&rinst=PROD 44 Asian Development Bank, Asian Development Outlook 1999 (Oxford; New York: Oxford University Press, 1999). p. 19.

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stick closely to the index on how the country’s economic performance.45 Fund managers

ignored the Philippines and invested their capital o the other dynamic Asian economies

given the country’s reputation as the sick man of Asia, Thus, when the panic occurred in

late 1997s, the Philippines was least affected simply because it was less exposed to “hot

money” flow. 46 Explaining how the country escaped the severe effects of the Asian

financial crisis, Paul Hutchcroft notes:

Thailand and the Philippines opened up their capital accounts at roughly the same time, but the Philippines was less successful in attracting foreign capital flows…Once the crisis hit in 1997, lower elevation had clear advantages: the Philippines maintained modestly positive capital inflow of $ 426 million, whereas Thailand suffered a massive outflow of nearly $ 17 billion. The milder impact of the crisis may set the Philippines apart from its neighbors but it does not thereby follow that the Philippine economy is resilient, robust, and poised for rapid growth. The inability of the country to attract such large quantities of foreign funds as Thailand did in the years before the 1997 may have insulated the Philippines to a certain degree, but this relative advantage in the short-term by no means connotes an impressive record of economic development over the long-term.47

The relative mild effects of the Asian financial contagion on the Philippines gave

the Ramos Administration an opportunity to advance its political agenda—to amend the

1987 Constitution and so to permit President Ramos to run for a second term.48 The

45 Marcus Noland, “The Philippines in the Asian Financial Crisis: How the Sick Man Avoided the Pneumonia,” Asian Survey 40, 3 (May-June 2000). p. 411. 46 Ibid. p. 411. 47 Hutchroft, op. cit. p. 173. 48 Manuel F. Montes, “The Philippines as an Unwitting Participant in the Asian Economic Crisis,” Asian Contagion: The Causes and Consequences of a Financial Crisis (Ed) Karl D. Jackson (Singapore: Institute of Southeast Asian Studies, 1999). p. 241.

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Administration credited its legacy of economic reforms for enabling the Philippine

economy to withstand the harsh impact of the financial crisis. It maintained that the

passage of the 1993 law to increase the capitalization of the banks and to liberalize the

financial sector of the economy pushed the Philippine banking system to develop

relatively stable fundamentals.49 The Administration also pointed out that its programs to

improve government infrastructure by build-operate-transfer scheme in the energy

generation, transportation and port projects, and telecommunication triggered a minor

economic boom that prevented the economy from a total slide into a recession.50 The

gambit then is to convince most Filipinos that they had a stake in the continuation of the

Ramos Administration’s reform program and his supporters tried to translate this into a

movement aimed at amending the constitution to allow the incumbent a second

presidential term.51

In the last few months of the Ramos Administration leading to the May 1998,

several government officials raised the need to strengthen the Philippine state to enable it

to sustain a reformist economic agenda. They raised their concern for sustainability of

economic reforms because a central argument among them is that amending the 1987

Constitution will enable President Ramos to seek another term. They argued that Ramos

should be allowed the opportunity to continue his good job he was doing, and that the

Filipino people should not be robbed of the choice to support or reject the President’s

performance on the account of the constitutional prohibition against presidential

49 Sicat, op. cit., p. 3. 50 Ibid. p. 3. 51 Romero, op. cit. p. 196.

20

reelection. The not-so-hidden agenda behind the push for a constitutional amendment was

the realization that only the incumbent president had a fighting chance against the widely

popular vice-president—Joseph Estrada.52 To purpose this goal, the Administration

adopted a populist economic agenda.

Planting the Seeds of Populism/Neo-Populism

Supported by its unexpected budget surplus in the first seven months of 1997 and

funded by several private companies, the Ramos Administration launched three major

road infrastructure projects in Metro Manila: the light-railway system, an elevated

highway or skyway; and the repair and extension of the North Luzon Expressway.53

These projects provided employment and generated a multiplier effect at the time that the

economy was reeling from the contagion of the financial crisis. Furthermore, the Ramos

Administration began to institute “Safety Net Programs” aimed at easing the transitional

problems associated during the stabilization and structural reforms during the economic

crisis. Despite its extremely technical terms, these programs were specifically aimed at

assisting the poor from the impact of the Asian Financial Crisis.54 The government then

focused on two general types of safety net programs: food subsidy and credit-based

livelihood program.

52 Emil P. Bolongaita, “The Philippines: Consolidating Democracy in Difficult Times,” Southeast Asian Affairs (Singapore: Institute of Southeast Asian Affairs, 1999). p. 238. 53 “Philippines” Asia 1998: A Review of the Events of 1997 (Hong Kong: The Far East Economic Review, 1997). p 188. 54 See Maria Melanie R.S. Milo, Contagion Effects of the Asian Crisis: Policy Responses and their Social Implication Discussion Paper No. 99-32 (Makati: Philippine Institute for Development Studies, December 1999). pp. 32-40

21

The Ramos Administration launched the Rice Subsidy Program in January 1998.

Its primary objective was to provide affordable and quality rice to the subsistence poor.

The other program involved the provision of direct credit to the poor by different

government departments and line agencies, government financing administration,

government-owned and controlled corporations and non-banking institution.55 Patterned

after the micro-credit finance institutions of Latin America, these credit programs were

directed toward the sectors of the society that do not have adequate access to formal

credit sources.56 Many of these programs included not only credit but also technical

assistance in the form of institutional skill building and support services. The Ramos

Administration also ordered the two social security programs in the Philippines—the

Government Service Insurance System (GSIS) and the Social Security System (SSS)—to

provide an emergence program from displaced workers. The Administration also passed

a law that created the National Anti-Poverty Commission that has been tasked to manage

and oversee the government’s anti-poverty programs. These economic policies were

launched during the Asian financial crisis and were clearly populist and expansionary in

nature.

The stated objective of these programs was to stimulate domestic demand through

various government expenditures.57 But they also have a latent objective—to buy the

people’s support for the Administration’s political agenda. Consequently, personal

consumption in the Philippines did not contract in during the midst of the Asian Financial

55 _________, “Social Safety Net Programs in the Philippines,” in Economic Crisis… Once More (Ed) Mario Lamberte (Makati: Philippine Institute of Development Studies, 2001). p. 336. 56 Ibid. p. 342. 57 Lamberte, op. cit., p. 23.

22

Crisis.58 However, without any dramatic increase in government revenue collection, this

expansionary fiscal policy had its limits in further boosting the economy and was

instrumental in the drastic increase in the government’s budget deficit. Because of the

decline in tax revenues, the budget deficit went up to Phd-22.7 billion in the first eight

months of 1998, from Php 7.8 billion for the same period in 1997.59 The Ramos

Administration tried to manage the deficit by adopting a more efficient tax collection

system and by borrowing US$ 600 million from the Foreign Currency Deposit units of

local banks.60 Eventually, the ADB warned the Ramos Administration that:

A major issue is the size of the budget deficit cannot be tolerated without jeopardizing the program of interest rate reduction. So long as private investment demand remains weak or the government is able to borrow abroad, no crowding out will take place. Decision on the appropriate size of the budget deficit and of public expenditure programs should therefore take private investment activity and success in borrowing abroad into account.61

Without any dramatic improvement in the government revenue collection effort then, the

Ramos Administration’s budget deficit began to get out of hand. This effort to stimulate

pump prime of the economy through an expansionary fiscal policy eventually triggered a

macroeconomic instability during the term of a genuine populist president—Joseph

Estrada.

58 Ibid. p. 8. 59 The Philippines,” Asia 1998: A Review of the Events of 1998 (Hong Kong: The Far Eastern Economic Review, December 1998). p. 187. 60 Ibid, p. 187. 61 Asian Development Bank, Asian Development Outlook 1999 (New York; Oxford University Press, 1999). p. 111.

23

The Return of Populism\Neo-populism in Philippine Politics

Joseph “Erap” Estrada won the 1998 presidential election with a landslide. No

doubt that he was clearly the people’s choice for the president during that election year.

62 During the campaign, he portrayed himself as reformer and an ally of the poor.

Breaking traditions in Philippine politics, he focused his campaign on the lower class

rather than craft an electoral alliance along ethno-linguistic lines.63 Consequently, for the

first time in Philippine electoral history, a majority of the middle class voted along socio-

economic rather than ethno-linguistic or regional lines.64 In his inaugural speech and at

almost every opportunity, he declared that he wants to be remembered for helping

alleviate the flight of the millions of Filipinos living in poverty. His populist style and

message were clearly articulated a year later in his State-of-the-Nation Address: “The war

on poverty is not just a policy but a passion.”65

Despite his populist rhetoric, President Estrada demonstrated a market-friendly

approach to his economic policy by appointing relatively well-respected individuals in

the finance and economic agencies of the government. He pledged to continue the

liberalization and deregulation efforts of his predecessor. Furthermore, he even stressed

the need for more stringent budget cuts in response to the contraction in the expected

62 Frank Ching, “Can Estrada Govern,” Far Eastern Economic Review 161, 34 (20 August 1998). p. 33. 63 Gabriela R. Montinola, “The Philippines in 1998: Opportunity and Crisis,” Asian Survey 39, 1 (January-February 1999)/ p. 64. 64 Ibid. p. 64. 65 Roberto Tiglao, “Poor Show,” Far Eastern Economic Review, 162, 37 (September 16, 1998). p. 28.

24

growth target for the economy.66 However, at the same time, he also tried to live up to

his populist credentials. He emphasized his difference with President Ramos by accusing

the latter of ignoring the common folks and instead, focusing on how the economy can

earn big dividends for its biggest stockholders.67 He also attacked the elite-dominated

Congress when he vowed to end “pork-barrel” politics in a hope to save Php 70 billion

for the government. He then stopped the release of Php 10 billion of the pork barrel funds

to legislators, initiated a tax amnesty program designed to expand the tax base, and

improve tax collection, and proposed increased salary for impoverished government

employees.

To further boost his populist image, he initiated a number of political and

administrative gimmicks. Like Ramos, he proposed a number of amendments to the 1987

Constitutions focusing mainly on economic liberalization. He sought to remove all

restrictions on foreign ownership of land and utilities as well as to limit the Supreme

Court’s prerogative in adjudicating economic issues. When the country was rocked by a

series of kidnappings, he appointed himself concurrent Secretary of Interior and Local

Government. This gave him direct control over the Philippine National Police and local

government units. This act made him a hands-on-top-cop, thus he recreated his cinema

image of a tough-good guy chasing crooks and protecting the ordinary people.68 To

further enhance his image as the protector of the ordinary folks, he personally organized

the Presidential Anti-Organized Crime Task Force (PACC) to go after criminal elements.

He placed his most trusted friend and ally, Police General Panfilo Lacson, to go after

66 Sicat, op. cit., p. p. 4. 67 Ching, op. cit., p. 33. 68 Bolongaita, op. cit., p. 245.

25

criminal syndicates. The PACC was given the authority to operate virtually independent

from the military and the police. In his few months, President Estrada painted a picture of

a savvy president who governs through personal connections, cuts across bureaucratic

red-tapes, shows disdain for formality, and simply relies on sophisticated and street-smart

cunning.69 Thus, he presented himself as a populist president who doesn’t need a ruling

party and who simply relies on his popularity among the mass of poor Filipinos.70

During his campaign trail, Estrada promised that during his term, he would work

hard to narrow the gap between the rich and the poor. When he got elected in 1998, the

Philippine economy was in a better shape that it was a year before. It was not

experiencing a liquidity problem like most of the neighboring economies. By 1999, the

economy was actually expanding with the GDP growing by 3.2 percent.71 Inflation

gradually declined to average of 6.6 percent for that year, which reflected a strong supply

of agricultural products as well as modest domestic demand and a relatively stable

exchange rate.72 Exports also grew by 14.7 % in the first eight months of 1999 and this

enabled the Philippine Central Bank to beef up its foreign exchange reserves from $ 9.8

billion in 1998 to $U.S.14 billion by 1999. Furthermore, the country was able to secure

in the latter part of 1998 a $U.S. 1.8 billion loan in the form of official borrowings and

international bond floatation to cover the 1998 budget deficit and to further revive the

69 Roberto Tiglao, “The Buddy System,” Far Eastern Economic Review, 162, 15 (April 15, 1999). p. 18. 70 Ibid. p. 18. 71 Asian Development Bank, Asian Development Outlook 2000 (New York: Oxford University Press, 2000). p 107. 72 Ibid. p. 107.

26

economy through some pump-priming measures.73 This enabled President Estrada to

initiate his populist economic project of narrowing the gap between the rich and the poor

in Philippine society.

Amidst this rosy background of a recovering economy, President Estrada

launched his own Php 2.5 billion Anti-Poverty Program. He declared that the program

would liberate 10 million Filipinos from poverty, about one third of the Filipino power,

over the next five years. The program targeted the 100 poorest families in each of the 1,

600 cities and towns, where they would receive integrated and comprehensive services

from the government.74 This program basically involved the provision of credit-based

livelihood programs to expand self-employment opportunities for the poor. President

Estrada also expanded the safety-net programs of the Ramos Administration by adding

his own food subsidy programs and adding another component—public employment

programs. Aside from the rice-subsidy of the Ramos Administration, President Estrada

came out with his own food subsidy programs line the Retail Access for the Poor

(ERAP). Sari-Sari Store (ERAP-SSC), Palengke and Bayan (People’s Market) or ERAP-

PS. He also came out with Public Employment Programs under the Department of Labor

and Employment. This scheme involved the financing of small infrastructure projects in

the countryside to generate employment in selected depressed areas, particularly those

affected by company closures and retrenchments.75

73 “The Philippines” in Asia 2000 Yearbook: A Review of the Events of 1999 (Hong Kong: The Far Eastern Economic Review, December 1999). p. 186 and Lamberte, op. cit., p. 8. 74 Milo, op. cit., pp. 347-348. 75 Milo, op. cit., p. 34.

27

The Estrada Administration also launched a clean-up drive, the Linis Bayan

(Clean Nation) which was directed in providing casual employment to those who lost

their jobs during the financial crisis. This huge public expenditure, along with the

increase in defense budget triggered by the resurgence of Islamist and Communist

insurgencies, led to a dramatic increase in government expenditures. In 1999, the budget

deficit went up from Php-50 billion in 1998 to Php 117.7 billion. By 2000, it had reached

Php 132.5 billion. Expenditures for these so called pro-poor projects put the Estrada

Administration in a very weak fiscal position, which was aggravated by poor revenue

collection and by the fact that a large portion of the government’s outstanding debt is

denominated in foreign currency.76 Observing the slow slide of the Estrada

Administration into a fiscal nightmare, the Asian Development Bank notes:

The economic crisis and subsequent efforts to stimulate domestic demand resulted in a larger than planned fiscal imbalance; the fiscal deficit increased to about 3.6 percent of the GDP in 1999, nearly double the 1998 level and substantially higher than targeted lower-than-expected tax collection and higher spending were responsible for the increased deficit.77

Despite the political capital he generated from his landslide electoral victory, his

populist policies, and personal charisma, President Estrada found himself on the

defensive as he faced a number of ranging issues from his attempt to amend the

constitutions to negotiating with the Marcos over the ill-gotten wealth, and managing the

economy. Eventually, his popularity was not able to compensate with his poor leadership

76 See Lamberte, op. cit., p. 23 and Cayettano N. Paderanga Jr., Cristine Atienza, Ferdinand Co, and Flora Belle Villarante, “The ERAP Economy,” in Between Fires: Fifteen Perspective on the Estrada Case (Ed) Armando Doronilla (Pasig City” The Philippine Daily Inquired, 2001). pp. 187-188. 77 ADB, “Asian Development Outlook 2000” pp. 107-108.

28

style, the government’s bureaucratic inertia and inefficiency, and a determined opposition

that aimed to unseat him from power. President Estrada found himself cornered as he

failed to anticipate and counter the opposition’s capacity to mobilize and undermine the

regime. The opposition attacked the Estrada Administration for its alleged lack of

direction on the economy, the inertia in pushing through economic reform bills, a

tendency to coddle cronies, and erratic governing style.78 Estrada’s legislative and policy

agenda appeared adrift because his initially impressive array of economic officials and

advisers were always at odds with each other. The lack of direction in government was

then seen as a result of a factionalized cabinet made up of his hodgepodge collection of

power-brokers, businessmen, academics, and general hangers-on. Worst, his critics and

the opposition began blaming President Estrada’s policy for causing the Philippines to

become again the region’s economic laggard as neighboring countries were already

recovering from the 1997 financial crisis.79

In October 2000, a local governor accused President Estrada of amassing Php 200

million in bribe from illegal lottery called jueteng. On the basis of this allegation, the

opposition filed an impeachment complain against the president on four counts: for graft

and corruption, bribery, culpable violation of the constitution, and betrayal of public trust.

The following month, the opposition was able to obtain 115 signatures—significantly

more than the 73 required in the House of Representatives to impeach a president—to

impeach the President. President Estrada was tried by the Philippine Senate in December

2000. In early January 2001, prosecutors and opposition senators walked away from the

78 Roberto Tiglao, “Estrada in Trouble,” Far Eastern Economic Review, 162, 51 (December 23, 1999). p. 22. 79 Bolangita,” The Philippines in 1999…” p. 7.

29

trial claiming that pro-Estrada senators were manipulating the trial. A huge

demonstration erupted in Manila calling for the resignation of President Estrada. When

the Armed Forces of the Philippines Chief of Staff, General Angelo Reyes, declared that

he is withdrawing his support to the president, Estrada decided to set down from power.

Elected almost three years earlier as the most popular president who won by the largest

land-slide victory in Philippine political history, Estrada left the presidential place in

disgrace, departing by a river boat to avoid a huge crowd of people demanding for his

resignation.

From Populism to Neo-populism

Vice-President Gloria Macapagal Arroyo was sworn as the 10th president of the

Philippines after Estrada resigned from his office. Immediately, the Arroyo

Administration was confronted with an enormous economic challenge. By 2001, the

national fiscal deficit had ballooned from Php 112 billion or 3.7% of the GDP in 1999 to

Php 136 billion or 4.1% of the GDP in 2000.80 This was substantially way above the

government’s target of Php 63 billion or 1.9 % of the GDP. The sky rocketing budget

deficit was attributed to the short-falls in tax collection and proceeds from the

privatization of government assets. However, despite this deficiency in tax collections,

the need to pump-prime an economy suffering from a recession prevented the

government from reducing its spending.81 The fledging Arroyo Administration could not

80 “The Philippines,” Asian Development Outlook 2001 (New York: Oxford University Press, 2001). p. 91. 81 Ibid. p. 91.

30

simply tighten its purse in the light of a negative public opinion, crumbling infrastructure,

and a chronically investment-starved economy. In its first few months in power, the

Arroyo Administration decided to spend billion of pesos to finance the 1997 Agricultural

Fisheries and Modernization Act, the construction of 150,000 low-cost socialized housing

units, five new mass-transit lines and an annual emergency employment program for

20,000 out-of-school and out-of-work youth in Metro-Manila.82 Eventually, the

administration found it extremely necessary to address the revenue side of the fiscal

policy. It would have to face the fact that the government has an inherently weak tax

revenue collection system and it would have to jump-start it asset privatization program

especially in the country’s highly protected power-generation sector.

During her first few months in office, Arroyo tried to project an image of an

economic technocrat determined to solve the country’s economic woes through neo-

liberal economic measures. However, she would eventually realized that survival in the

jungles of Philippine politics would also depend on her popularity given the fact that

weak democratic institutions in the country is often compensated by a strong and

charismatic political character. The need to borrow a trick or two from her populist

predecessor became extremely necessary when the followers of the ousted president

launched a violent and deadly assault on the Presidential Palace on 2 May 2001. Clearly,

the Arroyo Administration miscalculated the level of popular support Estrada still

enjoyed among the impoverished Filipinos in mid-2001.

Arroyo’s response to the 2 May 2001 siege of Malacanang was her first major

demonstration of resolve and fervor in office. She immediately declared a state of

82 Mel C. Labrador, “The Philippines in 2001: High Drama, A New President, and Setting the Stage for Recovery,” Asian Survey, 42, 1 (January-February 2002). p. 144.

31

rebellion and ordered the arrest of key supporters of the ousted president. More

significantly, she began to adopt of the populist style of her predecessor. In the aftermath

of the rebellion, she projected a tough image when she warned the opposition with the

words “we will crush you.”83 After the 2 May demonstration’s tension subsided, she

adopted some of Estrada’s populist antics when she ordered the National Food Authority

to sell subsidized rice to Manila’s poor—one of her predecessor’s successful populist

innovations.84 Her key advisers and media consultants also began to market her as the

Philippine Iron Lady and a trained economist who could also wear the mask of a populist

strongman no different from Estrada.85

Arroyo’s policy of injecting populism is also very apparent in her initial economic

pronouncements and policy. According to her, her most important priority is “to win in

the battle against poverty in the next ten-years.”86 Pressed to discuss the specifics of her

populist goal, she provided a detailed plan of achieving this goal through the promotion

of a modern economy, the adoption of information technology, the implementation of a

development plan focused on the poor, calling out an agricultural modernization scheme

that includes land reform, and the enhancement of moral standards.”87 Arroyo’s populist

economic agenda and style became obvious when he delivered her first State-of-the-

Nation Address on 23 July 2001. She opened her address by presenting three poor

83 James Hookway, All Things to All People,” Far Eastern Economic Review 65, 5 (February 7, 2000). p. 14. 84 Ibid. p. 16. 85 Ibid. p. 14. 86 Deidre Sheehan, “Keeping Her Eye on the Ball,” Far Eastern Economic Review 164, 23 (June 14, 2001). p. 18. 87 Ibid. p. 18.

32

children from a rubbish dumpsite in Manila. She then dramatically promised then that she

would do everything within her power to lift them from poverty.88 She then shifted to

her poverty-eradication agenda outlining four supporting components: free enterprise, a

modern agricultural sector, a social bias toward the disadvantaged and high moral

standards for government and society.89

The following year she emphasized the theme “a strong republic” to impress her

serious concern with the issues of governance and national security. This new theme was

seen as related to her agenda of projecting the strength of her own presidency. Following

her speech on the need to establish a strong republic, Arroyo made a number of well-

publicized appearances at crime scenes and staged confrontations with accused criminals.

Like her predecessors, Arroyo’s action reflected her determination to project a “law-and-

order image or a “hard-guy” pose.90 Then in the late 2003, President Arroyo took the

dramatic and unexpected step of announcing that she would not seek the presidency in

the 2004 election even though she was eligible to run for office. Although she eventually

decided to seek election later, her move of announcing that she will not run in the 2004

election made her appear as a popular political martyr who is willing to sacrifice her

political future for the greater good of the people.91

88 Mather Man Tagu-Pollock, “Goons, Guns and Gloria,” Asiamoney 12, 7 (September 2001). p. 61. 89 Mel C. Labrador, “The Philippines in 2001: High Drama, A New President, and Setting the Stage for Recovery,” Asian Survey 42, 1 (January-February 2002). p. 144. 90 Michael J. Montesano, “The Philippines in 2002: Playing Politics, Facing Deficit, and Embracing Uncle Sam,” Asian Survey 43, 1 (January-February 2003). p. 157. 91 For a good analysis of the impact of Arroyo’s initial announcement that will not run in the 2004 election See James Hookway, “Now the Real Work Begins,” Far Eastern Economic Review 166, 2 (January 16, 2003). p. 24.

33

Behind her façade of populism, Arroyo tried her best to address the fiscal deficit

brought by her predecessors’ populist economic policy. Her administration’s current

agenda since her reelection is the adoption of an orthodox and unpopular measure of

increasing the revenue collection of the government through taxation. After consolidating

and legitimizing her position in the aftermath of the 2004 election, Arroyo called to

attention the government’s worsening fiscal and debt problems. She declared that the

government is in a fiscal crisis and called the budget deficit as “the most urgent problem”

facing the country. She then pointed out that this problem is significantly affecting the

country’s investment and economic growth rate.92 She also noted that the fiscal crisis is

mirrored in the rising public debt and interest rate, with a consequent lack of

discretionary expenditures for infrastructure, health, and education.93 According to her,

the government should focus its efforts on adopting two very unpopular measures—

passing new revenue generating laws and deregulation in the power-generating sector.

In 2004, the Arroyo Administration announced a package of unpopular tax

measures that were aimed at increasing government revenue by at least 10 percent. This

package include a two-step increase in the Value-Added-Tax; the imposition of a 3%

Franchise Tax on telecommunication companies; adoption of gross income taxation for

corporation and self-employed individuals to simply tax procedures; rationalization of

fiscal incentives for investors; and adjustment in the excessive tax and tariff on petroleum

products. By 2005, the government succeeded in introducing legislation such imposing

new taxes on cigarettes and beer and imposing a 10% value added tax on oil, power and

92 Temario C. Rivera, “The Philippines in 2004: New Mandate, Daunting Problems,” Asian Survey XlV, I (January/February 2005). p. 131. 93 Asian Development Bank, Asian Development Outlook 2004: Update (Manila: Asian Development Bank, 20005). p. 54.

34

other previously exempted products and services, with plans for further increase to 12%

in February 2006. Despite these efforts, the government still needs to raise at least Php

90 billion more in new taxes to reduce its dependence of borrowing to finance the fiscal

deficit. And to further lower its budget deficit, the Arroyo Administration had decided the

privatization of the state-owned National Power Corporation (NPC) to lower its debt

burden.

An examination of the current administration’s policy reflects a neo-populist

approach in governance. Faced by the challenge poised by the political followers of the

President Estrada in the early part of her term, Arroyo adopted some of her predecessor’s

the populist antics to save her fledging regime. Eventually as she consolidated her hold to

power, she adopted a number of orthodox and unpopular economic measures to address

the legacy of the 1997 Asian Financial Crisis and her predecessors’ populist policy—a

huge budget deficit. By declaring that the government is in a fiscal crisis and by pushing

the Philippine Congress to pass a package of tax reforms, the current administration is

clearly pushing politically unpalatable but necessary economic measures to the Filipino

people.

Why Populism/Neo-Populism?

The 1997 Asian Financial Crisis wreck havoc on most East Asian economies.

Immediately, many Western economists, analysts, and government officials blamed the

East Asian developmental state as the culprit behind this region-wide economic debacle.

According to them, the East Asian states created the moral hazard that led to the financial

35

crisis and to subsequent regional economic recession. They alleged that the

developmental state fosters a form of crony capitalism by creating intimate ties between

politicians, bureaucrats, bankers, and industrialist and encourages secrecy in financial

arrangements that involved government supported borrowers and financial institutions.

The Philippine state is innocent from all these accusation simply because it is not and has

never been a developmental state.

The Philippine state could never be construed as a developmental because it lacks

the crucial criteria of this type of political entity—autonomy from society and the drive

for economic development. The Philippines inability to engender sound governance and

economic development is often attributed to the fact that it has a weak state. As in many

Latin American societies, the Philippine state is weak primarily because it is vulnerable

to the penetration of powerful political oligarchies made up of a small number of resilient

families. Key governmental institutions are occupied by members of this small number

of tightly interconnected families, a structure of elite control that grew out of the

colonial-era dominance of rural land-lords. In the 20th century, the country has witnessed

a long history of powerful provincial families ensuring social survival when the state has

collapsed, partially or wholly, at least four times in the midst of war and revolution.94

Although some of the old oligarchic families might have been replaced or displaced by

politically connected upstarts, the overall pattern of family dominations has not really

changed as most local government positions remain effectively controlled by either a

94 Alfred McCoy, An Anarchy of Families: State and Family in the Philippines (Quezon City: Ateneo De Manila Press, 1995). p. 7.

36

single family or a narrow caste of competing elite factions.95 After achieving political

independence in 1946, Philippine presidents won national elections primarily because of

the support provided by these provincial elite. In return, Philippine presidents used the

state resources as bargaining chips in their dealings with these politically dominant

families. Thus, the country’s social system is not sustained by the extraction of

“economic surplus” from the generation of new wealth but on a redistribution of existing

resources and the artificial creation of rents—in effect, rewarding favored families by

manipulation regulations to effect a reallocation of resources.96 These families also

obstruct or sabotage any attempts to reform the economy if it will poise as a threat to

their interests. Observing the relationship of a weak state and the lack of economic

development in the Philippines, a prominent Filipino political scientist asserts:

…inclusivity of the state is supported by the fact that the state has fairly large openings to allow the entry of increasing members of loyalist participants, and resources to a large segment of courted supporters. Power in its symbolic or material form, for instance, can be delegated several-fold, even to the extent of duplication, or desegregation into minute forms. Resources sourced internally or externally, legally or illegally—are mustered to satisfy as many demands as possible.

An accommodationist state, while conscious of its

historical role to achieve economic development and institute redistributive measures, is stymied by intra-elite mass contestations that decide its favor. Thus, it could not be a developmental state. It is unable to totally shut out the interest of one section of society in favor of another or just its own corporate interests—not withstanding its own selectivity or bias as elite-dominated and pro neo-liberal capitalist. To do so would disturb existing norms, and

95 Steven Rogers, “Philippine Politics and the Rule of Law,” Journal of Democracy 15, 4 (October 2004). p. 112. 96 McCoy, op. cit., p. 12.

37

create instability that would endanger the dominant factional elite, if not the state’s own survival.97

Without an autonomous state determined to effect development, the Philippines

has lagged behind in terms of industrial development and general economic growth.

Relatively slow growth in the industrial sector has been the country’s major economic

malaise. In contrast to its neighbors, the Philippines has been left behind in shifting its

overall economic output and employment away from agriculture to industry and services.

The industrial share in GDP has decreased from more than 40% two decades ago to

around 35% in 1998, in contrast to the strong and persistent industrial growth in

neighboring countries such as Malaysia and Thailand.98 The agricultural sector still

generates a fifth of the country’s overall economic output and employs slightly one third

of its labor force.99 Consequently, high unemployment remains the country’s single

clearest indicator of economic underdevelopment averaging 11.8% in 2004.100 To

generate more resources to the stagnant economy, the society simply has to rely on the

remittances by an estimated 7.4 million Filipinos abroad working as Overseas Contract

Workers (OCW). In 2005, these Filipino OCWs sent $US 8.5 billion, which made the

country’s GNP growth rate almost equal to the GDP’s annual growth.101 These

97 Miriam Coronel Ferrer, “The Philippine State and Civil Society: Discourse and Praxis,” Korea Observer 35, 3 (Autumn 2004). p. 9. 98 Asian Development Bank, Asian Development Outlook 2000, p. 107. 99 Ibid. p. 107. 100 Ibid., p. 107. 101 See Asian Development Bank, Asian Development Outlook 2005: Promoting Competition for Long-Term Development (Hong Kong: China Asian Development Bank, 2005).

38

remittances enabled the Central Bank to buttress the country’s foreign exchange reserves,

as well boost the consumer spending and the overall local economy.

Common sense dictates that a slow-growing economy, an essentially backward

society, and a captive state will eventually undermine the authority of the politically

dominant elite. However, this is simply not the case in the Philippines. The probable

reason is that these three conditions, in turn, breed the occasional societal demand for

populism/neo-populism in Philippine politics. The lack of an ideologically-based political

party, the elite controlled of election, the general inefficiency of the national government

in delivering basic social services, and the extensive powers of the Philippine president

provide the necessary conditions for populism/neo-populism to emerge. The Philippine

president’s extensive powers, particularly over the national budget, enable any populist

leader to channel governmental resources and services through individuals rather through

a weak and captured bureaucracy and an almost non-existent party system. This in a way

creates the structural condition that reinforces the paternalistic element in Philippine

politics resulting to the occasional rise of populism/neo-populism in the political realm. A

deep economic crisis imposes tremendous pressure on the population to look for a

populist leader. A populist president can, hopefully, address the harsh effects of the crisis

through gradual and popular adjustment measures to mediate the pain, or confront the

crisis head-on through determined and drastic austerity measures. Populist leaders can

turn adversarial conditions to their advantage by utilizing expansionary fiscal measures

purposely aimed at effecting economic recovery. Any potential charismatic/populist

leader can use the crisis as an opportunity to prove their “extraordinary” capacity to save

the economy and uplift the masses from poverty.

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The Philippines was able to avoid the harsh effects of the economic crisis partly

because of its relatively sound macro-economic fundamentals and more importantly,

because of its uniquely insulated from the regional contagion.102 Nevertheless, the crisis

provided President Ramos the opportunity to launch several populist social safety net

programs supposedly to ease the transitional problems during economic stabilization and

structural reforms and to protect the well-being of the Filipino poor. These programs,

however, where also aimed at impressing upon the Filipinos, that in a period of an

economic crisis they all had a stake in the continuation of the Ramos Administration.

Thus, they should support the movement aimed at amending the constitution to allow an

incumbent president to remain in office. President Estrada also used the crisis to appeal

to the masses by using their emotional resentments and fear triggered by the economic

crisis. He also promised them that he will do everything within his power and term to

narrow the cleavage between the few rich and the poor masses in Philippine society.

President Arroyo initially relied on the populist economic programs of her

predecessor to strengthen her tentative hold on the presidency after an extra-

constitutional process led to the ouster of President Estrada. She also tried to project an

image of a macro-manager, an iron lady, and a task-oriented person whose solution to the

country’s economic malaise is not to spend more, except in targeted infrastructure and

pro-poor projects, but to deliver government services more efficiently.103 Eventually, as

she consolidated her hold on the presidency after the 2004 election, she began to call the

country’s attention on the government’s worsening fiscal and debt problems. Since then

she has introduced orthodox and unpopular economic measures to balance the national

102 Noland, op. cit., p. 404. 103 Pollock, op. cit. p. 61.

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budget. Clearly, her current policies reflect a neo-populist approach of a political leader

who relies on popular support to effect structural adjustment under a democracy while at

the same time safeguarding her political survival.

Conclusion

Ten years after the Asian Financial Crisis, the Philippines have witnessed the

emergence of three presidents who tried to rely on populism/neo-populism to advance

their reform agenda and to insure their political survival. In a society plagued by a slow

growing economy, deficient government institutions, a strong and centralized executive,

and an almost non-existent party system, populism/neo-populism is an endemic political

phenomenon. Economic crisis, in turn, creates widespread backing for the emergence of

a populist leader who promises relief and deliverance from its harsh effects. The current

trend in Philippine politics, however, reflects a shift away from this phenomenon as the

state and society seem focused on the more mundane goals of modest economic growth,

job creation, reform of the energy sector, and a balance-budget. There are no more grand

visions of rapid industrial development, the liberation of the country from poverty and

underdevelopment, and the narrowing of the gap between the rich and the poor.

Politically, the national society seems determined to foreclose the chapter of a “people

power “uprising in Manila reminiscent of the exciting, popular, and extra-constitutional

episodes that led to the ouster of two Philippine presidents.

This seems natural since the effects of the 1997 economic crisis tend to subside in

time, and populist leaders’ charisma does not usually last for a very long period. In the

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long-run, the society must accept the stark reality that populism/neo-populism often result

to an imbalance of power in a democratic political system. It also leads to massive

government spending and a huge budget deficit that could scare off investors, crowd out

investments and thus, retard future economic growth and development. Filipinos must

understand that this political phenomenon is a reflection of their country’s general

underdevelopment compared to their neighboring societies and that its future emergence

will only condemn their country to a perpetual state of being the Sick Man of Asia and

the region’s Latin America.

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