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The Road After Ramos

October 27, 1996

International -- Asian Business: THE PHILIPPINES

THE ROAD AFTER RAMOS

The President has brought progress. But his term ends in '98. What then?

It was a most unusual sermon. At a religious service held in Manila on Oct. 6, Eddie Villanueva, one of thePhilippines' most popular evangelical preachers, spoke earnestly of kings and princes chosen by the hand of Godto carry out His purpose. "The terms of kings and presidents is determined by God alone," he proclaimed. Then,in a dramatic combination of the sacred and the secular, Villanueva led President Fidel V. Ramos and theassembled flock in an emotional prayer for the extension of Ramos' six-year term.

DEFINING MOMENT. Ramos is not saying whether he will go quietly in 1998 or seek a constitutionalamendment to permit his reelection. Another option is that he assume the unelected role of elder statesman,much as Lee Kuan Yew did in Singapore. The uncertainty is so great that already, 17 months before his termends, the question of his succession is "the talk of the town," says Alan T. Ortiz, a former government officialwho is now chairman of Indonesian-owned Dharmala Philippines Inc.

It's a defining moment for this island nation, which has come an enormous distance since the dark days of theMarcos era. But much remains to be done before the country solidifies its position as an Asian tiger. As Ramostold BUSINESS WEEK, "I would not want the policies, the momentum, the tremendous progress we haveachieved wasted." Yet if Ramos bows out, it's possible none of his potential successors will have the skills or standing needed to keep the country growing and investment flowing in. And if Ramos presses for a secondterm, the risk of a political and constitutional crisis is great. That could mean a return to the old days of disorder

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and economic stagnation.

Ramos, a 68-year-old former general, is a hero to millions because he has presided over unprecedentedeconomic growth, a surge in foreign investment, and reforms ranging from education and housing to Asia's mostinnovative privatization program. His initiatives are credited with shoring up the country's democracy and

blunting the worst excesses of corruption. To many of his supporters, another Ramos term is not just desirable--it's essential for the continued growth of the country. That's why his followers are collecting signatures to amendthe constitution and let Ramos run again.

SENATE COUP. But Ramos has his opponents. Some see the shadow of Ferdinand Marcos, who kept changingthe law to solidify his dictatorship. Some have their own ambitions to rule. Many do not want the constitutionchanged. As a result, the early moves in support of Ramos' second term have provoked a firestorm of oppositionPoliticians in the 24-member Senate staged a dramatic leadership coup on Oct. 10, stripping a Ramos loyalist of the Senate presidency in an attempt to thwart constitutional change. Two of the most influential people in thecountry have come out against Ramos' serving past 1998: Jaime Cardinal Sin, the cardinal of Manila, and formerPresident Cory Aquino. "It's a very sensitive time right now," says a Western diplomat in Manila.

Indeed. Ramos is trying to keep a lid on the issue so the Asia Pacific Economic Cooperation (APEC) meeting inManila, on Nov. 22-25, can showcase his progress. Leaders from U.S. President Bill Clinton to ChinesePresident Jiang Zemin are scheduled to attend. Ramos hopes to lure additional investment and dispel the

lingering notion that the Philippines is an Asian basket case.

Ramos' opponents, however, are trying to force the president to declare his intentions before the APECconference. They're hoping that Ramos will be so concerned with presenting an upbeat image of the Philippinesthat he'll unilaterally disavow any intentions of staying in power.

Politics aside, Ramos couldn't have picked a better time for the Philippines to take center stage. Alone among itsAsian neighbors, growth is accelerating, and government officials say sustained annual GDP growth, from 5%now to 8% annually, is in reach. Annual GNP growth, already 7%, is fueled by money sent home from Filipinosabroad (charts, page 30). "We've broken the boom-bust pattern," boasts Ramos, a graduate of the U.S. MilitaryAcademy at West Point. He has ended power blackouts, taken a stiff broom to cronyism, and spurredcompetition since taking office four years ago. Inflation is falling, foreign reserves are rising, and even Manila's

notoriously waspish press can't find much to complain about on the economic front. Ramos recently signed a peace agreement with separatist Muslim rebels on the southern island of Mindanao, which lays the groundwork for ending a 300-year-old conflict.

Nicknamed "Steady Eddie" by the press, Ramos isn't flashy, but he has pursued a persistent agenda of reform.Liberals applaud his concern for social issues and willingness to take away the privileges that the cluster of families running the country's business has long enjoyed. Before, telecommunications was effectively amonopoly franchise. The queue for new telephone lines stretched for years, angering both consumers and

businesses. Now there are nine more companies fighting for the market. Service is better and rates are falling. Inaddition, Philippine Airlines Inc.'s stranglehold on aviation has ended, and a handful of upstart carriers has takento the skies.

Business, for its part, has embraced Ramos' go-for-growth strategy, even though it means more competition, andwelcomes the political stability he has brought after the six coup attempts of the Aquino years. A techno-buff,Ramos uses videoconferencing to conduct Cabinet meetings when traveling abroad and has wired upMalacanang Palace, the presidential residence, with E-mail.

"CASKET CASE." In once-sleepy Manila, construction cranes dotting the skyline are evidence of the boom.Workers race to build apartments and offices. Roads are snarled as teams dig up the streets to lay hundreds of thousands of new telephone lines and build a light-railway system for the capital. "We're positive" on thePhilippines, says Brian G. Frederick, chief executive officer of Hongkong & Shanghai Banking Corp. HSBC'sPhilippine unit has started issuing credit cards and is taking advantage of banking liberalization to open new

branches.

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It's hard to overstate how far the Philippines has come since Ramos took over. "We weren't a basket case, wewere the casket case of Asia," says Manuel B. Villar Jr., a congressman and the head of C&P Homes, a largedeveloper. Parts of the country were often without electricity for 6 to 10 hours at a stretch. Now, Honda CarsPhilippines, which has invested $100 million here since 1991, is so certain of reliable power that it didn't bother installing a backup generator at its newest assembly plant. The Manila composite stock index is up 14% so far this year, despite a recent sell-off in property stocks by investors concerned about a real estate bubble.

The Philippines has long been ridiculed for a chaotic political system, but the Ramos administration is showingthat democracy and development can go hand-in-hand. "We're seeing the Philippines looking politically stable

while around us most other countries are experiencing instability," says Robert M. Sears, executive director of the American Chamber of Commerce of the Philippines.

But there's a long list of reforms that Ramos still needs to push through. A sweeping tax reform proposal, whichRamos promised the International Monetary Fund (IMF) he would pass, is bogged down awaiting congressionalapproval. Without it, the Philippines will face a growing budget deficit as early as 1998. Failure to move ahead"could threaten the whole reform" process, says cabinet member Cielito F. Habito, who heads the NationalEconomic and Development Authority. Privatization revenues have let Ramos balance the budget and spendheavily on infrastructure, but now tax increases need to pick up the slack. "So far we have financed much of thisgrowth through privatization," warns Senator Gloria Macapagal-Arroyo, one of the presidential hopefuls. "Thisis not sustainable. Our family silver is running out."

Other areas need reform, too. The sluggish and semifeudal agricultural sector, which makes up one-quarter of the economy, is holding back growth. The legal system is a mess, and capital markets need to be modernized to

provide much-needed finance for continued growth. Foreign companies would like more liberal retail laws, better protection for intellectual property rights, and looser restrictions on property ownership.

KIDNAPPINGS. Despite improvements, inadequate infrastructure continues to act as a drag on the Philippineeconomy. Traffic in Manila is starting to rival Bangkok for the dubious distinction of being the worst in Asia.Train service is a shambles and the country's overcrowded ferries are death traps. Water and sewage facilities areinadequate everywhere. The IMF estimates that the Philippines will need to double government infrastructurespending to $5 billion annually for the next decade simply to catch up with Thailand.

Security is another cause for concern. Kidnappings for ransom remain common, and the police range frommerely inept to blatantly corrupt. Although kidnappers usually target local ethnic Chinese businessmen, their victims have also included Japanese, Taiwanese, and Koreans. For Japanese companies, which have stepped upinvestments in electronics and autos during the Ramos years, personal security remains a "very big concern,"says Honda Motor Co. President Koji Miyajima.

Faced with these difficulties, Ramos is playing his cards close to his chest. Asked if he would consider staying inoffice, he says cryptically: "My paramount objective is to make sure that the growth path, the social equity path,under the unique Philippine democratic system, will continue beyond 1998."

Ramos' opponents claim to support continued economic and political reform, but it's no surprise that there's

unease in a country where Marcos' refusal to transfer power remains a fresh memory. There's also the fear thatfor all the statements about continuing reform, some of the candidates might take a more populist approach andendanger some of the hard-won economic gains. The business community is particularly nervous about JosephEstrada, who tops the opinion polls but whose panderings to popular opinion could undercut further reforms.

Assuming he doesn't run, whomever Ramos, as head of the ruling Lakas-National Union of Christian Democrats party, decides to support will enjoy all of the benefits of a powerful party machine. "For a popular candidate, itwill be the clincher," says Macapagal-Arroyo.

Ironically, a move by Ramos to stay could provoke exactly the sort of political uncertainty that the Presidentdoes not want. "The business community would like to give him another term, but we realize the disruptionwould be too great," says Peter Wallace, a longtime resident and president of AYC Consultants Inc.

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So what comes next? "God knows," says Francisco H. Licuanan III, president of powerful Ayala Land Inc. "Butwhen push comes to shove, we will pick a good president." The Philippines, which has time and againsquandered its good fortune, had better hope so.By Mark L. Clifford in ManilaReturn to top

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