New Hopes but Old Pitfalls in the Philippines

WSJ October 30 2012

By Philip Bowring

Moody's this week upgraded the Philippines' credit up a notch to just shy of investment grade, and the general rise in the international rating of the Philippines since President Benigno Aquino III took office in 2010 is well-deserved. Recent news, including the signing of a peace pact with the Moro Islamic Liberation Front and an upward trend in growth, has encouraged positive sentiment. Investors are rushing in.

Mr. Aquino has taken bold steps to root out corruption and improve standards of governance, which had fallen to new lows under Presidents Gloria Macapagal Arroyo and Joseph Estrada. He has surprised many by pushing for the impeachment of an allegedly corrupt chief justice and by standing up to the Roman Catholic Church over family planning at home. Abroad, he's faced off with China over the Scarborough Shoal. Meanwhile, he's brought the fiscal deficit under control, and begun to improve infrastructure and education.

But before foreigners get carried away extolling the nation's prospects, it is worth recalling some past false dawns and the governance problems that doomed them. President Ferdinand Marcos declared martial law 40 years ago, a move which was initially greeted by many Filipinos and foreigners as leading to improved law and order, less corruption and more efficient decision-making.

Those benefits proved illusory as Marcos simply substituted his favored oligarchs for long-established ones and nationalized some industries to centralize power. Oppressive policies sparked Muslim and Communist insurgencies.

Next came revived democracy in 1986 and the administration of President Corazon Aquino. But her lack of administrative ability, a poorly drafted, nationalistic new constitution, and the weight of Marcos-era debts all contributed to another false dawn.

Hopes were modestly raised again under the more decisive and pragmatic President Fidel Ramos, but he left no lasting legacy. Governance deteriorated rapidly under the indolent Mr. Estrada. Further hopes for improvement under Ms. Arroyo proved short-lived, ending with allegations of election rigging and corruption.

The problem with Manila is that its institutions are weak, and are susceptible to manipulation by the president and other powerful politicians. To judge the sustainability of current reforms in the Philippines, then, one must look at what is happening in the wider political arena, and at whether Mr. Aquino has a vision for improving the democratic system. The evidence to date is not encouraging.

Take the most important of the legislative chambers, the Senate. Nominations recently closed for next year's polls, when half of the 24-member body is up for election. The dynastic tendencies which have long stifled politics and protected vested economic interests are increasing. Two relatives of Mr. Aquino, two of Ms. Arroyo, and an Estrada are aiming to join a Marcos and another Estrada in the chamber. Other candidates are close relatives of recent or sitting senators.

These dynasties are the result of two main factors. First, the non-existence of organized, nationwide political parties: Today's so-called parties and coalitions are simply alliances of convenience.

Second, and linked, is that senators are chosen on a nationwide basis, thus favoring familiar names such as past presidents, actors, sportsmen and even failed coup-makers (there are two in the current Senate). Even then, politicians need big money for national campaigns, which makes them beholden to special interests such as the tobacco lobby.

The constitution says that the state must "prohibit political dynasties as defined by law." However, congress has never passed any implementing legislation. Provincial family fiefdoms, though somewhat eroded by urbanization, are still numerous throughout the Philippines. In 40% of provinces the governor and local congressman are related, and more than 50% of governors and congressmen are related to previous holders of these offices.

The obvious solution is to enforce the constitution. There are anti-dynasty bills in the lower House and Senate, but they are unlikely to be enacted before 2016. Another option is more rigorous term limits, but this is an increasingly distant reform goal.

Proposals for change include moving to a parliamentary system with a single-chamber legislature to streamline the legislation process, and providing for the Senate to be elected on a regional, not national, basis. Others suggestions include public funding for nationwide political parties to reduce corruption and make parties more important than personalities.

Whatever the idea, the combination of a two-chamber legislature and the Senate's composition makes for very slow progress in putting them into action. This stymies attempts to amend the constitution, which is particularly problematic since restrictions on foreign ownership are written into this document and need to be changed. Although they are meant to protect national interests against predatory foreigners, in practice these restrictions protect local oligarchs, deter investment and leave foreigners with minority interests that are too often exploited by Philippine partners.

In this legislative situation, pushing through any major change in the political structure cannot happen without strong presidential leadership. Thus far Mr. Aquino has yet to show any interest in these big political issues. While that may be understandable given immediate priorities such as rooting out graft, constitutional change may be essential if his reforms are to stick. With nearly two and a half of a six-year term now gone, Mr. Aquino needs to start enunciating a plan to safeguard the gains of his presidency and the Philippines' corresponding rise in international esteem.



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