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Philippines Crony Capitalism
During the first years of martial law, the economy benefited
from increased stability, and business confidence was bolstered
by Marcos's appointment of talented technocrats to economic
planning posts. Despite the 1973 oil price rise shock, the growth
of the gross national product
(GNP--see Glossary) was
respectable, and the oil-pushed inflation rate, reaching 40
percent in 1974, was trimmed back to 10 percent the following
year. Between 1973 and the early 1980s, dependence on imported
oil was reduced by domestic finds and successful energy
substitution measures, including one of the world's most
ambitious geothermal energy programs. Claiming that "if land
reform fails, there is no New Society," Marcos launched highly
publicized new initiatives that resulted in the formal transfer
of land to some 184,000 farming families by late 1975. The law
was filled with loopholes, however, and had little impact on
local landowning elites or landless peasants, who remained
desperately poor.
The largest, most productive, and technically most advanced
manufacturing enterprises were gradually brought under the
control of Marcos's cronies. For example, the huge business
conglomerate owned by the Lopez family, which included major
newspapers, a broadcast network, and the country's largest
electric power company, was broken up and distributed to Marcos
loyalists including Imelda Marcos's brother, Benjamin "Kokoy"
Romualdez, and another loyal crony, Roberto Benedicto. Huge
monopolies and semimonopolies were established in manufacturing,
construction, and financial services. When these giants proved
unprofitable, the government subsidized them with allocations
amounting to hundreds of millions of pesos. Philippine Airlines,
the nation's international and domestic air carrier, was
nationalized and turned into what one author has called a
"virtual private commuter line" for Imelda Marcos and her friends
on shopping excursions to New York and Europe
(see Transportation
, ch. 3).
Probably the most negative impact of crony capitalism,
however, was felt in the traditional cash-crop sector, which
employed millions of ordinary Filipinos in the rural areas. (The
coconut industry alone brought income to an estimated 15 million
to 18 million people.) Under Benedicto and Eduardo Cojuangco,
distribution and marketing monopolies for sugar and coconuts were
established. Farmers on the local level were obliged to sell only
to the monopolies and received less than world prices for their
crops; they also were the first to suffer when world commodity
prices dropped. Millions of dollars in profits from these
monopolies were diverted overseas into Swiss bank accounts, real
estate deals, and purchases of art, jewelry, and antiques. On the
island of Negros in the Visayas, the region developed by Nicholas
Loney for the sugar industry in the nineteenth century, sugar
barons continued to live lives of luxury, but the farming
community suffered from degrees of malnutrition rare in other
parts of Southeast Asia.
Ferdinand Marcos was responsible for making the previously
nonpolitical, professional Armed Forces of the Philippines, which
since American colonial times had been modeled on the United
States military, a major actor in the political process. This
subversion occurred done in two ways. First, Marcos appointed
officers from the Ilocos region, his home province, to its
highest ranks. Regional background and loyalty to Marcos rather
than talent or a distinguished service record were the major
factors in promotion. Fabian Ver, for example, had been a
childhood friend of Marcos and later his chauffeur, rose to
become chief of staff of the armed forces and head of the
internal security network. Secondly, both officers and the rank
and file became beneficiaries of generous budget allocations.
Officers and enlisted personnel received generous salary
increases. Armed forces personnel increased from about 58,000 in
1971 to 142,000 in 1983. Top-ranking military officers, including
Ver, played an important policy-making role. On the local level,
commanders had opportunities to exploit the economy and establish
personal patronage networks, as Marcos and the military
establishment evolved a symbiotic relationship under martial law.
A military whose commanders, with some exceptions, were
rewarded for loyalty rather than competence proved both brutal
and ineffective in dealing with the rapidly growing communist
insurgency and Muslim separatist movement. Treatment of civilians
in rural areas was often harsh, causing rural people, as a
measure of self-protection rather than ideological commitment, to
cooperate with the insurgents. The communist insurgency, after
some reverses in the 1970s, grew quickly in the early 1980s,
particularly in some of the poorest regions of the country. The
Muslim separatist movement reached a violent peak in the mid1970s and then declined greatly, because of divisions in the
leadership of the movement and reduced external support brought
about by the diplomatic activity of the Marcos government.
Relations with the United States remained most important for
the Philippines in the 1970s, although the special relationship
between the former and its ex-colony was greatly modified as
trade, investment, and defense ties were redefined
(see Relations with the United States
, ch. 4). The Laurel-Langley Agreement
defining preferential United States tariffs for Philippine
exports and parity privileges for United States investors expired
on July 4, 1974, and trade relations were governed thereafter by
the international General Agreement on Tariffs and Trade (GATT).
During the martial law period, foreign investment terms were
substantially liberalized, despite official rhetoric about
foreign "exploitation" of the economy. A policy promoting
"nontraditional" exports such as textiles, footwear, electronic
components, and fresh and processed foods was initiated with some
success. Japan increasingly challenged the United States as a
major foreign participant in the Philippine economy.
The status of United States military bases was redefined when
a major amendment to the Military Bases Agreement of 1947 was
signed on January 6, 1979, reaffirming Philippine sovereignty
over the bases and reducing their total area. At the same time,
the United States administration promised to make its "best
effort" to obtain congressional appropriations for military and
economic aid amounting to US$400 million between 1979 to 1983.
The amendment called for future reviews of the bases agreement
every fifth year. Although the administration of President Jimmy
Carter emphasized promoting human rights worldwide, only limited
pressure was exerted on Marcos to improve the behavior of the
military in rural areas and to end the death-squad murder of
opponents. (Pressure from the United States, however, did play a
role in gaining the release of Benigno Aquino in May 1980, and he
was allowed to go to the United States for medical treatment
after spending almost eight years in prison, including long
stretches of time in solitary confinement.)
On January 17, 1981, Marcos issued Proclamation 2045,
formally ending martial law. Some controls were loosened, but the
ensuing New Republic proved to be a superficially liberalized
version of the crony-dominated New Society. Predictably, Marcos
won an overwhelming victory in the June 1981 presidential
election, boycotted by the main opposition groups, in which his
opponents were nonentities.
Data as of June 1991
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