When the Israel-Hamas conflict erupted and threatened to spread into a wider regional conflict that would suck in the United States and other Middle Eastern powers, I couldn’t help but think of the first Marcos regime. It was, after all, a geopolitical event in the Middle East that started the fall of the Marcos regime.
The Iranian revolution, wherein the autocratic Shah of Iran fell to the revolutionary forces led by Ayatollah Khomeini, led to a drop in Iran’s oil output and caused the second oil shock in 1979. Oil prices doubled.
The Philippines, however, was particularly vulnerable, not only because it was (and still is) a large net oil importer, but also because of the frailties of the economy under the Marcos I regime: a large debt load, inefficient and protected companies, high trade deficits, and import-dependent exports. The high oil prices exposed the structural inefficiencies of the economy and caused an economic crisis. Corporate bankruptcies followed until the country itself had to declare a debt moratorium. The political crisis caused by the assassination of Ninoy Aquino in 1983 exacerbated the economic crisis. A deep recession followed in 1984 and 1985 until Marcos fell in a People Power Revolution in 1986.
Instead of making the economy resilient enough to withstand these global economic shocks, former President Marcos made it more vulnerable, especially with heavy foreign debt that didn’t go into productive enterprises but to protected and inefficient companies. This is why the economy fell into a deep crisis and why he fell from power.
Sayang. He could have done a Lee Kwan Yew when he seized power with the declaration of martial law in September 1972. He had little choice at that time since he was facing a growing insurgency. The only choice at that time to tackle the economic crisis would have been to open up the economy, welcome foreign investments in strategic industries, and go against the country’s history of protectionism.
However, it was another Middle East geopolitical event that diverted him from a reformist path and led to the “debt-driven growth” of the 1970s. That Middle Eastern geopolitical event was the Yom Kippur War in 1973. As a result of that war, the Arab states, led by Saudi Arabia, imposed an oil boycott, which led to the quadrupling of oil prices and the first global oil shock.
The oil-producing states became flush with cash, which their economies could not absorb. Most of that money ended up in money center banks in New York, which then recycled it into loans to developing countries like the Philippines. That access to easy cash allowed the Philippines not to undertake any structural reforms. It spoiled the Marcos I government. Instead of opening up the economy, lowering tariffs, promoting competition, undervaluing the currency, and boosting exports, as other Asian economic tigers had done, the Marcos I administration kept the same protectionist regime and channeled the loans into protected, unproductive, and inefficient enterprises, which couldn’t pay back the loans or didn’t earn foreign exchange to pay back the foreign loans. No surprise then that the Central Bank itself went bankrupt.
Fast forward to today and I can’t help thinking that Marcos Jr. should be similarly worried about geopolitical events. The Philippine economy and his political fate may well be tied up with those events.
As it was in 1972 when his father had a political opportunity to undertake structural reforms but lost it, President Marcos Jr. similarly has an opportunity to do politically difficult reforms since he was elected with the biggest electoral mandate post-EDSA.
The question is: Is the economy resilient enough to withstand adverse geopolitical and climate events?
For sure, the Philippine economy is not in the same state it was in 1979. Economic growth is still positive, albeit decelerating. The economy is more open. The Public Service Act passed under Duterte has opened the telecommunications and transport sectors to more foreign investment and competition. Marcos Jr. has liberalized foreign investment in renewable energy and the country joined the Regional Comprehensive Economic Partnership.
However, there’s a sense of pessimism. The stock market is tanking. Inflation, especially food inflation, is out of control. Palliative populist measures like the rice price cap haven’t worked. The global situation looks to grow worse before it gets better. The Israel-Hamas war may escalate into a region-wide conflict and cause oil prices to increase again. El Niño, or the dry season phenomenon, is expected to be severe next year and lead to dips in global food production. Some agricultural economists are projecting escalating rice prices.
The administration doesn’t appear to have a clear economic strategy on hand — except perhaps for the establishment of the Maharlika Investment Fund (MIF). However, even before the MIF has started, it may add to the economy’s woes and vulnerabilities. It will siphon off some P600 billion in investible funds from the economy because the Development Bank of the Philippines (DBP) and LandBank’ total capital contribution of P75 billion will be charged against their respective capital, constraining their lending. One economist calculated the negative impact on the economy at 2% of GDP. Also, the moral standing of the Bangko Sentral ng Pilipinas may be compromised if it allows the regulatory relief that DBP and LandBank are seeking.
The point of this article is that President Marcos Jr. can’t afford to remain chill in the face of rising global threats. He must have a clear plan to bulletproof the economy and work harder and faster. He has to learn to make tough decisions that may make some people unhappy but will be right for the economy.
He can’t continue to blame external forces for the country’s economic woes. The people know better. His popularity ratings are plunging as a result. He may be foregoing an opportunity to redeem the Marcos name.
It’s not as if he can’t do anything about the situation. He could have lowered the tariffs on rice to alleviate rising price pressure and to incentivize traders to build a supply buffer when the lean season and El Niño hit in the first quarter of the year.
However, listening to the optimistic forecasts of his Department of Agriculture, he didn’t reduce tariffs. As a result, rice prices are on an upward trend, with palay (unmilled rice) farmgate prices hitting P31 a kilo when it is still harvest season. Retail prices are expected to reach P60 a kilo by Christmas. What more during the lean season of the first quarter of the year?
He can also lower the tariff on corn to 5% both in-quota and out-quota. (The Minimum Access Volume of 245,000 MT is too low compared to a deficit of around 3 million tons.) This will lower the price of chicken and pork since corn constitutes 60% of the cost of chicken and pork production. Politically, this will be doable. The chicken and pork producers will welcome this move. Corn farmers, on the other hand, can be compensated from the tariff revenues on corn importation, or encouraged to become farm workers in expanded higher value-added chicken and pork operations.
There are so many more things he can do, but his economic agenda lacks substance. A simple, uncontroversial reform, such as liberalizing foreign ownership in the rice and corn industry, which is in the Philippine Development Plan, is absent from his priority economic legislation.
The stock market senses the drift. Foreign investors sense it. Foreign Direct Investments (FDIs), already low by Asean standards, fell to P4.7 billion in seven months, down by 14.7% from the previous year.
It would be ironic if President Ferdinand Marcos, Jr. didn’t learn the lessons from his father’s presidency and repeated the same mistake of underestimating the impact of global events.
Yes, unlike the Iranian oil shock which was an existential threat to his father, the global disruptions will only stress the local economy. Nonetheless, his political capital may erode quickly, especially when his vaunted unity team is showing signs of cracking. A geopolitical event (the Iranian revolution) marked the start of the fall of his father. Will there be a repeat?
Calixto V. Chikiamco is a member of the board of IDEA (Institute for Development and Econometric Analysis).