Thursday, July 30, 2015

Our Homeland and Fellow Native Filipinos-in-the-Philippines, the IMF, World Bank and WTO = The Race to the Bottom, Part 1 of 2

"We shall be better and braver and less helpless if we think that we ought to inquire  than we should have been if we indulged in the idle fancy that there was no knowing and no use in seeking to know what we do not know..." - SOCRATES

"The chief business of America is business" - President Calvin Coolidge, 1925



"What else do bankers do -- walk-in and turn-off the lights in the country." - William Slee, 1978


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NOTES TO READERS:  Colored and/or underlined words are HTML links. Click on them to see the linked posts/articles. Forwarding this and other posts to relatives and friends, especially those in the homeland, is greatly appreciated. To share, use all social media tools: email, blog, Google+, Tumblr,Twitter,Facebook, etc. THANKS!!
Click the following underlined title/link to checkout these Essential/Primary Readings About Us Filipino Natives:

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Hi All,


Throughout the years and especially come national election time, we native Filipinos spend enormous time and energy talking about politics, i.e. political criticism; at best and rarely on issues of political independence. At worst, oftentimes and predominantly, on personalities of our politicians at the local and national level.


I say these not to belittle the role of the enraging personal characters and/or public actions of many -if not most- of our politicians, local and national, since in our homeland these considerations have significantly contributed to the ever-deepening poverty with extremely dire consequences to our native citizenry, society and homeland. However, by such we do not seem to appreciate the fact that economics: national economic development aka political economy is also vastly important and at this point in our history, requires equal, if not more, attention from the native citizenry.


For without economic independence, political independence becomes ineffective and meaningless. Just like an individual with nothing except debt who therefore effectively becomes a person with no voice and is ignored. So we as a people, in our homeland and the world, are not in the radar of our native rulers and of many nations/peoples of the world.


With our homeland as a primary example and as poster boy for the Third World, the heavily documented experiencesand observation of Economic Hit Men EHMs provide us insight on who they were, their background, how they did their transactions, whom they dealt with, the milieu they had, etc.


Their works can only be summed up as the modus operandi of creditors (multinational banks) and debtors (our homeland represented by our native technocrats and ruling regime) and how all of their business led only to our continuing, decades-old and present national predicaments; characterized by deepening and expanding mass poverty, with all its adverse socioeconomic and political consequences.


By making the country such as our homeland as the only debtor (rather than lending directly the private businesses who needed capital), the creditor banks via the IMF and WB tandem were able/can enforce payments, dictate to our homeland all changes they wanted in our government policies which greatly profit them; and conversely led to our national detriment.


In the long run, as we now see or not still see, changes that negatively and gravely impact our domestic institutions: education, national economy and patrimony, native entrepreneurs, national sovereignty, etc. and further facilitated the penetration in our society by economic and cultural globalization --even before the term globalization aka neoliberalism became common currency.


All these lead to our national perdition.


Below essay is Chapter 9 from the book “A Game As Old As Empire” written by former Economic Hit Men (EHM), who have worked for years representing the largest American banks as loan officers to Third World countries like our homeland. These few individuals later realized that they were tools of their financial institutions (multinational banks) through work in arranging foreign loans to poor countries, ostensibly to help latter, but instead made them poorer. Their consciences made them tell us the tricks of their trade.


- Bert

PS. I highly recommend the purchase of this very factual and enlightening book (readings): "A Game As Old As Empire - The Secret World of Economic Hit Men and the Web of Global Corruption", edited by Steven Hiatt, Berrett-Koehler Publishers, 2007; [Some of the economic data are bit old; but the trend of the newer statistical data - the only direction we have been heading from the time of the Marcos Dictatorship to the present and predictably in the next generation or so, given our lack of nationalism, selfishness and cowardice as the so-called educated, who ought to know better.]


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Click here to read: Part 2 of 2 (LATER)


The Philippines, the World Bank and the Race to the Bottom
- Ellen Augustine


The World Bank made the Philippines a test case in its loan-based, export led development strategy --and the results were dictatorship, poverty and a crushing debt burden.


The early 1970s. The Vietnam War is in the headlines daily. Mass demonstrations are rocking the world. Policymakers think in terms of the domino effect in the bitter struggle between communism and capitalism.


In the Philippines, strongman Ferdinand Marcos holds power, but there's a growing insurgency in the countryside. In the eyes of the United States and the World Bank (WB), Marcos is the only thing standing between one more country falling to the Reds in the Cold War.


Direct aid is one way to keep him in power. The other and more potent means: World Bank loans, with their oversight and conditionalities. With an American always the president of the World Bank, the United States got what it wanted --with disastrous results for the Philippines.


But this time, thanks to whistleblowers inside the World Bank, we can get an insider's view of how the development game is played and why the results are usually far from the official rhetoric.


America's Hidden Colonial Past


The US-Philippines relationship goes back a long way, though few remember the Spanish-American War from History 101. The US "purchased" the Philippines after defeating Spain in 1898. The Philippines had been under Spanish control for over 300 years, and Filipinos did not welcome another master. In fact, a provisional government led by Emilio Aguinaldo had been set to take power after assisting the US-forces.


Instead, the Filipinos were swept aside and a bloody insurrection ensued, which was finally defeated after several years and the loss of at least 250,000 Filipino lives. The U.S. established a typical colonial relationship, with the Philippines exporting agricultural commodities such as sugar and importing American manufactured goods. In 1946, the U.S. granted independence --keeping 20 military bases, including Clark Field and Subic Bay.


During its rule, the U.S. allied itself with the country's wealthy land-owning elite, which maintained political power after independence. Coming from this strata, Ferdinand Marcos assumed the presidency in the 1960s. In a particularly corrupt and violent election, he secured a second term in 1969, in the process using up the government's foreign exchange reserves. Without reserves, the country was unable to cover a huge trade deficit and pay interest on mounting external debt.


Marcos turned for help to the World Bank. One of its conditions for assistance was a 60% devaluation of the peso. In the 1970s, currency devaluation was the standard Bank prescription for Third World countries and needing loans.

In theory, this would bring the trade account into balance by increasing foreign exchange earnings from cheaper Philippine goods while decreasing outward cash flow for now more expensive imports.


In fact, devaluation brought disaster to businesses and workers alike. Scores of Filipino entrepreneurs were thrown into bankruptcy when suddenly confronted with more expensive imported components for their products.(1) The wages of urban workers dropped as much as 50%.


Years later the first draft of the Poverty Mission Report, leaked by whistle blowers, identified this Bank-imposed devaluation as the key factor precipitating decline in Filipino living standards --tough this admission was excised from the final version of the report.(2)


They Came, They Saw, They Liberated


The collision of the World Bank's macroeconomic policy and real people's lives was bloody and left a multitude of casualties. Currency devaluation is part of the broader policy of (economic) liberalization --sometimes called neoliberalism --which is both the standard precursor to structural adjustment loans and a continuing part of the structural adjustment package. liberalization is at the core of World Bank trade policies, for the Philippines as well as most other developing countries.


Liberalization can be a very confusing word. In common usage, liberal means "progressive, imbued with compassion for the less fortunate, and a willingness to put government resources into redressing past harms and creating social and economic equality."


But in modern economics, liberalization is quite different. Doug Henwood, economist and publisher of the Left Business Observer, explains it this way:


"Liberalization means removing any barriers to the efficient functioning of the market. That would mean eliminating trade barriers, eliminating obstacles to foreign investments, reducing the size of government domestically, and reducing the regulation of the economy. Basically, it means Reaganism: unleashing the magic of the marketplace. This might sound attractive to Americans, especially a lot of Americans who are opposed to state intervention and distrust of welfare states."(3)


The problem with the World Bank/International Monetary Fund model is that no country using it has ever developed successfully.


"The countries that have developed successfully over the last forty years have been those primarily in East Asia, whose governments took a very active planning role. They regulated imports, limited capital flows, regulated interest rates, and directed capital into preferred areas for development. China, the current star, has developed under the very skillful hand of the state, and it followed none of the standard policy prescriptions. So liberalization has a very poor track record. It's highly unusual for a country to develop successfully without some degree of protectionism."(4)


Not so long ago, the United States itself was a developing nation. Did its rise to prosperity follow the path recommended by the World Bank? Henwood recaps U.S. history:


"We violated all the laws we impose on countries today. We depended on protective tariffs into the early 20th century. We also violated all the intellectual property rights we now hold sacred. The U.S, chemical industry got started during WW1, when we stole the German patents. In the 19th century, U.S. publishers were notorious for republishing works of foreign authors without permission or royalties. Orthodox economics insists on letting the market work and subjecting domestic producers to foreign competition. but this is also the ideology of the strong: You want to prescribe free competition and liberalization when you're the big guy on the hill, because no one can compete with you. So on the way up, everybody's a protectionist. but once you get to the top, you're a free trader.


For rich countries like Japan, Western Europe, the United States, Canada, open trade is fine. But poorer countries that are trying to develop cannot afford a regime of free trade. There's no way they can develop their own industries facing competition from the developed countries. It's not going to make the poor less poor."(5)


Export Processing Zones: subsidies for the Multinationals


Another condition imposed by the World Bank for the loans Marcos sought was opening up the Philippines to foreign investment in the form of export processing zones (EPZs). A major zone was created across the bay from Manila.

Incentives for foreign corporations included:
  • Permission for 100% foreign ownership
  • Permission to pay a wage lower than Manila's minimum wage
  • Low rents for land and low charges for water
  • Government financing of infrastructure and factory buildings, which could be rented or purchased at a low price
  • Accelerated depreciation of fixed assets


These projects did not come cheap for the Philippines. One site alone, the model Bataan Export Processing Zone (BETZ), cost $150 million to develop, including a dam and water treatment plant. Overall, the Philippine government spent billions of borrowed money on energy, transportation, communications, water and construction to entice foreign corporations. (7)  Companies that made hefty profits in these EPZs included Texas Instruments, Fairchild, Motorola and Mattel. (8) While the cost of export-oriented development was high for the Philippines, the commitment was low for the multinationals. Such an arrangement made it relatively easy for them to pick up and leave when workers demanded a more realistic wage --and that is exactly what happened


Play by the Rules --and Lose


Export-oriented development is a key component in the World Bank's standard prescription for developing countries. Yet targeting the bulk of a country's borrowed money to support export-oriented development means that little is left to address pressing domestic needs. Doug Henwood explains how this plays out in a country such as the Philippines:


"Export-oriented development is still the absolute centerpiece of orthodox development theory. Countries like the Philippines have dire domestic needs that should take precedence over export-oriented development. here's just no way that they can meet the needs of their population under this model. It's economically unwise, but it's also a crime against humanity to put exports ahead of the needs of a very hungry and hungry, ill-educated population.


"What you would ideally want --and what is not happening-- is for the multinationals to do some degree of skills and technology transfer, such as using Philippine engineers instead of importing their own engineers from home. They would start training the workers to do more and more skilled work rather than just routine assembly tasks. They would develop suppliers locally; components would be made where they're assembled. That's the way a country could use foreign investment as a real development strategy. This would also provide hard currency to service the loans --since World Bank loans can not be paid back in a country's own currency .


Local governments can't get much in the way of tax revenue out of these multinationals because they're getting tax holidays and paying very low wages. That's why, despite opening up to foreign investment and doing everything they're supposed to, so few countries succeed in this game. It's pretty much stacked against them.


There are 120-150 countries competing on this model. They can't all export their way into solvency, much less prosperity. It's a very nice arrangement for the richer countries, because they have all these poor countries desperately competing with each other to see who can provide goods most cheaply. There's no way you can get more than a minority of winners out of this kind of model." (9)


Clearly, the Philippines is not one of the winners.


The Dark Side of Globalization


For those who work in the export industry, conditions are brutal:
  • Workers in the electronic industry tend to suffer from eye defects after 3 years of employment. Others complain of acid burns, skin rashes from epoxy resins, and other reactions due to solvents like trichloroethylene. Even if they are given gloves and masks, they do not use them because that slows them down and makes it difficult to reach their quota. They are not required by the company to use them, and, in fact, are not taught about the need for protective devices(10).
  • In the tuna canning industry, 95% work under temporary contracts and 85% are women. when orders are high, workers are forced to work 12 hour-days; when demand is low, they get a few hours work. work is very tightly controlled. Workers are not allowed to speak to each other during work hours, they are not provided with drinking water, they do not receive sick or holiday pay, and wages are very low (11).


Confidential documents show that the World Bank steadfastly propounded that the "comparative advantage of the Philippines lies in the utilization of skilled, low-wage labor (12)." Bending to Bank pressure to keep wages low, Marcos instituted a new Labor Code that allowed employers to pay new employees only 75% of the minimum wage during a 6-month probationary period. It is therefore a common practice for employers to fire workers just before the end of their probation (13).


By keeping employees on short contracts rather than permanent employees, employers avoid paying legislated benefits such as healthcare and pensions (14). According to the World Bank's own report, from 1972 to 1978 the real wages of unskilled workers declined by 30% and those of skilled workers by 25% (15).


Martial Law: Good for whom?


In addition to the economic turmoil caused by liberalization and wage repression, the Philippines was rocked by massive middle-and lower-class demonstrations, strikes, and rallies against Marcos and his elites and against US domination (16). Marcos' response was to declare a state of martial law in September 1972. US business gave its stamp of approval in the form of a congratulatory telegram: "The American Chamber of Commerce wishes you every success in your endeavor to restore peace and order, business confidence and cooperation..We are communicating the feelings of our associates and affiliates in the United States (17)."


The American public did not share the sentiment. Polls in the early 1970s showed 87% in favor of cutting aid to repressive regimes (18). But Marcos' authoritarian rule suited American foreign policy interests, and, exerting its controlling interest, the World Bank supported Marcos. As US government aid dropped (reflecting public sentiment) from $125M in 1972 to $72M in 1979 (19), confidential Bank statistics show that the Bank funneled $2.6B into 61 projects between 1983 and 1981 (20). This massive inflow allowed Marcos to shift domestic resources to more than triple his defense budget (21). Repressive measures increased bothy at home and abroad, particularly in the united States --including the assassination of anti-Marcos activists Silme Domingo and Gene Viernes in Seattle (22).


The early martial law years brought accomplishments that impressed Bank bureaucrats. GNP rose by 10% in 1973. Major efforts by government to attract foreign investments brought in $55M. High prices for agricultural exports shifted a $120M trade deficit in 1972 to a $270M surplus in 1973. Over the next 3 years economic growth leveled off however, and during 1977 to 1981 "the program began to unravel in spectacular fashion. (23)"


A major reason for the decline was protectionist barriers put up by Canada, Europe, Japan and the United States. In two years alone, from 1978 to 1980, 33 barriers were erected to Philippine exports (24). Did the World Bank assess this trend and stop promoting export-led development to poor countries? Not at all. Did the Bank pressure developed countries to drop their barriers to Philippine goods? Of course not.


A Billion Here, A Billion There…


As the economy plummeted, the country's foreign debt skyrocketed. But, life was becoming more difficult for poor and middle-class Filipinos. Ferdinand Marcos and his wife, Imelda,were siphoning off billions from development projects. The amount they stole is not known precisely because of banking secrecy laws in the countries where they hid the money, but most accept the $10B estimate by the commission on Good Government, established to recoup the losses.
In 1966, when Marcos came to power, Philippine foreign debt was $1B, at the time of his ouster twenty years later, it was $28B (25). The Marcos legacy lives on: Filipinos are still struggling to pay off many of these loans. [The Philippine government will pay $5.17 billion foreign debt service this year 2010, higher compared to 2009’s $4.34 billion. The country's outstanding foreign debt is $53.3 billion at end-December 2009, according to the Bangko Sentral ng Pilipinas (BSP). - Bert]


The Marcos clan used every possible avenue to amass wealth. Cronies were installed at the highest level of government to broker deals. One particularly egregious deal, the Bataan Nuclear Power Plant, was handled by Marcos' buddy Herminio Disini, a regular golfing partner of Marcos' claimed that "he had the authority to arrange the deal in any way he wished." This nuclear plant was to be sited at the base of a volcano on an active earthquake fault. Marcos chose Westinghouse to build the reactor, even though its plan was nearly twice as expensive as General Electric's.


Disini then collected $80M from Westinghouse for "assistance in obtaining the contract and for implementation services (26)." He passed on 95% of the fee to Marcos(27). The Philippine Atomic Energy Commission refused to give a permit until the plant was already under construction.


At the point, Commissioner Librado Ibe issued the permit and then moved to the United States. As he later told Fortune Magazine, it was unsafe to resist Marcos' lieutenants for too long(28).


Imelda meanwhile was in charge of development in the Greater Manila area, the locus of most foreign investment. So pervasive was the corruption that she was nicknamed "Mrs. 10%" for the cut she allegedly took off the top of government contracts. As minister of human settlements, she administered vast sums, including aid from the US Agency for International Development (USAID).

Source: A Game As Old As Empire - The Secret World of Economic Hit Men and the Web of Global Corruption, edited by Steven Hiatt, Berrett-Koehler Publishers, 2007

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