Courtesy Reuters

The Philippines in Crisis

The Philippines is enmeshed in the most severe political and economic crisis it has faced since gaining independence from the United States in 1946. In retrospect, the bullet that killed opposition leader Benigno Aquino on August 21, 1983, marked the beginning of the end of the Marcos era and the onset of a difficult and uncertain transition period. The aftermath of the Aquino affair has been a protracted crisis of confidence that has dovetailed with a financial crisis of Latin American proportions, a deteriorating economy, and the growth of a nationwide communist insurgency.

Current realities in the Philippines defy easy stereotypes. President Ferdinand Marcos has never been so isolated, nor his credibility so widely questioned, in 19 years of rule. Yet, barring further health problems, the 67-year-old leader will likely remain in office until the 1987 presidential election, and he is expected to run again. The brutal murder of Aquino and the subsequent attempt at cover-up transgressed the unwritten rules of Philippine politics, implying an absence of limits on official power, and a complete lack of accountability. Yet, by generating a massive backlash, in which much of the professional and business elite has turned against Marcos, the murder has forced the shrewd president to accept the beginnings of liberal reform.

The question is whether, at this stage, any reforms can save Marcos, or indeed prevent an eventual revolutionary upheaval in Philippine politics. Aside from eroding the traditional checks and balances of Philippine institutions, nearly two decades of Marcos' rule have witnessed a plunder of the economy, the monumental misallocation of resources, and a gross distortion of the free enterprise system. High-level corruption, documented by the findings of the Agrava Commission (appointed to investigate the Aquino assassination), has undermined the authority of the military, and a broad-based revolutionary insurgency, led by the communist New People's Army (NPA), has grown tenfold since martial law was declared in 1972.

The turmoil in the Philippines has led some to see yet another disaster in the making for U.S. foreign policy, posing familiar policy dilemmas of how to deal with a fading authoritarian client in a Third World country where the United States has long-standing strategic interests. Unfortunately, U.S. policy has followed an equally familiar pattern of neglect, followed by belated and overcompensating concern. The challenge for Washington is to recognize the extent of the economic and political crisis which the Philippine government is now facing, and to work-with or without Marcos-to help achieve the kind of thoroughgoing structural reforms that are vital for the island nation's stability and development.

II

Central to all aspects of the current Philippine dilemma, and perhaps the main obstacle to future reform, is a set of deep-seated economic difficulties. Some of these structural problems predate the Marcos era and have their roots in basic decisions made in the late 1950s and early 1960s to emphasize import substitution without adequate mobilization of the rural sector.1 The country's economic difficulties were then magnified by external factors, particularly the second "oil shock" of 1979-80, accompanied by a downturn in commodity prices, followed by a period of global recession and rising real interest rates. But the major responsibility lies with the policies pursued by the Marcos government.

Prior to the Marcos period, Philippine administrations since independence had adhered to generally conservative economic policies. Government spending was minuscule in relation to gross national product (GNP), and although control of resources was highly concentrated in a landed oligarchy and a growing industrial stratum based largely on import substitution, the private sector was largely responsible for the production of goods and services.

By contrast, under Marcos, the past two decades have been characterized by dramatic growth in the direct and indirect role of the government in the economy, with economic power increasingly concentrated in the state. Embarking on an export-growth development strategy, Marcos pursued expansionist fiscal and monetary policies. Through increased state intervention in the economy, he dispensed privileges to a coterie of family members, friends and associates-collectively known as the "cronies"-that has now become a new elite.

Initially, Marcos' policies had a modernizing and reformist thrust. His pre-martial law administration, from 1965 to 1972, invested heavily in infrastructure projects-roads, bridges, irrigation, schools. By the early 1970s, Marcos had used his power to dismantle provincial fiefdoms of local politicians and the landholding oligarchy, to enact a limited land reform in the rice- and corn-growing areas of central and northern Luzon province, modernize the economic infrastructure and the military, and curb energy dependency. Growth rates were respectable, in the range of six percent per year.

But the modest successes were overtaken by a combination of underlying structural problems-and an accumulating abuse of power. There was clear bias toward large-scale urban industrial projects, a failure to integrate manufacturing with the rest of the economy, and neglect of the agricultural base. By the mid-1970s, Marcos had replaced the old elite with a new system that might be dubbed "Marcos socialism." Through subsidies, credits and other supports, the government dramatically increased its role in the economy, distorted the private sector by granting monopolies in key areas to Marcos associates, and engaged in wasteful and sometimes garish public works. A report on the economic crisis completed recently by the University of the Philippines School of Economics lists 688 presidential decrees and 283 letters of instruction issued by Marcos since 1972 that represent various forms of government intervention in the economy.2 Such orders by Marcos created vast fortunes for his associates by granting exclusive import or export rights, exempting favored firms from taxes, and creating monopolies.

Such kleptocracy is not unique in the Third World, but Marcos may have raised it to an art form. In the two most important agricultural sectors, coconuts and sugar, he created near-monopolies for two close associates, Eduardo Cojuangco, a longtime Marcos friend (and godfather to two of Marcos' children), and Marcos' former fraternity brother, Roberto Benedicto.

Several lesser Marcos cronies have also thrived, including Rodolfo Cuenca, whose Construction and Development Corporation received lucrative government contracts; Roberto Silverio, who owned the now bankrupt Delta Motors; and Herminio Disini, whose 50-company Herdis group benefited widely from Marcos' decrees. Major holdings of all three have gone bankrupt, with the government converting several billion dollars of collective debt into equity.

Marcos has seen the road to prosperity as a Philippine version of "Japan, Inc." His vision of a "new society" has centered on state-assisted efforts to emulate the Japanese "Zaibatsu," creating a stratum of aggressive Philippine entrepreneurs heading massive holding companies. But the result, aided by Western banks with billions in petrodollars to recycle, has been a serious distortion of the Philippine economy that has only exacerbated the unequal distribution of wealth, created a bloated, debt-ridden public sector, and left the economy in shambles.

From the mid-1970s to 1983, the composition of government spending shifted, with less going to infrastructure projects and the majority spent on corporate equity investment and other capital outlays. Prime Minister Cesar Virata recently put the number of government-owned corporations at 300, although it is not clear how many of those firms were bankrupt operations that had to be taken over by the state. The government's share of construction has risen to 40 percent, much of it for questionable projects such as the now abandoned $1-billion Manila Bay reclamation and building complex, official residences, overspecialized showcase medical centers, and a variety of buildings for government agencies and corporations. The list also includes more exotic projects, including a lavish arts and culture center, the brainchild of Imelda Marcos, wife of the president, and an uncompleted $8-million Mount Rush- more-style bust of Marcos erected in northern Luzon.

The government's role in financial markets has also grown substantially. Through government financial institutions such as the state banks-the Philippines National Bank (PNB) and the Development Bank of the Philippines-and through politicized policies of the central bank, the government has altered access to credit and used government-backed guarantees to facilitate questionable private lending. Limits on credit flows to both banks have been made a condition for new lending by the International Monetary Fund (IMF).

It is difficult to quantify plunder and mismanagement. Several billion dollars of government funds certainly went to the bailing out of failed crony firms.3 It is estimated that losses to sugar farmers resulting from underpayment by the sugar monopoly have been between $1.2 and $1.5 billion for the period 1974-1983.4 The cost of waste and inefficiency can be measured partly in relative productivity. The productivity of Philippine workers (whose real wages have fallen by about 45 percent in the past decade) is less than half that of workers in other ASEAN (Association of Southeast Asian Nations) countries.5

But not all of the country's $29 billion in foreign debt, roughly half of which accrued since 1979, can be attributed to plunder or shoddy lending policies.6 The Philippines' terms of trade deteriorated by more than 40 percent in the past decade, an experience common to less-developed countries dependent on the export of basic commodities for foreign exchange. For the Philippines, the key commodities are (in order of relative importance) coconuts, timber, sugar and copper. In the case of sugar alone, the export market price has dropped to about five cents a pound from a high of 27 cents a pound in 1975. In addition, a serious recession in the United States, Manila's major trading partner, limited the country's export capability. Non-traditional exports-primarily textiles and semiconductors-manufactured in export-zone enclaves have accounted for a significant portion of exports, but because of the substantial cost of imported inputs in both areas, the value added, and therefore the foreign currency earned, is relatively small.

Such unfavorable trends, coupled with Marcos' mismanagement, helped facilitate an economic morass well before the Aquino assassination. A downward slide in economic growth began in 1979 with the second oil price hike. The last year of growth was 1982; the 1.3-percent growth figure for 1983 becomes negative when adjusted to account for increases in population. Both the IMF and independent analysts forecast that real GNP will decline by six percent in 1984 and that-even if the terms of the recently agreed $630-million IMF standby credit are met-a similar decline will be experienced in 1986. Bernard Villegas of the Center for Research and Communication, an independent Manila think tank, anticipates that during the coming year inflation will remain in the 50-percent range, interest rates will hover around 40 percent, imports will drop by some 40 percent, and industrial production will decline by at least 15 percent. Most economists agree with the Center's forecast that exports will not rise significantly above their current level of roughly $5 billion a year.7

The social and political costs of Marcos' excesses and the protracted period of austerity now facing the country are difficult to calculate. Demographic statistics are sketchy. Still, it is estimated that some 600,000 people, or nearly three percent of the workforce, have been laid off as a result of the economic downturn, and about 1,000 businesses have failed in the past year. Capital flight, which reached a peak of about $5 million at the time of the Aquino murder, has continued at a steady rate of about $2 million a day since mid-198 2. According to official government estimates, gross domestic investment will decline by more than 30 percent in 1984.8 The likely combination of increased hardship for the 70 percent of Filipinos who live below the poverty line and harsh repression of those opposing such bitter economic medicine is a dynamic that could lead to serious new unrest.

Traditionally the Philippines has had two major economic safety valves-the export of labor and the extended family network. More than 400,000 Filipinos work abroad, primarily in the Middle East, but the oil glut has shrunk this labor market. The extended family network is impossible to quantify, but it is perhaps the most important social welfare asset the country possesses. This network is likely to grow, moreover, as new efforts are made to expand the agricultural sector, where family relationships are traditionally strong. A senior Marcos adviser summed it up to me this way: "I don't know any successful Filipino who isn't helping at least one member of his family. That is why we can never be a South Korea, but it is also why nobody starves." But there are drawbacks to this process, such as the serious migration of underpaid Filipino teachers to places like Hong Kong where they take jobs as maids at substantially higher pay.

It is sometimes argued that the economic and political cloud hanging over the Philippines has a silver lining. According to this view, the declining availability of external credits, together with external and internal pressure for reform, will force Marcos to adopt appropriate economic and political reforms to restore confidence. However, recent events do not support such optimism. Most dramatic was the central bank's overstatement of reserves by some $600 million in order to deceive both the IMF and private banks as to the nation's financial health. This led to the resignation of central bank head Jaime Laya early this year. Despite a second major dispute with the IMF over excess liquidity during negotiations in April, Marcos borrowed roughly $300 million from the central bank to finance the election campaign for his own party, the Kilusang Bagong Lipunan (KBL), or New Society Movement.9 Faced in July with a choice between bailing out a failing Banco Filipino or meeting IMF liquidity targets, Marcos pressured the new central bank governor, José "Jobo" Fernandez, into the bail-out.

III

Such instances of "politics in command" are not aberrations; they are indicative of Marcos' style of governing. His tactical energies have always been directed at consolidating and preserving his core support. His power base is a tripartite alliance which includes his network of cronies; the military, whose command is heavily weighted with men from Marcos' home province of Icolos Norte; and a cadre of highly educated technocrats, the most prominent of whom is Wharton-educated Prime Minister Virata. The likelihood that Marcos would voluntarily undercut his power base by implementing more than a small portion of the sweeping economic and political reforms that are being demanded of him is rather small. The prospect for repression in order to enforce austerity measures is a likely scenario.

Yet despite Marcos' intransigence, a new sense of political accountability has arisen out of the economic crisis and the new wave of unrest following the Aquino assassination. The Philippine press, largely dominated by Marcos associates, is nevertheless becoming increasingly bold in challenging the president. The moderate opposition, atrophied by Marcos' personal accumulation of power during nine years of martial law and three years of what is officially dubbed "authoritarian democracy," is displaying a new energy and vitality. Despite Marcos' efforts to manipulate the recent May 14, 1984, elections for the Batasang, or parliament, opposition candidates won 59 out of 183 seats. Marcos did succeed in having his election commission change the results to remove from parliament a leading member of the opposition, Aquilino Pimental, considered a potential contender for the presidency. Nevertheless, the new parliament already has become a forum for questioning Marcos' power and calling for an accounting of abuses. Even leading members of Marcos' own ruling KBL, sensing the end of an era, are displaying a degree of independence. Both Prime Minister Virata and Foreign Minister Arturo Tolentino have called for repeal of Amendment Six to the Constitution, which gives Marcos power to override legislation, to rule by decree, and even to abolish the parliament.

The Philippine political spectrum does not divide neatly into "moderates" and "radicals." Rather, it is a continuum, with Marcos and his ruling KBL at one end and the communist New People's Army guerrillas at the other. The most remarkable new development has been the emergence, since August 21, 1983, of the essentially spontaneous and somewhat amorphous "Aquino movement," comprised of what had been the Philippine "silent majority" of middle-class professionals, the non-crony business elite, and the Catholic Church. The thrust of this movement is toward peaceful change and a restoration of democratic institutions.

Beyond a return to pre-martial law institutions, the emerging opposition movement does not have a set agenda. The loose coalition that participated in the May elections-the United Nationalist Organization and the Philippine Democratic Party-Laban group-is united only in its opposition to Marcos. That it won 59 seats despite its lack of organization is a testimony to the deep-seated resentment felt for Marcos. According to NAMFREL, the citizen's group that mobilized 150,000 people to monitor the polling, the opposition might have won 90 to 100 seats had it not been for fraud, manipulation and intimidation in roughly half the 80,000 polling districts.10

Despite a well-organized boycott movement-the militant Coalition for the Restoration of Democracy (CORD), headed by Aquino's younger brother, Agapito-83 percent of the electorate voted. Still, CORD continues to be an important political factor. A loose coalition, it includes left-oriented human rights groups, church-linked social action groups organizing the urban poor, and the leftist Kilusang Mayo Uno union which claims 450,000 members. It also includes "sector" groups (e.g., teachers, health workers, fishermen) influenced by the Philippine Communist Party (CPP) and its front group, the banned National Democratic Front.

Spurred by the slow pace of reforms since the election and by the growing militancy of the left, the Philippine Roman Catholic Church and moderate business groups have also become increasingly active in the opposition movement. Though Cardinal Jaime Sin, leader of the country's Catholics, is a conservative figure, opposition percolating up from the parish level has pushed him and the Church toward a more activist posture. In a country whose population is 86 percent Catholic, the Church is perhaps the most important institution with the exception of the military. The Church's activism has been matched by increased unhappiness among middle-level businessmen, who have suffered heavily from Marcos' economic favoritism.

Marcos has not yet yielded any fundamental power. He retains his decree-making powers under Amendment Six, and he retains the loyalty of the military. Reneging on previous promises, he has reappointed his wife, Imelda, to her cabinet post as Minister of Human Settlements, despite a humiliating defeat in Metro Manila, where she was the KBL campaign manager; 15 of the 21 contested seats went to the opposition. The grudging concessions that Marcos has made thus far have been mainly procedural. He replaced the initial commission charged with investigating Aquino's murder with the more credible Agrava Commission. He altered election rules, meeting enough of the opposition demands to win the participation of a key grouping that went against the boycott movement. He agreed to a new succession mechanism, whereby the speaker of the Assembly would take over and call elections in 60 days if he were incapacitated.

How much time Marcos can buy with such limited concessions remains to be seen. It is difficult to see the businessmen of the Makati, Manila's Wall Street, or middle-level bureaucrats and white-collar workers moving toward direct support for the nation's radical left, as happened in Nicaragua. Neither is the Catholic Church's role comparable politically to that of fundamentalist Islam in Iran. On the other hand, the surge in middle-class activism does represent a serious new challenge to Marcos' position, particularly when viewed in tandem with the growing military threat from the communist New People's Army (NPA).

IV

The remarkable growth of the NPA in both organization and influence has had little direct relation to Manila-based activism, or, indeed, to the assassination of Aquino.

The Communist Party of the Philippines was formed in December 1968 by a handful of young leftist intellectuals who had studied the failings of the old Hukbalahap guerrilla movement and its predecessor, the urban-based, Soviet-oriented Partido Komunistang Pilipinas (PKP). Shortly thereafter, in alliance with remnants of the Huks, they formed a military wing, the New People's Army. Since its inception, the CPP/ NPA has been an almost textbook Maoist party.11 The CPP's founding document criticized the PKP for focusing its activities in Manila and central Luzon, and failing to mobilize rural areas; it proclaimed a Maoist strategy of protracted "people's war."

The party's chief ideologue, chairman José Maria Sison, a former University of the Philippines literature teacher, called for adapting Maoist tactics to the particular geographic circumstances of the Philippines, a mountainous archipelago. His strategy focused on building a party infrastructure and organizing rural base areas from which to eventually "encircle the cities." Writing under the name Amado Guerrero, Sison argued that, in the scattered islands of the Philippines, it was not possible to establish a large liberated base as the Chinese Communists had done at Yenan. Instead, he argued, the Party should create guerrilla fronts in a few major islands first, then in other islands. His strategy was to develop well-trained cadres and send them to remote rural areas, creating in essence a decentralized leadership.

Beyond moral backing and minor material support in the early 1970s, the CPP/NPA has received no significant support from any communist or other outside power. While still maintaining a Maoist worldview, it has had little contact with Beijing, at least since the Chinese established diplomatic ties with Marcos in 1975 as part of a general reorientation of Chinese foreign policy in Southeast Asia which emphasized the improvement of ties with ASEAN nations. The post-Mao reforms in China have drawn the CPP's criticism. The present Chinese government actually supports U.S. military bases in the Philippines as a counterweight to growing Soviet influence in the region. Official Chinese-Philippine trade has grown steadily.

Current CPP publications are critical of both China and the Soviet Union, but appear to straddle the Sino-Soviet split. The Chinese are referred to as "anti-imperialist forces" who have mistakenly taken incorrect positions, such as establishing ties with Washington. Moscow is referred to as having mistaken "social imperialist policies," such as "its disregard for the right of nations to self-determination in Afghanistan and Kampuchea."12 There is little indication that the Soviet Union is gravitating toward the NPA; indeed, Moscow maintains cordial ties with Marcos, and has recently stepped up cultural exchanges between the two nations. Overall, the Soviet Union appears to have little interest in or effect on the NPA's struggle.

The real focus of the CPP/NPA is internal. In the early 1970s, it gradually spread out across the Philippines, particularly in remote areas where there was little government presence. The NPA now operates in 62 of the country's 73 provinces. Perhaps its strongest and most visible presence is in eastern and northern Mindinao and Samar. The Philippine government, in the view of U.S. intelligence analysts, consistently underestimates the NPA's strength. In May, Marcos said there were at least 6,800 NPA guerrillas, but in recent congressional testimony U.S. officials backed the NPA's claims to have about 10,000 armed guerrillas and another 10,000 local militia members.13 Some U.S. intelligence reports put the numbers even higher.

The scale and frequency of the NPA's operations have increased substantially since the early 1970s when it operated in 10- to 20-man platoons. By 1980, there were occasional reports of operations with company-level strength of 80-100 guerrillas. But in 1984, company-size units operate across the archipelago in the major NPA areas, and the Philippine Army has on occasion confronted 300-man battalions with more firepower than the government troops. NPA activity has increased in frequency to the point where it exceeds the number of government search-and-destroy missions. The more aggressive NPA tactics have led the often-demoralized government troops to abandon more remote outposts and consolidate in larger garrisons.

The bulk of NPA weapons has been captured in clashes with the army, in attacks on weapons depots, or from the poorly trained local government militia, the Civil Home Defense Forces (CHDF). Some are purchased on the open market, and some are reportedly purchased clandestinely from Philippine army soldiers. The NPA has a fairly sophisticated tax collection and extortion apparatus, obtaining payments from local mining and logging firms as well as from local businesses in areas where its influence is substantial. U.S. officials estimate that the NPA has influence or control in about 20 percent of the barrios in the rural Philippines.

The stifling of political expression during the martial law period, abuses by government officials, government land grabs, military abuses and economic strife have combined to fuel the insurgency. A map of NPA zones shows that they are strongest in all the coconut-growing areas. U.S. officials attribute NPA successes to the weakness and corruption of the Philippine military more than to NPA military prowess.

The corruption of civilian life is mirrored in the middle and upper echelons of the military. Once highly regarded in Philippine society, the military is now scorned and discredited, particularly in light of the findings of the Agrava Commission, which confirmed what most Filipinos have believed since August 1983-that there was a military conspiracy in the Aquino murder.

The two poles of the Philippine military have long been represented by Chief of Staff General Fabian Ver and Chief of the Constabulary Fidel Ramos. Ver, a former bodyguard and chauffeur to Marcos, is a longtime Marcos crony with little combat experience. Until he took a leave of absence following the revelations of the Agrava Commission, he headed the National Intelligence and Security Agency.

Ver symbolizes an unprecedented politicization of the military. Recently, 17 generals and 13 colonels were retired to clear the way for Ver (and thus Marcos) loyalists. Marcos created a 15,000-man Presidential Security Command headed by Ver's son, Lieutenant Colonel Irwin Ver, whose rapid promotion has raised many eyebrows. Ver himself is past retirement age, as are several dozen other generals, stifling the promotion prospects of younger officers.

At the other pole is Ramos, a West Point graduate who reflects the "loyal constitutionalist" tradition of the Philippine military. Around him is a coterie of middle-level officers-colonels, lieutenant colonels, and majors-who are disillutioned and frustrated by the decay of the military.

The findings of the Agrava board have resulted in Ramos' promotion to acting Chief of Staff in Ver's absence. It remains to be seen how much actual power he will have to reform the military. While there is dispute over Ver's involvement in the Aquino murder, both the majority and minority Agrava Commission reports concluded that there was a military conspiracy. This runs sharply counter to Ver's personal testimony, thus, at a minimum, reinforcing suspicions that he participated in an attempted cover-up.

The shortcomings of the Marcos regime-civilian and military-have permitted the NPA to attain a "Robin Hood" image as protector of the urban poor and rural masses. The abuses of the Army, documented in the 1983 State Department human rights report and by Philippine church-based human rights activists, lend credence to this image. In many remote areas, the NPA is a shadow government, dispensing frontier justice. The NPA can be as brutal as the military, but its violence is more discreet and targetted while the military tends to act randomly. NPA "sparrow units" target abusive military authorities, landlords, or disagreeable local officials.

In areas where the NPA has a strong presence, such as Samar, Bicol and Mindinao, local officials have begun to develop working relations with the rebels. This is true in many small and medium-sized towns, and even in Davao City in Mindinao, the third largest city in the country.

Neither U.S. officials, outside analysts nor the insurgents themselves see the CPP/NPA as capable of toppling Marcos within the next five years. In a recent interview, communist leader Sison speculated that the CPP/NPA would be prepared to take power "around 1990 or a few years after," a projection similar to that of U.S. intelligence analysts. Pentagon officials believe the NPA is expanding at a rate of about 20 percent a year, and expect the trend to continue unless major reforms are implemented.

At present the CPP/NPA is at what might be described as an advanced point in the first stage of guerrilla war. At its current level of activity, the NPA could sustain itself for the foreseeable future. But in an archipelago, with no significant external support, advancing to the more sophisticated stages of military activity is a problem that neither U.S. analysts nor the guerrillas themselves have answered. If current political trends continue, however, a steady erosion of the Philippine government could tip the balance in their favor.

V

The United States has long-standing interests in the Philippines flowing from a unique historical relationship. In the past century, the United States has twice liberated the country from foreign domination, acted as the colonial power for 50 years, and fought side by side with Philippine soldiers during World War II. Although U.S.-Philippine ties retain some neocolonial overtones, the special relationship between the two nations is also reflected in the presence in the United States of some two million Philippine-Americans, and the Philippine population's remarkable cultural identification with America.

The United States also has a large stake in the stability of any Manila regime. In the Philippines are located the two largest American overseas military installations, Subic Bay Naval Base and Clark Air Force Base. U.S. investments in the Philippines approach $5 billion.

American worries about stability led to Washington's acquiescence in Marcos' martial-law decree, at the expense of concern for human rights and democracy. Such an embrace initially posed no problems for the Reagan Administration, which strongly emphasized the strategic value of the U.S. basing agreements and, in line with its critique of Carter Administration policy toward the Shah of Iran and Nicaraguan dictator Anastasio Somoza, the importance of demonstrating support for an old ally. The enthusiasm with which the Administration approached this posture reached a high point when Vice President George Bush, during a 1981 visit to Manila, told Marcos, "We love your adherence to democratic principles." Bush's accolade was all the more inappropriate since his visit occurred in the aftermath of widely publicized election fraud.

The Bush trip was followed by a triumphant state visit to Washington by Marcos in 1982, further underscoring American support for his rule. In this pre-Aquino phase, Administration policy was focused on the renegotiation of the base agreements, completed by June 1983, which led to an almost doubling of U.S. economic and military aid to the Philippines. The previous accord reached by the Carter Administration included a $500-million aid package to be disbursed from FY 1979 to 1984. Under the new agreement, Reagan pledged his best effort to gain congressional approval for a $900-million package to be disbursed between FY 1985 and FY 1989.

Washington's ability to subordinate its democratic concerns to strategic necessity was fundamentally undone by the assassination of Aquino. The assassination and its aftermath, combined with a Qpllapsing economy and a growing insurgency, abruptly thrust the issue of democracy back to the fore, making it central to the whole concept of Philippine stability. The rehabilitation of the Philippine democratic process and institutions has become not simply an end in itself, but a key to long-term U.S. security interests in the region.

The tragic events created a new sense of urgency in what has evolved into a pragmatic American posture of pre-crisis management seeking to maximize U.S. leverage. The Administration immediately distanced itself from Marcos, and the overriding concern of U.S. policy became accountability and restoring democracy. Michael Armacost, then U.S. ambassador to Manila, was a conspicuous mourner at Aquino's funeral.

Confronted with the dilemma of a troubled authoritarian ally with important strategic ties to the United States, the Administration has thus far avoided the extreme options-destabilizing Marcos (the "Diem scenario") or extending all-out support for the present regime. The presence of a middle-class-led opposition, whose pillars are the business and professional community and the Catholic Church, and a context of democratic traditions, have encouraged the adoption of a middle option: outspoken support for political and economic reforms, an activist stance of public and private dialogue with a broad range of opposition forces, and continued efforts to shore up the Philippine economy.

The immediate manifestation of this policy was public and private pressure on Marcos for a credible investigation of the Aquino murder. This was followed by vigorous U.S. lobbying to press Marcos for electoral reforms in the period prior to the 1984 elections, and at the same time, to press the opposition to participate. The elections were viewed as an important opportunity to legitimize the democratic process, and to reinvigorate a weak and divided opposition while steering post-Aquino popular wrath toward reform within the system.

From the elections the parliament emerged as a legitimate forum for challenging Marcos' policies. But the downward spiral was merely slowed, rather than halted. Fresh concern, which has moved the Philippines up in the hierarchy of U.S. foreign policy priorities, was triggered by a deeply pessimistic report prepared by Admiral William Crowe, commander-in-chief of the U.S. Pacific Command, after a trip to the Philippines in June. At about the same time, in early July, other U.S. studies produced similar conclusions about the urgency of the situation and spurred an interagency policy group to reappraise the U.S. stance.

The Administration has also demonstrated its concern about the need for economic reform. In August 1984, the Administration accepted a Treasury Department recommendation to vote against a $150-million World Bank agricultural loan to the Philippines, the first time the United States had opposed a World Bank loan to Marcos. Yet Washington continues to provide economic support above and beyond the aid linked to the base agreements.

These ambiguous actions highlight a key dilemma for U.S. policy in the two-to three-year period of extreme economic austerity the Philippines now faces: how to balance support for the Philippine people on one hand, with pressure on Marcos on the other. Critics argue that this behavior is sending a mixed message, thus reducing potential U.S. leverage. It could also be argued that the agricultural and food aid and trade financing benefit the people of the Philippines; cutting off such aid would not only reduce U.S. leverage, but benefit both Marcos, who would take a nationalistic posture in response, and the NPA.

There is increasing discussion in the Administration and Congress about offering a new aid package to Manila, contingent upon major reforms. Thus far, U.S. policy toward the Philippines in the post-Aquino period has been largely bipartisan. The Administration went along with a Democratic move to alter the mix of FY 1985 aid to Manila, removing $45 million from the military side and adding it to the economic aid package. In what may emerge as a new consensus when the Administration takes its FY 1986 aid request to Capitol Hill, conservative and liberal versions of this idea may converge-support Marcos, but insist that he be a "new Marcos."

But arguably, a "mini-Marshall Plan" for the Philippines may be counterproductive. It would presume that Marcos is capable of changing his spots and making sweeping military and economic reforms that would undercut his political constituency. Such an aid plan would also assume that the United States is sufficiently able to monitor progress in the complex task of dismantling the system of "Marcos socialism," beginning with the coconut and sugar monopolies. It is more likely that Marcos would devise ways of giving the appearance of reform without much substance. To allow farmers to sell sugar on the free market, outside the Benedicto monopoly, while denying rural credit to farmers who do so, for example, would not tax Marcos' imagination.

There is clearly no simple solution to the complex situation in which U.S. policymakers now find themselves. Washington's preliminary efforts to promote political reform must be sharpened and directed toward specific institutional changes if they are to have lasting effect. These would include, at a minimum, the repeal of Amendment Six, the establishment of enduring mechanisms-including an independent election commission-to guarantee fair procedures in the coming 1986 local elections and 1987 presidential elections, and the rebuilding of a fair and independent judiciary. Of central importance, too, will be a thoroughgoing effort, already begun by the Agrava Commission, to expose and eliminate corruption in the military.

In the economic sphere, efforts to help reschedule payments on the interest as well as the principal of the Philippines' foreign debt would work to free up capital for development, thus reducing the period of austerity and lessening economic hardship. Such a move would also help restore a key ingredient now missing in the Philippine economy-investor confidence. Ultimately, however, the long-range value of any economic concessions will depend heavily upon the extent to which preferential economic and tax arrangements can be restructured to provide a fairer system of benefits and opportunities for middle-class business. This must include the cancelling of special trade concessions held by Marcos' friends and associates, as well as strict regulation of banking and credit relationships, particularly those involving foreign funds.

As a further step, a U.S. trade benefits package-in effect, a "supply side" foreign policy-could be more effective than direct economic aid. The United States could, for example, enlarge the Philippines' sugar quota, contingent on reform of the sugar sector. Washington could also push for a larger Philippine share in the international coffee agreement, or exempt Manila from new rules on textile imports. Such measures, similar to some of the provisions in the Caribbean Basin Initiative, would allow room for maneuver in adopting other economic reforms and, again, help restore confidence in the Philippine economy.

It is often argued that, given Marcos' entrenched position and the U.S. strategic military stake in the Philippines, any attempt to force change upon him is doomed to fail. Certainly it would be unwise to discount Marcos' political tenacity or guile, and he is not in imminent danger of losing power. There is at this point no political figure approaching Aquino's stature among the opposition. Nor is there a credible heir-apparent in the Marcos camp, though Cojuangco, who has maintained a low public profile while accumulating economic and political power, may emerge to fill this vacuum.

Still, America's long-term interest is not in the preservation of a friendly dictator, but in the preservation of Philippine stability, and, lacking that, in finding a suitable alternative for our strategic bases in the region-a difficult but not impossible task. The military facilities at Subic and Clark are important to the U.S. forward-basing network. There are no alternative arrangements that would not represent a setback to U.S. force projection capabilities. But ultimately, the bases are not vital. What is vital is strategic denial-that Clark and Subic not become Soviet assets-and the U.S. ability to project force in the Indian Ocean.

Alternative basing structures would, according to Pentagon estimates, cost in the $2-$3 billion range. Moreover, in terms both of projecting force into the Indian Ocean and servicing the Seventh Fleet, the Philippines bases could not be directly replicated. Their functions would have to be distributed among several different facilities. In congressional testimony, Pentagon officials have disclosed that the United States has taken out a 50-year lease on 18,000 acres in the Northern Marianas islands of Saipan and Tinian, which could be an option for "redeployment." Japan and Guam have also been mentioned as possibilities to assume some of the ship repair and servicing functions performed at Subic. Pentagon officials have also conceded that the idea of dispersing some of the functions of Clark and Subic throughout the Western Pacific would be feasible.14 In light of the Soviet Union's increased presence in the North Pacific and Indian Ocean-particularly, its capability to project force from Cam Ranh Bay-it is not improbable that other allied or friendly countries such as Australia, Thailand or Singapore would permit some of the functions performed at Clark and Subic to be relocated to their territory.

Active consideration of basing alternatives, perhaps even the initiation of some contingency military construction, may be an even more effective lever on Marcos than an incremental aid package. If Marcos cannot or will not accept the reforms necessary to ensure stability, then we must be willing to call his bluff, and look even farther down the line, toward the inevitable emergence of a new Philippine leadership. Given the security which the presence of the U.S. bases provides against external threats, as well as the approximately $300 million in hard currency which they bring to the Philippine economy, it is unlikely that any Philippine government short of one dominated by the NPA would unilaterally terminate the base agreements.

Regardless of the options pursued by the United States, the ultimate fate of the Manila government will be primarily a Philippine affair. U.S. leverage should not be underestimated; U.S. efforts to shape the setting for the inevitable Philippine transition can almost certainly have some benefit. But above all, a profound sense of realism is essential to an effective U.S. policy, regardless of its impact on Marcos, or even on specific U.S. basing issues. The success of U.S. policy toward the Philippines will ultimately rest on how well it answers Philippine concerns, based on Philippine realities, in a framework of Philippine democracy.

1 For an incisive analysis of the structural failures of the Philippine economy, see the testimony of Dr. Gustav Ranis in The Situation and Outlook in the Philippines, Hearings before the Subcommittee on Asian and Pacific Affairs of the House Foreign Affairs Committee, 98th Congress, 2nd sess., Sept. 20, 1984.

2 An Analysis of the Philippines Economic Crisis, Manila: University of the Philippines, School of Economics, June 1984.

3 The Washington Post, August 16, 1984, p. 1.

4 An Analysis of the Philippines Economic Crisis, op. cit.

5 Ibid.

6 Though the Philippines' foreign debt is often put at $26 billion, senior Marcos advisers and U.S. banking officials involved in negotiations on the debt place the true figure at $29 billion.

7 Speech, Bernard Villegas, Center for Research and Communication, Manila, August 1984.

9 Villegas, op. cit.

10 NAMFREL Report on the Election, Manila, May 1984.

12 Ang Bayan (clandestine publication of the CPP), March 1984.

13 Testimony of Assistant Secretary of Defense Richard Armitage in The Situation and Outlook in the Philippines, Hearings before the Subcommittee on Asian and Pacific Affairs of the House Committee on Foreign Affairs, 98th Congress, 2nd sess., Oct. 4, 1984.

14 See testimony of then Commander-in-Chief, U.S. Forces in the Pacific, Commander Robert Long in United States-Philippines Relations and the New Base and Aid Agreement, Hearings before the Subcommittee on Asian and Pacific Affairs of the House Foreign Affairs Committee, 98th Congress, 2nd sess., June 17, 23 and 28, 1983.

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