The World Bank and the Philippines

The Philippines remained a Spanish colony until 1898, when Spain was defeated in a war declared by the United States. Japan then occupied the country during the Second World War. In 1946 the Philippines became independent from the United States that laid down some conditions: a fixed exchange rate between the Philippine peso and the American dollar to protect the United States companies against the effects of devaluation, free trade agreements, etc. At the beginning, everything went easily since the United States were bringing a large amount of dollars to the Philippines, namely through a strong military presence in the country.

However, in 1949 the flow of dollars slowed down dramatically. The Philippine government set up a strong control on the currency exchange to avoid a heavy drain on the currency. The private companies were forbidden to borrow money from foreign investors. The government of the United States and the IMF allowed this measure to be taken in order to stay in good terms with their Philippine ally. The introduction of control over exchanges, capital flows and imports opened a period of economic growth in the Philippines through the development of the country’s industrialization. This period of economic growth ended twelve years later when the control measures were abandoned under pressure from the United States, the IMF and the World Bank.

During the 50’s, the manufacturing sector grew annually from 10 to 12%, the annual inflation rate was kept below 2% and the Philippines accumulated exchange reserves whereas the external debt was extremely low. However, some people where not happy with this situation: the companies from the United States and other countries complained about having to reinvest all their profits in the country’s economy. The exporting capitalists, both Filipino and foreign ones, had to deposit their export incomes in dollars in the Central Bank that returned them in pesos at an unfavorable rate. This process supplied the State with considerable incomes. In 1954, the Philippine government strengthened by its success demanded that the United States change the rules of the game that were set up in 1946, when the country reached its independence. Washington submitted to this demand, which reinforced the position of the Philippine authorities. However, one has to be careful not to idealize the achievements of the Philippines: the society remained a capitalist one, with deep rooted inequalities, and industrialization was carried out mainly in the assembling industry. Nevertheless, the situation of the 50’s was undoubtedly promising in comparison with all that has been happening since 1962. This is precisely what triggered the united offensive led by the United States, the IMF and the World Bank together with the most conservative sectors of the Philippine ruling classes that aimed at putting an end to the experience.

In 1962, the conservatives, who won the majority in the Philippine Congress after the elections of 1959, imposed the suppression of any control over capital flows. The IMF and the United States government showed their approval and immediately granted a loan of 300 million dollars. The suppression of control led to a heavy drain of capitals towards foreign countries, which was restrained through the grant of external loans. The external debt was multiplied by seven between 1962 and 1969 and increased from 275 million to 1880 million dollars!

The Filipinos who exported agricultural products and raw materials as well as the transnationals rejoiced as their profits jumped. In return, the manufacturing sector declined rapidly. In 1970 the peso had to be highly devaluated. The wages and incomes of small producers slumped. It was only in the context of crisis of the policies supported by the United States, the IMF, the World Bank and the conservatives, that Ferdinand Marcos set up a dictatorship in 1972, whose final aim was to consolidate the neoliberal politics through force.

A year later, on the other side of the Pacific Augusto Pinochet assumed power in Chile with exactly the same objectives, the same masters and the same support!

The key role of the World Bank

The first loans granted by the World Bank to the Philippines date back to 1958. The loans remained extremely low until McNamara became president of the WB in 1968. McNamara considered that the Philippines, where some United Sates military bases were settled, as well as Indonesia and Turkey were such a strategic stake that it was absolutely necessary to reinforce their bonds with the World Bank. Lending to those countries became a means of pressure. The World Bank historians did not hesitate to claim following: “McNamara and his staff were annoyed at the way the Philippines legislature was stalemaking policyreforms. Thus the Philippines was an instance in which martial law triggered the takeoff of Banking lending. Marcos dismissed the legislature and started ruling by presidential decree in August 1972. McNamara and the Bank staff welcomed the move” |1|. One of the first moves projected by Ferdinand Marcos after setting up the dictatorship was the suppression of the public indebtedness ceiling that was first set up by the Filipino Parliament in 1970. The regulation, that was later abolished, set an indebtedness margin of one billion dollars with an annual ceiling of 250 million dollar. Ferdinand Marcos put an end to this limitation, which eventually pleased the World Bank |2|. McNamara announced that the World Bank was ready to at least double the amounts granted |3|. At the time it was too late to raise the loans granted for 1973, to McNamara’s great displeasure. That is why the Bank did the job in double quick time and increased by 5.5 the total amount of 1973 (165 million instead of 30 |4|).

The World Bank and the IMF public supported the dictatorship in such a way that they organized the annual general meeting of 1976 in Manila. That year, Bernard Bell, Vice President of the Bank for East Asia and Pacific Region, declared: “The risk in lending to the Philippines was lower than for Malaysia or Korea” |5|. It is also worth noting that the World Bank established one of the three centers of research on the green revolution in the Philippines, in partnership with the Foundations Ford and Rockfeller.

However, Ferdinand Marcos did not quite carry out the economic policy required by the Bank. The World Bank was disappointed since it was in very good terms with the dictator and the academics that surrounded him, some of whom became later officials of the Bank, such as Gerardo Sicat, Secretary for Planning and then President of the Philippines National Bank, the main bank of the country.
The World Bank did not express any disagreement about the repressive policy of the regime. Quite on the contrary, the Bank was concerned about the slowness of the progresses made in the application of structural reforms. These reforms were intended to replace the remaining import-substitution industrialization model by the export-oriented industrialization model recommended by the Bank. In order to get a greater grip on the Filipino government, the Bank decided to grant two considerable loans of structural adjustment in 1981 and 1983, aiming at promoting exportations. The Bank was perfectly aware of the fact that most loans were transferred into the bank accounts of Ferdinand Marcos and his generals; nevertheless it considered it as a necessary bribe for paying the political staff in power in order to ensure the acceleration of the neoliberal counter reform.

In the meantime a banking crisis broke out in the Philippines in 1981 due to a huge case of corruption involving the capitalists as well as the machinery of State. The crisis spread gradually to the whole financial system of the Philippines until the two largest public banks were on the verge of bankruptcy. The crisis spread from 1981 to 1983/1984 and was exacerbated by the external debt crisis that broke out at international level in 1982. The private banks from abroad stopped granting credits to the Philippines. This was a clear failure for the World Bank and its good friends, Ferdinand Marcos, Gerardo Sicat and the Prime Minister Cesar Virata.

The popular discontent rose sharply. A number of key sectors of the ruling classes clashed with Marcos’ regime. This was reinforced by the murder of one of the members of the land oligarchy opposed to Marcos: the senator Benigno Aquino, previously exiled to the United Sates, is shot down at the Manila airport on his return in August 1983.
In spite of the growing opposition to Marcos, the World Bank decided to maintain its support to the dictator. The loans planning notwithstanding, it strongly raised the loans amounts: 600 million dollars in 1983, that is, more than the double of the previous year (251 million dollars in 1982). The historians of the World Bank wrote at the time that it was a matter of loyalty towards a good friend |6|.

The popular mobilizations became more radical until the Opposition sector of the ruling classes and of the Army got rid of Marcos with the assistance of the United States represented in Manila by Paul Wolfowitz |7|, who supported Marcos’ regime until the end, and forced him into exile |8|. Corazon Aquino, leader of the middle-class and landowner class, widow of Benigno Aquino, took the lead of the government in March 2006.

The World Bank hesitated then on the conduct to follow. The World Bank President for East Asia and Pacific Region, Attila Karaosmanoglu (see the chapter on Turkey), wrote a rather unenthusiastic internal note on the new democratic regime: “We expect that the decision making process will be more difficult than in the past, because of a more collegial nature of the new team, the enhanced role of the legislative branch and the populist tendencies of the new government” |9|. Finally the World Bank, the IMF and the United States sought to make the best of the situation by backing the president Corazon Aquino since she had committed to keep her country in the right side while thoroughly implementing the neoliberal agenda. The World Bank lent 300 million dollars in 1987 and 200 million in 1988: it was all about lubricating the wheels of public companies privatization. Between 1989 and 1992, the World Bank lent 1324 million dollars just to proceed with the structural adjustment. The United States threatened to block the loans in case the Philippines carried out their project of closing the military bases on their territory.

As for the land reform put forward by the powerful popular movement that led to the eviction of Marcos and became even stronger in 1987, Corazon Aquino choose the camp of the landowner oligarchy she came from. Between 1986 and 1990, the state only acquired 122 hectares |10|!

At last, the government of Corazon Aquino did even better than Marcos as far as the application of the set of neoliberal measures was concerned, which deeply satisfied the World Bank.

Translated by Noemie Josse.