THE PHILIPPINES: NEW SOCIETY, OLD PROBLEMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00353R000100040005-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 15, 2016
• Document Release Date: July 9, 2004
• Sequence Number: 5
• Publication Date: April 13, 1974
• Content Type: MEMO

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April 13, 1974
OCI No. 1331/74
SUBJECT: The Philippines: New Society, Old Problems
From the beginning, President Marcos has justified
martial law on two grounds: that the country was threat-
ened by a Communist-led political conspiracy and that
extra'-constitutional measures were needed to combat wide-
spread social and economic decay. Few Filipinos believe
the allegations of an anti-government plot were anything
more than a ploy to satisfy the constitutional require-
ments for declaring martial law. Nonetheless, they have
tolerated one-man rule in the hope that Marcos will thereby
realize the widespread reforms and create the "New Society"
he has promised.
Tacit Public Support
Efforts to oppose Marcos' control under martial law
have come to nothing. The judiciary has been in no posi-
tion to resist the President, nor could it hope to enforce
an anti-Marcos ruling. Traditional political groups, un-
skilled in clandestine operation, have been exposed almost
as soon as they appeared. Marcos has also undermined their
traditional source of power--wealthy patrons, who sought
to protect their own interests by having a "man" in govern-
ment. Marcos has used martial law to intimidate thoroughly
these vested interests--threatening their property and hold-
ing close relatives as hostages to ensure their cooperation.
Most commercial barons have found in fact that martial law
is good for business--labor organizers have been suppressed,
radical political activists have been cleaned out, and the
disappearance of elected officials has decreased the num-
bers of bribes and extra-legal business expenses. Most of
the so-called oligarchs as a result have quietly accommo-
dated to the new order and put some distance between them-
selves and the anti-Marcos politicians of the old order.
University students and teachers, the most irrecon-
cilable Marcos critics prior to martial law, have also
shown little enthusiasm for anti-regime politics in recent
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months. Under martial law, many more student and faculty
members have been detained and the police have kept univer-
sities under close surveillance. The air of suspicion and
fear that pervades most campus communities makes political
action difficult; students suspect any stranger of being a
government informer.
The one area where the President faces increasing
opposition is the Catholic Left. Although still a minority
in the Catholic Church, the liberals have easy entree to
all levels of society, a ready-made communications network,
and significant organizational skills. tinder martial law
several priests and nuns have been arrested and Church
buildings searched. Marcos has tried to balance these re-
pressive acts by opening a dialogue with some of the more
moderate clergy, but the priests and the government find
few common talking points. Most politically active clergy
are still reformists, not revolutionaries, but if they
continue to be frustrated in their efforts to change the
government by "gentle persuasion," their radicalization may
be inevitable. In time, Catholic dissent in the Philippines
could, as has already happened in some Latin American coun-
tries, develop into an "underground Church" in league with
left-wing insurgents.
The ability of any anti-Marcos group to organize a
significant opposition movement will depend on the growth
of popular frustration with the new order. Marcos has
thus far managed to achieve broad popular acceptance for
martial law.
Not everyone sees martial law as an improvement, but
most see it as no worse than the old system. Rural Fili-
pinos in particular can see some improvement in their daily
lives. Gun control measures and government pressure against
the goon squads of local landlords and politicians have
decreased the amount of petty extortion and harassment that
formerly plagued poor farmers. Despite delays in the implemen-
tation of land reform, peasants still hope and expect that
their turn will come.
Benefits to urban areas under martial law are less
evident, although urban residents are longtime enemies of
Marcos and probably hard to impress. The urban middle
class never liked Marcos and they have been`less willing
to tolerate his one-man rule. Their sons and daughters
crowd the universities and graduate to unemployment. They
are beleaguered by rising prices for food, fuel and services.
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Marcos and the Military
Marcos has not only centralized administration under
martial law but has "personalized" it as well. Activities
of the Marcos family dominate the government-controlled
media and every plan or benefit with any significance is
attributed directly to some act of Marcos or his wife. This
budding personality cult is potentially a risky business--
when difficulties arise, Marcos will have difficulty shrug-
ging off the blame on others. Moreover his sudden death
or incapacitation would leave a power vacuum resulting in
divisive competition among various aspirants for power. The
unsolved succession problem has created some difficulties
already. Foreign businessmen, for example, have expressed
doubts about the long-term investment prospects if they
cannot be certain of an orderly succession. Marcos report-
edly has made a secret political testament, but there is
little guarantee that it would be honored by.those ambitious
to fill a power vacuum caused by his sudden departure.
Military leaders will form an important element in any
post-Marcos regime. The Philippine military, long consid-
ered one of the most professional and least political in
'Southeast Asia, has taken on a new broader role under martial
law. Marcos began subtly changing the military's character
and preparing it for a political role prior to 1972. Polit-
ically dependable officers were gradually moved into top
command positions, often being promoted over the heads of
more capable men who were not considered personally loyal
to Marcos.
With the suspension of regular government bodies under
martial law, real authority passed to the local military
commander, who became the most visible link between the
local level and the central government. Marcos is aware
that the military could easily become a political rival, and
he has taken steps to assure its loyalty--increasing mili-
tary pay and fringe benefits, speeding promotions, adding
to the number of officer slots, and publicly praising the
military's constructive role in the new order. The mili-
tary has yet to articulate any unique interests different
from those of Marcos. Some officers have grumbled about
civilian interference with military handling of the Muslim
insurgency in the south, but thus far Marcos has been able
to soothe the ruffled feathers. There has also been some
sentiment that many civilian officials are guilty of back-
sliding in carrying out martial law reforms, but the military
has thus far shown no desire to move against alleged ills
without Marcos' orders.
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The Need For Economic Growth
For the past several years, the principal limitation
on Philippine economic growth has been setbacks in agri-
cultural production. Poor performance was partly the result
of drought, floods and crop diseases, but also of tight
credit policies, price controls, and the government's non-
funding of promised price supports for high-yielding vari-
eties of rice. Industrial growth has also been sluggish;
its average annual growth for the period 1967-72 was a
mediocre 6.8 percent. A persistent problem in Philippine
industry has been its pronounced domestic market orientation.
Relatively high growth rates were achieved in the 1950s
under a policy of protection--induced import substitution--
which led to high-cost industries unable to compete in ex-
port markets. As opportunities for import substitution
declined in the 1960s, so did foreign investment, and there
was a net outflow toward the end of the decade. The pattern
of output changed little during the 1960s, and industry's
share of employment remained stable at about 11 percent.
Response to incentives introduced in the late 1960s was
disappointing. Levels of industrial investment remained
stagnant from 1967-72.
Government decree power since martial law has resulted
in a flood of economic measures, many of which would have
been impossible in the political climate preceding martial
law. The power of oligarchic families has been checked, and
capable government technocrats who seem more committed to
national goals than to parochial interests have thrust out
in all directions with far-reaching policy initiatives. A
good beginning has been made toward agrarian reform, al-
though the program is likely to run into increasing opposi-
tion from landlords as it moves toward the breaking up of
smaller landholdings. Marcos must move carefully because
many of the small landlords are military men and middle
class people whose political support he needs. Changes in
industrial incentives have partly removed the built in
bias against production for export. The administrative
and financial system has been completely revamped, and tax
measures stalled for more than a decade in Congress are now
an integral part of the fiscal. system. Rules and regula-
tions governing foreign investment have been greatly modi-
fied. Many obstacles to economic growth remain untouched,
but these measures have made a significant start toward
correcting some fundamental problems.
The reforms had little to do with the country's
superior economic performance in 1973. The marked upswing
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was largely fortuitous, but it gave the Philippine economy
a cushion it has lacked for many years and bought time for
the reforms to have some impact. Agricultural recovery
due mainly to favorable weather and a record balance of
payments surplus resulting mainly from the spectacular rise
in world demand for primary products produced an economic
growth rate in 1.973 of 8-10 percent, a sharp contrast with
the mediocre 5.5 percent average annual rate from 1.967 through
1972. The rise in manufacturing output in 1973 was 8.7 per-
cent. Foreign exchange reserves at the end of the year to-
taled $876 million compared with only $282 million a year
earlier.
The outlook for this year is decidedly less good.
Growth will probably slow to about 6 percent. A major prob-
lem is that while the government has been successful in
lining up new sources of fertilizer imports, there is still
a question as to whether supplies will arrive in time for
the major rice planting that begins in June. Even with fav-
orable weather and timely fertilizer arrivals, agricultural
output is not likely to increase by more than 3-4 percent,
compared with 11 percent last year. The government has
recently taken measures to reduce institutional barriers to
increasing agricultural production and is taking a more ac-
tive role in provision of credit and extension services.
Agricultural output, however, is still dependent on the
vagaries of weather and before any real breakthrough is
achieved, the government will have to follow through on plans
for expansion of flood control and irrigation facilities.
Industrial growth is likely to be slowed by high costs and
shortages of essential raw materials abroad, and will prob-
ably be only on the order of 7 percent. Philippine industry
depends heavily on a steady flow of intermediate goods from
Japan, and decreased supplies of Japanese steel are already
causing some difficulties for a planned expansion of Philip-
pine domestic machinery and electrical equipment industries.
Adequate fuel supplies will be available, but higher
costs of crude oil will adversely affect the Philippines'
balance of payments--leading to a deficit of perhaps more
than $600 million. Higher prices for other essential im-
ports--chemicals, machinery, transport equipment, iron and
steel--will raise the total import bill by 40-50 percent.
Export receipts, on the other hand, should drop by 5-10
percent because of reductions in volume and price. Exports
of logs and lumber--and perhaps also of coconut products--
will be down sharply. Prices for most Philippine exports
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have held up well thus far, but are expected to soften
later in the second half of the year in response to the
economic slowdown in the US and Japan.
With its improved credit rating, the Philippines has
encountered little difficulty since martial law in negoti-
ating long term commercial credits to help stabilize foreign
exchange reserves. A total of $500 million in five-year
revolving credits has already been arranged with bank con-
sortia in the US, Europe and Japan, and greater amounts
are being sought. Inflows of foreign aid and of long term
private capital continue to be substantial and should help
limit the drawdown of reserves.
The government's most difficult and politically
pressing problem is inflation. The effectiveness of price
controls has now generally dissipated, and the stabilizing
effect of good harvests has been less than hoped for. Ac-
cording to official indices, consumer and wholesale prices
were up 27 percent and 51 percent respectively in 1973,
and the rise continued to accelerate into 1974. Government
countermeasures include an improved tax effort, a cutback
in programmed expenditures, and limitation of credit ex-
pansion through use of monetary instruments. Further steps
have been taken to absorb liquidity by launching an aggres-
sive "savings for progress" campaign and by issuing of
Central Bank Certificates of Indebtedness.
Curtailing monetary expansion, however, will only go
so far in holding down prices since much of the inflation
derives from world market pressures on internationally
traded goods. The government intends to continue subsidies
on a few import commodities such as rice and fertilizer and
to limit exports where necessary to insure adequate domestic
supplies at controlled price levels. Price controls have
been in effect for some time on domestic sales of sugar and
coconut oil, but are difficult to maintain with world prices
rising and with supplies moving increasingly into world
markets. Since these pressures are likely to increase, par-
ticularly on the import side, the government will probably
have only limited success in bringing inflation under con-
trol over the balance of 1974.
Marcos has given only token response to pressures for
higher wages, but he may not be able to hold the line much
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longer. Living standards of low income groups--particularly
urban workers--have been eroding for some years, and this
trend has quickened since martial law. At the end of 1973,
real wages for both skilled and unskilled workers in Manila
were 20-25 percent below their 1.965 level. Marcos has granted
a minor cost of living allowance to civil servants, but has
made only a feeble request to private industry to follow suit'
He opposes raising the minimum wage on the grounds of main-
taining the Philippine competitive edge in foreign invest-
ment. Since prospects for containing inflation this year
are not good, real wages promise to erode still further,
possibly at the risk of civil disturbances.
A number of measures have been taken since martial
law to restructure the industrial sector and to reverse
the outward flow of foreign investment. Tariff reform, a
more active government role in channeling investments, and
new fiscal incentives are part of a strategy to generate
employment and export growth. The government has liberalized
its policies on repatriation of capital and remittance of
profits in an effort to attract foreign investment. Much
will depend on the response of foreign investors to Marcos'
enticements. Given the increasing interest in commercial
and investment banking, petroleum exploration, mining,
manufacturing and services, direct investment should ac-
celerate provided world trade does not move into a reces-
sionary phase.
In any case it will be some time before the struc-
tural problems inherited from the policies of the 1960s are
corrected and the country is able to take full advantage of
its export potential. For the next decade at least, the
domestic market is likely to remain crucial to growth in
agriculture and real incomes.
Preserve Internal Security
The Philippines has for some time had two active
armed insurgencies--a Muslim revolt in the south and a
Communist guerrilla movement on Luzon. In addition, the
country was plagued by widespread violence committed by
a citizenry armed to the teeth and accustomed to settling
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political, commercial and personal feuds with a bullet.
Among Marcos' first acts under martial law was strict gun
control enforced by a constabulary roundup of unlicensed
firearms, and arrests of notorious gun smugglers and gang-
sters. Although the guns collected were only a fraction
of those in circulation--and rarely the high-powered fire-
arms--the tough measures have reduced the open carrying
of guns which in itself has contributed significantly to
law and order.
Since martial law, Marcos has increased pressure
on Communist organizations. nro-Sovi Communist
Part ortunes had
been ng -or_ some time. The more important, Maoist-
style Communist Party/Marxist Leninist has also suffered
under martial law; many of its urban leaders and cadre
have been detained and its access to university campuses
has been diminished. The party's most prominent campus
front, the Kabataang Makabayan student organization, has
tried to revive the spirit of student activism but its
former power and influence are gone. Martial law has had
less success with the Maoists' guerrilla arm the New
Peoples Army.
Guerrilla forces are
concentrated in the hills of northern Luzon and the Bicol
peninsula in southern Luzon and the Philippine armed forces
has not vigorously sought them out.
In contrast to the Communist guerrillas, the Muslim
insurgency in the southern islands is a significant se-
curity threat. Efforts to introduce gun control provi-
sions as part of martial law exacerbated long standing
communal tensions between the Muslims of Mindanao and
Christians moving in from islands to the north. The Muslim
insurgency has significantly worsened since martial law.
Marcos is not convinced--as are some of his military com-
manders--that an armed solution is practical. lie is wor-
ried about adverse diplomatic consequences and a drawing
down of troop strength that would encourage insecurity
elsewhere. The armed forces has taken heavy casualties
in the south.
The Muslims themselves are divided into several ethnic
groups with competing clans and political factions. Such
factionalism aids the government's military.operations, but
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it handicaps negotiation efforts. Where traditional polit-
ical chiefs still control Muslim communities in Mindanao
there is some sentiment for cooperating with Manila. In
other areas, especially in the Sulu archipelago, young
militants and fanatic religious leaders control the move-
merit and refuse any compromise short of secession from the
Philippine state.
Although Marcos has little hope of solving the "Muslim
problem," he has managed to contain it. The Muslim areas
are relatively unimportant politically and economically and
Marcos could live with a low level. of endemic insurgency
in the South. If the Muslims joined forces with other Phil-
ippine dissidents to launch coordinated attacks on govern-
ment forces, however; the threat to national security could
be serious. Maoist organizations are actively trying to
organize a united front effort against the government, and
some Muslim radicals have reportedly attended Maoist- spon-
sored organizational meetings. But the prospects of any
permanent liaison are dim. The Muslims want secession or
autonomy and do not much care what ideology the Manila
regime represents. For their part, Christian Filipino rad-
icals would probably be as unwilling as Marcos to allow the
southern Philippines to secede.
New Directions In Foreign Policy
Even before martial law, Marcos was calling for an
independent Philippine foreign policy which would include
expanded relations with Communist states and reduced de-
pendence on the US. Despite much publicity during the past
year about bold new foreign policy initiatives, the funda-
mentals of Philippine international diplomacy have changed
very little. Manila still looks to Washington more often
than not, and Marcos worries most about the durability of
US economic and military support, particularly whether
martial law will antagonize US Congressmen and jeopardize
aid programs. Marcos is making a massive effort to win
support from the large expatriate Filipino community in the
US in order to undercut the influence of his opponents abroad.
Much money has been spent. on literature, cheap "homecoming"
fares, and "truth teams" designed to influence public
opinion among US based Filipinos, and by extention American
citizens as well. Marcos has also tried to reassure Ameri-
can businessmen that the present favorable investment
climate will continue. He is putting distance between
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himself and the expressions of economic nationalism which
characterized political rhetoric both inside the palace
and out in the years prior to martial law. In official
relations with the US Government, Marcos has tried to play
down areas of difference, although as a Philippine nation-
alist he will bargain hard over economic and military agree-
ment. Marcos seeks to avoid a public cooling of US-Phil-
ippine relations out of concern that this would encourage
his enemies at home and create international difficulties as
well.
Contacts with Communist countries have increased
since,martial law but little new ground has been broken.
Manila has established relations with all the East European
states but not with the Soviet Union; none of the new
agreements provides for resident ambassadors. Bbth Moscow
and Peking have sent trade delegations--received with suit-
ably great press fanfare--but no trade agreements have been
signed and diplomatic tics seem no closer than two years
ago. Neither Peking nor Moscow considers the Philippines
a primary foreign policy target and Marcos is unlikely to
achieve relations on his terms. Even should ties be es-
tablished, neither Communist state promises to become a
,major trading partner capable of significantly ai.teri.ng the
present pattern of Manila's international economic rela-
tionships.
Perhaps the most important change in Philippine
foreign policy in the past year is the new initiative to-
ward the Arab states. The focus on the Middle East was
not envisioned by Marcos when speaking of the new direc-
tions for Philippine foreign policy under martial law. It
arose out of necessity when problems with the Muslim min-
ority in the south and a threatened oil shortage caught
Marcos at a disadvantage because he had diplomatic rela-
tions only with Egypt. He first began broadening contacts
with Arab states in early 1973 because he was under constant
attack in world Islamic circles by Libyan leader Qadhafi,
but the oil shortage accentuated his need for closer ties
with Middle East states. Marcos' willingness to abandon
neutrality on the Arab-Israeli conflict in favor of a pro-
Arab stand gained the Philippines an exemption from thhe
made
oil embargo. His dependence on Mid-East oil in turn
Marcos that much more sensitive to the need to keep the
Islamic world from condemning his Muslim policies.
Marcos' Muslim problems have also caused, diplomatic
difficulties with his Southeast Asian neighbors. Indonesia
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in particular is unhappy with the continuing tension be-
tween Manila and Kuala Lumpur over Marcos' charge that
the Malaysian Government is aiding the rebels. Malaysian-
Philippine relations were strained further when Marcos
revived Manila's territorial claims to the Malaysian Borneo
state of Sabah.
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