PHILIPPINES: CHALLENGES FACING THE AQUINO GOVERNMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90R00961R000500050001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 27, 2016
• Document Release Date: March 28, 2011
• Sequence Number: 1
• Publication Date: March 1, 1986
• Content Type: REPORT

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~``~"~f Director of ~eelre't-
Central 25X1
Intelligence
E~~~S~E~ Fi~~ COPV
G~G ~RGT Gl~E f ~!T
Philippines: Challenges Facing
the Aquino Government
ret
SNIE 56-1-86
March 1986
?py 4 8 5
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THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL
INTELLIGENCE.
THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS.
The following intelligence organizations participated in the preparation of the
Estimate:
The Central Intelligence Agency, the Defense Intelligence Agency, the National Security
Agency, and the intelligence organizations of the Departments of State and
Treasury.
Also Participating:
The Assistant Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
The Director of Intelligence, Headquarters, Marine Corps
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S N I E 56-2-86
PHILIPPINES: CHALLENGES FACING
THE AQUINO GOVERNMENT
Information available as of 12 March 1986 was used in
the preparation of this Estimate, approved by the
National Foreign Intelligence Board on 13 March 1986.
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CONTENTS
Page
SCOPE NOTE ...................................................................................... 1
KEY JUDGMENTS .............................................................................. 3
DISCUSSION ...... . ........................... . ..................................................... 7
Political Change ................................................................................ 7
Revitalizing the Economy ................................................................ 8
Reforming the Armed Forces .......................................................... 9
The CPP/NPA Threat ..................................................................... 9
The Soviet Role ................................................................................. 10
Implications for the United States ................................................... 10
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SCOPE NOTE
The dawn of a new era in the Philippines-the fall of the Marcos
regime and the installation of the Aquino government-offers Filipinos
an opportunity to address the serious problems confronting the nation.
This paper surveys the key questions facing the new Aquino administra-
tion and suggests what needs to be done to restore political stability, re-
vitalize the economy, and combat the insurgency. This Estimate does
not attempt to evaluate the prospects for success of the new regime at
this early stage but establishes a basis for later assessments (the first to be
completed in approximately six months). It also considers related issues,
such as Soviet attitudes and activities, prospects for the Communist
insurgents, and the outlook for US facilities in the Philippines.
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KEY JUDGMENTS
The political situation in the Philippines remains highly fluid and
we recognize that the potential for change in the government during the
next six months is substantial. Nevertheless, President Corazon Aquino
now has the opportunity to address the problems of revitalizing
Philippine political institutions, turning around the economy, reforming
the armed forces, and taking the initiative against the Communist Party
of the Philippines/New People's Army (CPP/NPA) insurgency. Her
personal popularity is very high, and she has the support of powerful
political forces. Nevertheless, she faces pressures for results, and her
mandate could swiftly erode unless she moves rapidly to consolidate her
personal authority and to implement reform. Her task will be monu-
mental because many of the steps she must take will contradict her
populist image and could alienate some of her supporters:
- Politically, Aquino must continue to dominate the coalition that
brought her to power while either creating new political
institutions or rehabilitating those of Marcos. At the same time,
she must cope with an insurgency and deal effectively with
former Marcos supporters.
- Economically, Aquino, if she wants to make good her promise to
dismantle Marcos's economic system and arrange for long-term
growth, will have to take measures such as allowing the peso to
depreciate, which will hurt some of her strongest supporters, at
least in the short run.
- In reforming the Armed Forces of the Philippines (AFP),
Aquino will have to continue a healthy working relationship
with the military leadership and military expenditures will have
to increase, something that probably goes against her natural
instincts.
To cope successfully with the insurgency, Aquino will have to
employ more effective military force, as well as implement
long-range political, economic, and social reform. The country's
fundamental problems are not amenable to quick solutions, and
a coordinated and effective civil-military strategy is essential.
We believe that we .will be able to measure reasonably well the
progress of the new Aquino government in meeting the challenges it
faces. We have developed key indicators that can be applied in the
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coming months to determine whether it is moving toward success or
failure.
- In politics, progress will be measured by Aquino's ability to
make appointments to key positions, to design and put in place a
new constitution and a revitalized judiciary, to hold local
elections, to institutionalize "people power," and to integrate
former pro-Marcos elements into the political process.
- In the economy, success will be indicated by progress in
depreciating the peso, liberalizing foreign investment rules,
reining in liquidity and raising interest rates, renegotiating with
the IMF, rescheduling foreign debt, attracting domestic and
foreign investment, and deregulating industries and breaking up
monopolies.
- Progress in reforming the Armed Forces will be indicated by
signs that defense funds, including US aid where appropriate,
are directed toward areas where they are needed most, more
competent and better trained officers are promoted and as-
signed to key posts, continued cooperation between Aquino and
the military leadership, increased defense expenditures, a more
comprehensive and aggressive approach to counterinsurgency
by the AFP, and a reduction of human rights abuses.
- In counteracting the insurgency, progress will be indicated by
an increasing level of insurgent defections to the government, a
greater need for the insurgents for external material support, or
signs of factionalism and splitting within the CPP/NPA.
We believe that the Soviets suf f ered a notable setback by their
misjudgment of the trends following the Philippine election and their
public congratulations to Marcos. The Aquino government will remain
suspicious of Soviet intentions toward the Philippines. Nevertheless, as
in the past, the Soviets will seek to embarrass the United States or fan
anti-US sentiment whenever an opportunity is presented. The Soviets
also may increase funding for leftist elements.
At this early stage, it is too soon to predict precisely what approach
the Aquino regime will ultimately take toward the United States.
Nevertheless, in the weeks and months ahead, we believe there will be
indicators of which way the new government is moving. We believe the
relationship toward the United States will be cooperative if
- Aquino avoids appointments of persons with anti-US tendencies
to key positions and otherwise seeks to control leftist influence
in her coalition.
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-The new regime shows further signs of recognizing the impor-
tance of US aid and other economic and political ties as it begins
economic, political, and social reforms.
- There is no significant escalation of anti-US rhetoric in speeches
or press releases within the new government.
- Aquino continues to be receptive to US concerns.
Conversely, there will be increasing problems in the relationship if:
- Leftist elements in the Aquino movement gain increasing
strength.
- Aquino makes significant compromises with the Communists,
which gives them a major role in government.
- Problems over the disposition of Marcos's holdings in the United
States become publicly contentious.
- Anti-US rhetoric, particularly concerning the facilities, become
more evident among Aquino's ruling coalition.
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DISCUSSION
1. The rapid collapse of the Marcos regime and the
ascension of Corazon Aquino to power underscores the
strong desire of the Philippine people for participation
in the political process. At the same time, it is
indicative of the fragility of Philippine political insti-
tutions. The new leader has demonstrated her ability
to successfully challenge an entrenched political
machine through the electoral process and through the
application of "people power" in the streets. But this
momentary grant of legitimacy is conditional; it will
be severely tested in the weeks and months ahead as
the new government struggles with the very difficult
problems and dilemmas that will confront it. Funda-
mental to Aquino's success will be:
- Consolidating her power and holding her coali-
tion intact either by restructuring the political
system or by reforming existing institutions suffi-
ciently to allow her to govern effectively.
- Revitalizing a Philippine economy weakened by
years of mismanagement.
- Reforming and maintaining control over the
Armed Forces.
- Devising and implementing a coordinated and
effective civil-military strategy to suppress the
Communist Party of the Philippines/New Peo-
ple's Army (CPP/NPA) insurgency.
2. Progress toward all of these goals will require
long-range policies and sustained efforts that will be in
constant risk of compromise by pressures to achieve
some immediate results. Over the next few months we
should be able to observe specific indications of how
well the new government is succeeding in meeting the
following challenges.
Changing the Political System
3. Aquino faces three major political tasks. The
most important is to hold together the coalition that
brought her to power or, at least, to minimize defec-
tions that could seriously undermine her support and
legitimacy. She rode into office on a wave of support
by the church, youth, the business community; ele-
ments of the military, and the middle class in general.
The "people power" by which she brought down
Marcos is, however, a volatile, episodic, and changing
phenomenon. She must now construct a political appa-
ratus that maintains a popular face but at the same
time controls the armed forces, manages a political
realignment, runs the bureaucracy, and otherwise
conducts the business of state. As Aquino actually faces
the tasks of governing, she is likely to have to make
decisions that will alienate various parts of her coali-
tion. Evidence of infighting between Aquino's LABAN
and Laurel's UNIDO have already surfaced indicating
that maintaining unity will be a formidable task.
4. A second major political task-that of restructur-
ing the political order-presents Aquino with a choice:
replace existing institutions or revamp and reform
them. Aquino has indicated that she wants to take the
former path. She has canceled local elections sched-
uled in May, has not called for a session of the
National Assembly, and reportedly plans to appoint a
committee to write a new constitution. However, her
decision to appoint former Marcos officials such as
Minister of National Defense Enrile, Armed Forces
Assistant Chief of Staff Ramos, and Central Bank
Governor Fernandez, suggest that she does not want to
break with the past entirely.
5. Aquino's third major task is to cope with former
Marcos supporters. She was fortunate in that key
segments of the Armed Forces shifted loyalty to her in
the waning moments of the Marcos regime and that
powerful cronies such as Eduardo Cojuangco and
Roberto Benedicto fled into exile. Nonetheless, a
residue of opposition will remain that, under some
circumstances, could come to constitute a formidable
challenge. For example, both Enrile and former Labor
Minister Ople have suggested they might attempt to
revitalize Marcos's New Society Party (KBL) party; the
KBL still dominates the national assembly and most of
the local government. A reinvigorated KBL would
most likely engage in constructive opposition to the
Aquino government. There is a chance, however, that
diehard Marcos elements, such as some of the remain-
ing military leaders, cronies, local political bosses, or
regional Marcos people (Ilocanos) will try to subvert
the new regime. In addition, reopening the Benigno
Aquino assassination investigation could cause internal
dissension, distract from the business of government,
and be a source of friction in US-Philippine relations.
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6. Barring some unforeseeable event such as an
assassination,' the key indicators of how well Aquino's
political consolidation is going are these:
- Aquino ensures her control of the civilian gov-
ernment and the Armed Forces by making her
own appointments to key positions, while simul-
taneously maintaining control of her coalition
despite the dismay of some of her supporters who
feel left out.
- Progress is made toward designing, putting in
place, and implementing a new constitution and
a revitalized iudicial system.
-The new government begins to make appoint-
ments to and changes in local government, in-
cluding the scheduling of elections.
- The new regime takes concrete steps toward the
institutionalization of "people power" through
NAMFREL or some similar political movement,
and leftist elements of Aquino's coalition do not
desert her.
- Former Marcos forces integrate into the political
process.
Revitalizing the Economy
7. Progress by Aquino in revitalizing the ravaged
Philippine economy would strengthen her mandate,
but the economy may be her most difficult problem.
She has inherited an economy in which per capita
income has fallen by over 15 percent since 1981. Gross
national product declined 4 percent last year, after
dropping by nearly 6 percent in 1984. Business spend-
ing on new plants and equipment has fallen to half its
1981 level, with the steepest decline occurring in the
last quarter of 1985. The economic collapse has been
concentrated in the modern industrial sector located
primarily in Manila. Agricultural production has risen
slowly, yet unemployment is a maior problem-some
estimates range as high as 35 percent unemployment
and underemployment in rural areas. The Philippine
debt now hovers around $26 billion.
8. Aquino has pledged to dismantle Marcos's eco-
nomic system, including the coconut and sugar mo-
nopolies. She also pledged during her campaign to
pursue extensive land reform and to limit foreign debt
' Given the widely diverse political forces which Aquino will face,
eve cannot rule out an attempt to assassinate her in the next few
months either by the Communists or other dissident elements.
Should such an attempt be successful, there will be renewed political
deterioration.
repayments to a fixed percentage of foreign exchange
earnings. There are some initial signs that the business
community is responding positively to Aquino's ascen-
sion. The Philippine stock market has rallied, the slide
in the value of the peso has halted, and business circles
have reportedly been pleased with Aquino's Cabinet
appointments affecting financial matters.
9. Aquino faces some hard choices in the immedi-
ate future. The reforms, which would best provide
long-range economic stability, may prove to be politi-
cally unpalatable in the short haul. Among the. most
dramatic reforms would be to devalue the peso and
liberalize foreign investment regulations. These mea-
sures would rapidly demonstrate Aquino's strong com-
mitment to market forces rather than government
manipulation, and reward agricultural production. At
the same time, a devaluation would mean greater
inflation and a further impoverishment-at least in
the short term-of the poor, the group that Aquino
claims she most wants to help. Meanwhile, the highly
touted reform of the coconut and sugar monopolies has
important symbolic political significance but is of
secondary significance as far as economic revitaliza-
tion is concerned.
10. Aquino will be under great political pressure to
make economic gains quickly. A maior test for her will
be to maintain political support even when these gains
are not immediately forthcoming. Even recovering the
1981 rates of investment would require an infusion of
$4 billion by early 1988; this could stimulate economic
growth rates of 8 to 10 percent annually, but coming
up with the capital will be extremely difficult because
Manila is running budget deficits of about $550
million annually and private domestic savings only
amount to about $500 million annually. In short, there
are no economic miracles on the horizon, and what-
ever Aquino does will be painful.
11. Although land reform is a maior component of
Aquino's economic platform, we believe that it will
provide special challenges. The government will have
to decide quickly whether its principal goals with land
reform are economic or political. Awell-planned and
well-organized campaign could accomplish both goals,
but there are serious pitfalls. Merely distributing land
for the sake of popular support could reduce produc-
tivity; yet retention of large holdings by family and
corporate entities, even if economically sound, could
undermine popular support. Nevertheless, steps to-
ward agenuine, well-conceived, and well-organized
land reform program early in the Aquino administra-
tion would be strong evidence of confidence and
determination.
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12. We believe that movement on some of the
following areas would be key signs that Aquino is on
the right road to revitalizing the economy:
- The peso depreciates.
nications. In addition, an effective maintenance man-
agement system must be instituted to keep combat
essential equipment at a high state of operational
readiness. An improved training system and a more
coordinated intelligence effort are also vital.
-The government controls the huge amount of
money put into circulation during the election
campaign by reining in liquidity and raising
interest rates.
- The government successfully deals with the IMF
and reschedules its foreign debt.
- Domestic investors-particularly the Chinese-
begin reinvesting.
- The government begins to deregulate industries,
break up monopolies, and liberalize foreign in-
vestment rules.
-The economy begins to acquire infusions of
foreign capital.
Reforming the Armed Forces
13. The defection of key segments of the Armed
Forces to Aquino was critical to her defeat of Marcos.
She must now maintain the support of the military-
an institution that she has mistrusted and criticized-
while simultaneously presiding over the fundamental
rehabilitation of an ineffective force, many of whose
leaders were politicized and corrupt.
14. The new government's first objective must be to
restore military morale, self-esteem, and professional-
ism. The implementation of a genuine merit system in
promotions, schooling, and assignments is critical. This
will also require the eventual retirement of the re-
maining overstaying officers (those whose terms of
service were extended beyond their retirement
dates)-some 23 ranking officers have already been
retired-and the redeployment of personnel and
equipment from Manila to combat areas. Improved
morale will also require that soldiers' pay be increased
and amenities improved. This will be costly, but is
absolutely vital. In comparison with other ASEAN
countries' budgets, the Philippine military budget is
low and has declined in real terms since 1978, even as
the insurgency dramatically expanded. Increasing the
military budget, however, will meet with considerable
resistance among some of Aquino's supporters.
15. Operational effectiveness must be enhanced by
expediting distribution of basic equipment to field
units, especially equipment for mobility and commu-
16. Popular confidence in the Armed Forces must
also be restored. The new government will have to
take serious steps, perhaps even over the objection of
local commanders, to punish human rights abuses and
reduce corruption. It is also important to expand civil-
military operations in areas where the Communist
insurgency is gaining ground.
17. We are somewhat concerned that Aquino may
not fully comprehend the relationship between a
revitalized Armed Forces and progress against the
insurgency. She is aware that long-range political,
economic, and social reform are necessary in fighting
the insurgency, but she may believe that these can by
themselves put the CPP/NPA out of business. Her
willingness to throw full support behind programs to
improve the AFP's combat effectiveness will be a
strong indicator of her recognition of what is really
required to defeat the insurgency.
18. We believe that the key indicators of progress
toward military reform will be:
Defense funds, including US aid where appropri-
ate, are directed toward areas where they are
needed most, particularly pay, training, and ac-
quisition of equipment that provides mobility
and communications.
- Government efforts to retire ineffective and cor-
rupt commanders do not wane, but are contin-
ued; more competent and better trained officers
are promoted and assigned to key posts.
- Aquino continues to maintain a healthy working
relationship with the military leadership.
- Military expenditures are increased, and mea-
sures to eliminate waste and graft are imple-
mented.
-The military adopts a more comprehensive and
aggressive approach to counterinsurgency.
The CPP/NPA Threat
19. We believe that the Aquino victory constitutes a
substantial setback for the CPP/NPA. The principal
target of their propaganda-Marcos-is now gone.
Their efforts to boycott the election were again repu-
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diated by the people, just as they were in the May
1984 National Assembly elections. The party is already
experiencing heightened factionalism and could split
over how to deal with the new Aquino regime. Some
elements of the party may want to accept Aquino's
offer of cooperation in hopes of surreptitiously infil-
trating the government rather than engaging in long-
term armed struggle, while others will want to contin-
ue to oppose it more openly. In the short run, even
without quick success in some government reforms,
we anticipate that peripheral CPP/NPA supporters
will accept Aquino's offer and defect back to the
government.
20. Nevertheless, the hardcore elements of the
CPP/NPA will continue to resort to arms and will
constitute a "leaner and meaner" insurgency. Dealing
with the long-established base areas will require a
strong military response by Aquino, as well as the
political and economic reforms we have noted. If the
new government fails to make good on its promises,
the insurgents could once again seize the initiative, just
as they did after the May 1984 elections.
21. We believe that the CPP/NPA will avoid be-
coming dependent on outside powers for material
support, though it may seek additional political and
moral support. In fact, we believe the acceptance of
financial and other external material support by the
insurgents would be a strong indicator that they are in
dire straits, that they perceive their previous self-
reliant strategy will not work, and are revising it. If the
United States becomes more directly involved in sup-
porting the AFP's counterinsurgency effort, there is a
danger that the CPP/NPA may begin attacking US
personnel and facilities.
22. Indicators that the new government has im-
plemented civil-military counterinsurgency strategy
against the CPP/NPA will be:
- Defections by substantial numbers of guerrillas in
the rural areas.
Efforts by the CPP/NPA to obtain external
material support or otherwise embark on a ne~v
strategy.
- Factionalism and splitting in the CPP/NPA.
- Tactical success by the AFP against the
insurgents.
Conversely, signs that the government is not gaining
ground against the CPP/NPA will be:
- Increased Communist infiltration of the gov-
ernment.
- Growing tactical success by the CPP/NPA.
- Increased insurgent control in rural areas.
- Failure of the government's amnesty program.
23. The Moro insurgency in Mindanao became an
issue in the presidential election as Marcos alleged that
the Aquino side was making pledges of autonomy for
this Islamic minority. The Aquino government has
started talks with Muslim leaders, including the Moro
National Liberation Front (MNLF) factions. We do
not anticipate that the MNLF will revise its strategy in
the immediate future, though we do believe the
leadership will now engage in a period of reflection,
perhaps sending out feelers and possible threats of a
return to armed opposition to see what concessions
might be obtained from the government.
The Soviet Role
24. The Soviets badly misjudged trends following
the Philippine elections by congratulating Marcos on
his election victory. Aquino's suspicions of the Soviets
are reinforced by her own anti-Communist attitudes
and by the image of Soviet dickering in Philippine
politics, particularly through overtures to Imelda
Marcos.
25. Nevertheless, as in the past, the Soviets can be
expected to look for opportunities to attempt to em-
barrass the United States or to fan anti-US nationalistic
sentiment. The Soviets may increase funding for leftist
elements to make sure that their anti-US activities are
sustained. They will continue to seek opportunities to
gain influence through economic incentives such as
seeking ship repair facilities or other gestures. We
believe that the Soviets will continue to be cautious
and would try to give significant and sustained back-
ing to the CPP/NPA only if they believed the insur-
gency had increased prospects of success and if the
USSR could gain some influence over the movement.
Implications for the United States
26. We stand by our judgment in SNIE 56-86 that
over the long run US interests, including the viability
of the bases, requires the restoration of political stabil-
ity. At this early stage, it is too soon to predict how
successful the Aquino regime will be in meeting the
challenges it faces and precisely what approach it will
ultimately take toward the United States.
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27. Nevertheless, in the weeks and months ahead we
believe there will be indicators of what way the new
government is moving. We believe that indications that the
Philippine approach toward the United States will be essen-
tially cooperative would include:
-Aquino avoids appointments of persons with anti-US
tendencies to key positions and otherwise seeks to
control leftist influence in her coalition.
-The new regime shows further signs of recognizing the
importance of US aid and other economic and political
ties as it begins economic, political, and social reforms.
- No significant escalation of anti-US rhetoric in speech-
es or press releases within the new government.
- Aquino continues to be receptive to US concerns.
28. Conversely, indicators that there are likely to be
increasing problems in the relationship include:
- Leftist elements in the Aquino regime gain in-
creasing strength.
- Aquino makes significant compromises with the
Communists, which gives them a maior role in
government.
-Problems over the disposition of Marcos's hold-
ings in the United States become publicly
contentious.
- Anti-US rhetoric, particularly concerning the
facilities, becomes more evident among Aquino's
ruling coalition.
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