Socio-economic and political realities and the need for Peace Negotiations

NDFP Chief Political Consultant

Delivered at the International Peace Research Institute

Oslo, Norway
1 June 2005

Dear Colleagues and Friends,

Greetings of solidarity!

Thank you for inviting me to speak at your well-known institution. I am delighted and honored by your invitation. I have long appreciated your work in peace research and in providing support to peace negotiations.

I wish to describe the socio-economic and political realities in the Philippines and proceed to a discussion of the need for peace negotiations between the National Democratic Front of the Philippines (NDFP) and the Government of the Republic of the Philippines (GRP).

Socio-economic realities

Many people, including Filipinos, think that the Philippines is a small country. In fact, it has a population of 84 million, which is the 12th largest or within the top 6 per cent of national populations. It has an area of 300,000 square kilometers, which is the 73rd largest land area or within the top 38 per cent of the 191 member-states of the United Nations. At nominal prices, the gross domestic product for 2004 is PhP 4.843 trillion or USD 86.482 billion. It includes a lot of overvaluation in the industrial sector and a lot of false estimates in the agriculture and service sectors.

The estimated output value share of agriculture is 14.8 percent, industry, 31.9 percent and services, 53.2 percent. The output value share of agriculture is understated. It does not cover the considerable part of the agricultural product which the peasants consume. The estimated employment share of agriculture is 36 percent, of industry 16 percent and of services 48 percent. Based on this, the peasants are responsible for more than 69 percent of the basic production of goods and the industrial workers for nearly 31 percent.

The Philippine social economy remains underdeveloped, despite all previous official rhetoric about development. It is still basically agrarian and pre-industrial in terms of the development of the productive forces. The principal means of production is still agricultural land, which is mainly for domestic food consumption and secondarily for export crops (coconut, sugar, bananas, pineapple, etc.).

The degree of mechanization in agriculture is limited and is concentrated on estates for export crops. In 2001, only some 11,500 tractors and 700 powered harvester-threshers were available for over 13 million hectares of agricultural land. Only 30 percent of the country’s total farm area is irrigated as of 2002. Land ownership is heavily concentrated with less than 1/3 of landowners owning more than 80 percent of all agricultural land.

The Philippines has rich natural resources and most of the minerals for industrialization. But after extraction, the mineral ores do not go beyond the primary stage of processing and are exported as raw materials. There is a certain amount of modern industry but this is based on equipment, fuel and other inputs from abroad. The industrial sector produces neither capital goods nor basic metals and chemicals.

Export-oriented low-value added semi-manufacturing, which have come into favor with policymakers and investors since the late 1970s, is far more import-dependent and provides less regular employment than the repackaging and reassembly for import-substitution and domestic consumption in the 1950s and 1960s. It has reduced output value and employment since the 1997 economic and financial crisis in Southeast Asia.

The crisis of overproduction of semi-manufactures for reexport since the middle of the 1990s (1994 for garments and 1996 for electronic assembly) has come on top of the earlier crisis of overproduction of raw materials since the late 1970s. However, despite the continuing global oversupply of low value-added semi-manufactures, the Philippines has continued to stick to electronic assembly and garments. These account for 75 per cent of gross export earnings. However, the high imported content of the semi-manufactures – up to 85-95 percent in the case of electronic equipment – yield a very small amount of net export earnings.

The Philippine economy is a neocolonial adjunct of the US and world capitalist system. It is exceedingly dependent on direct investments, loans and trade with the global centers of capitalism. It is bound by policies dictated by major capitalist countries bilaterally or through multilateral agencies like the International Monetary Fund (IMF), World Bank (WB) and the World Trade Organization (WTO).

Despite its external linkages, the Philippines retains a distinct system of socio-economic relations. These are precisely called semi-feudal. The comprador big bourgeoisie and the landlord class are the basic exploiting classes and together constitute a fraction of one per cent of the population. The basic exploited classes of workers and peasants are 15 and 75 per cent of the population, respectively. The intermediate social strata are the middle bourgeoisie and the far more numerous urban petty bourgeoisie.

The Filipino people have long clamored for genuine land reform and national industrialization as integral factors for breaking the persistence of large feudal holdings and realizing Filipino-owned industrialization in order to raise the level of economic development and change social relations for the better. But one reactionary regime after another has done nothing more than to pay lip service to land reform and national industrialization.

After the US and other capitalist powers shifted policy stress from Keynesianism to “free market” globalization, the reactionary regimes in the Philippines have obscured the need for land reform and national industrialization by harping on the need for raising productivity for the global market. In this regard, the real drive has been to further allow the foreign monopolies to take over natural resources, privatize public assets, get more tax exemptions and tariff cuts, and dump their surplus goods on the Philippines.

The Philippine economy is in a chronic state of crisis. This has rapidly deepened and aggravated under the current policy regime of unbridled “free market” globalization under which foreign monopoly capitalism is actually on a rampage. The semi-feudal economy is incurring huge foreign trade deficits faster than ever from the unequal exchange of its raw-material exports and consumption-driven manufactured imports. The foreign trade deficits have not been relieved but in fact been aggravated by the export-oriented low-value added semi-manufacturing because this involves a high amount of overvalued imported content.

The huge trade deficits and rising debt service result in chronic current accounts deficits and unfavorable balance of payments. But the deficits are often covered by new debts at more onerous terms, including short-term portfolio investments and the flotation of bonds by state corporations in the capital market. These render the economy more vulnerable. The foreign debt is ever mounting. The foreign exchange remittances of overseas contract workers are in fact used for further import-dependent consumption but are often cited as a resource for paying a major part of the foreign debt.

The high level of government budgetary deficit is due to economic depression, the sale of income-generating state assets, reduction of tariffs, tax evasion by the exploiting classes including tax holidays and exemptions, bureaucratic corruption and high military expenditures. Moreover, the reactionary government and its various corporations enter into onerous loan and supply contracts with foreign banks and companies that aggravate the deficits to be covered by local public and foreign borrowing.

The Philippine economy and the reactionary government in particular are bankrupt. But they are kept afloat by exporting ever larger volumes of certain goods whose prices keep on sinking, by rescheduling of old debts and incurring new debts at ever more onerous terms under various programs dictated by the IMF and the World Bank, by privatization of government assets and by capturing the foreign exchange remittances of Filipino overseas contract workers who now constitute 10 per cent of the population and whose annual remittances have grown to USD 8.5 billion in 2004.

We can trace the deterioration of the Philippine economy by looking at the growth and uses of foreign and domestic borrowing, from one regime to another. The Marcos regime was the very first one to dramatically raise the level of foreign borrowing from the level of USD 600 million in 1965 to USD 27.2 billion in 1986. The regime used the foreign funds to finance the graft-ridden construction of sugar, coconut, copper and nickel mills, irrigation systems, roads and bridges and tourist facilities. This was mainly under the auspices of the Keynesian policy stress of the World Bank before 1980.

But at the onset of the 1980s, economic policy stress would shift to monetarism and neoliberalism in the US and in the world capitalist system. Supposedly the time had come to act decisively against so-called wage inflation and social spending by the state. Both were blamed as the cause of the stagflation problem. While the US sought to attract funds from abroad by offering high interest rates in the market, the World Bank was made to cut down on concessionary official lending and the IMF was made to whip up trade and investment liberalization, privatization and deregulation as payback from the third world debtors.

The tight international credit situation in the 1980s compelled the Aquino regime to raise the level of local public debt from PhP 144.4 billion in 1986 to PhP 521 billion in 1992. The Aquino regime restricted imports and brought the level of foreign debt to USD 29.9 billion in 1992. To countervail depressed prices in the global market, the raw material exports of the Philippines had to be increased. Still the financial crisis sharpened in the early 1990s.

The Ramos regime harped on “free market” globalization. It outstripped the Marcos regime in foreign borrowing and the Aquino regime in local borrowing. It brought the level of the country’s foreign debt to USD 46.2 billion and total domestic public sector debt to PhP 922 billion in 1998. These borrowings were made in order to cover foreign trade and budgetary deficits, respectively. The deficits grew as the regime promoted the export-oriented low-value added semi-manufacturing and private construction of high-rise office buildings, residential towers, hotels, golf courses and other recreational facilities. The economic and financial collapse came as a major part of the 1997 Southeast Asia crisis.

The bankruptcy of the Philippine economy and state was conspicuous when the Estrada regime took over. Government expenditures went too far ahead of tax revenues. The IMF kept on pressing the regime to reduce government expenditures, adopt new tax measures and give priority to debt service. To pursue its bureaucrat capitalist purposes, the regime engaged in scams by raiding the pension funds of state and private employees and collecting money from the underworld. The Estrada regime raised the level of the country’s foreign debt to USD 51.2 billion and local public debt to PhP 1.068 trillion by year end 2000.

The Arroyo regime raised the level of the country’s foreign debt to USD 56.3 billion and the local public debt to PhP 1.833 trillion in June 2004. The compounded foreign and local public debt is PhP 6 trillion. In fact, the foreign debt has gone beyond USD 60 billion and the local public debt beyond PhP 2.5 trillion. In terms of the size of the total public debt, the Philippines is in a worse situation than Argentina. The Philippine public debt/GDP ratio has risen from 56 per cent in 1997 to 80 per cent in 2004. Last year, the reactionary government paid 81 per cent of its revenues for both interest and principal amortization. This year it is allocating 94 per cent of revenues for debt service.

Since 2001, the Arroyo regime has over borrowed from the private capital market, mainly US, by floating bonds. It is now given a low credit rating and is being forced by the IMF to raise taxes amid a depressed economy. The value added tax is being raised by 20 percent. Other measures for raising taxes are being implemented. Under conditions of deregulation, the oil companies are allowed to freely raise their prices and so are the power, water and other public utilities, their service rates. The reactionary government is raising the fees for services it provides.

The IMF and WTO require the regime to undertake further denationalization, liberalization, privatization and deregulation. State assets such as those in the National Power Corporation are being bargained away. Debts of state corporations being auctioned off remain as sovereign debt and do not become the liability of the new private owners. The mineral, forest and water resources of the country are further being opened up for unrestricted exploitation by the foreign monopolies. Mimicking the Bush regime, the Arroyo regime is planning to privatize the social security agencies of the state.

Major official statistical data in the Philippines are falsified to conjure the illusion of achievement. The Arroyo regime claims that the GDP grew by 6.1 percent in 2004. The Employers Confederation of the Philippines describes this as jobless and industry-less growth. The regime pretends to surpass by so many times the stagnant growth rates in the most advanced capitalist countries. It absurdly cites the heavy electoral spending last year, the proliferation of international call centers and false estimates of production rises in agriculture and service sectors of the economy as major items in the GDP growth.

The chronic rate of mass unemployment in the Philippines goes beyond 40 per cent. One can arrive at this rate by compounding the officially admitted unemployment and underemployment rates (the latter is actually unemployed). Unemployment has increased conspicuously since the 1997 Asian financial crisis, with the formal sector shrinking fast. The claimed unemployment rate of 11.7 per cent in 2004, which is comparable to that of Germany, is simply unbelievable. Supposedly “employed” by some specious definition are 30.635 million workers out of a total labor force of 34.571 million. But only 18.62 percent (5.067 million) are verifiably employed in the formal sector, while 67.47 per cent (20.670 million) are in the informal sector, which is a realm of random surveys and false estimates.

The real value of nominal wages has drastically gone down due to the rapidly soaring prices of basic commodities and services. Inflation has been pushed by the peso devaluation, the scarcities in import-dependent basic producer and consumer goods and the heavy electoral spending by the regime. The inflation rate of 5.4 per cent for 2004 in IMF and government statistics is simply unbelievable.

The peso has been devalued vis-à-vis the US dollar and is now less than half its value in 1996 and only a third its value in 1985. Funds for essential producer and consumer imports have become scarce because of superprofit-taking by the monopoly firms, the huge amounts of debt service, spending for foreign-made luxuries and weapons and salting away of dollars by big Filipino businessmen and high bureaucrats.

The broad masses of the people suffer the rising costs of basic commodities and such services as transport, water and electricity. Since the privatization and deregulation of public utilities in the 1990s, the price of oil products has increased on average by 160 percent, of electricity by 175 percent, and of water services by 450 percent. The social infrastructure is breaking down and the allocations for such social services as health, education, unemployment relief and housing are being cut back. The Arroyo regime has drastically slashed real spending on education by 3.2 percent, on health by 24.5 percent and on housing by 61.0 percent from 2001-2004.

Contrary to absurd government claims that poverty has fallen from 40 per cent to just 30.4 percent of the population in 2003, some 90 percent of the population live on the equivalent of around USD 3 a day. A recent report by the Asian Development Bank points out that the Philippine government achieved the reduction of the poverty level not by raising the people’s income but by lowering the poverty line. Indeed, while the general price level supposedly rose by some 15 percent between 2000 and 2003, the government raised the poverty line by just 7 percent – to just PhP 33.60 or some USD 0.60 a day.

Millions of children are subjected to forced labor, malnutrition, deprivation of education, military assaults on rural communities and forced evacuation. Women are degraded and forced to leave their families in order to earn a living abroad. Large numbers of women and children are forced into prostitution. The environment is being damaged by logging for export and foreign mining pesticide-dependent plantations and other pollutant enterprises.

Social discontent is acute and widespread among the toiling masses of workers and peasants and the middle social strata of entrepreneurs, traders and intelligentsia. They are increasingly engaged in strikes, protest rallies and other forms of concerted action. But the regime always tries to intimidate the people and orders the military and police to attack them. Human rights violations are rampant. There is more than enough of socio-economic exploitation and political oppression to drive so many people to wage revolutionary resistance.

The Filipino people demand such bourgeois democratic measures as land reform and national industrialization in order to break the agrarian, pre-industrial and semi-feudal character of the economy. They demand measures to be undertaken to uphold national sovereignty, conserve and use wisely the rich natural resources of the country and make sure that the social wealth created serves the material and spiritual well-being of the current and future generations.