Economics and turmoil

Press, 22 October 1983, Page 16

Economics and turmoil

The turmoil in the Philippines has generally appeared to have political causes. Dissatisfaction with President Marcos and the determination to return to something closer to democracy were fired by the assassination of the Opposition leader, Mr Benigno Aquino. Yet it was Mr Aquino himself, before he set off on the journey to return from exile to the Philippines, who said that it would ultimately be the economy of the Philippines, not the politics, that brought about the downfall of Marcos.

The Philippines has been badly hit by the world recession. Its exports are still mainly coconut oil, sugar, and timber, the prices of which have not risen at anything like the rate of the prices of the country’s imports, in which oil figures heavily. The result has been that the Philippines has borrowed heavily. It may soon default on some of its debts. The Philippines Central Bank has sought a 90-day suspension on its repayments. The fright that this caused has brought about a flight of capital. The country’s reserves of foreign capital have dropped dramatically. The Philippines sought loans from the International' Monetary Fund, which insisted that there should be a devaluation of the currency and a curb in consumer spending. This would have hit the living standards of a population for many of whom life is already harsh, and there was a revolt within the New Society Movement which President Marcos heads. The economic troubles became merged in the political turmoil and President Marcos is becoming, more determined to stamp out the protests against his rule. A severe economic

clampdown would certainly add to the unrest in the country. Some have even perceived a correlation between the number of protests on the streets of Manila and the number of banks unable to pay their debts. Even if President Marcos manages to stamp out the dissent against his rule, the strains in the economy will eventually catch up with him. Already 20 per cent of the country’s export earnings is needed to pay the interest on loans. In Brazil, which has the largest debt in the developing world, the relationship between debt and protest against the Government is even more apparent. The President has attempted to impose some Draconian economic measures on the country and has banned protests designed to influence the members of Parliament. In spite of the ban, the Brazilian Parliament rejected the President’s measure. It seems certain that more political turmoil will follow. One of the arguments put forward by the New Zealand Prime Minister, Mr Muldoon, as he has put the case for a new international conference to deal with finance and trade, has been that the conditionality of the loans from the I.M.F. should be changed. In effect, this means that the I.M.F. should not require such harsh measures to be taken before it will grant a loan. To some extent, the Philippines and Brazil will become test cases in the eyes of private bankers, of international financial institutions, and of Governments which have huge debts and cannot see their way clear to servicing them. The likely outcome might well be an increase in the power of Governments which are already authoritarian to the point of being repressive.