Yearly Archives: 2016

Tone Deaf

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 If war is too important to be left to the generals, as Georges Clemenceau famously said, it is unwise to leave important international economic decisions to technicians who fail to connect them to broader U.S. national security priorities. This story concerns one such decision that was announced by U.S. Trade Representative Michael Froman on June 30. It immediately became the subject of heated controversy in Washington’s international trade circles.

It’s not difficult to see why.

Froman — characteristically — crafted his decision in excessive secrecy. An exhaustive research of the available public record turns up no economic evidence to support it. Pressed hard to defend it, Froman has been unable to point to any serious economic rationale. The intended beneficiaries, mainly in Sub-Saharan Africa, are not positioned to take advantage of it.

Meanwhile, important U.S. trading partners across Southeast Asia and the Indian Subcontinent that could benefit — from the Philippines, Thailand, and Indonesia to Pakistan, Sri Lanka and India —instead will be hurt. Diplomats from 14 of the affected countries just yesterday sent a strong letter to Froman bluntly expressing their “disappointment” concerning U.S. economic discrimination against them. The signatories included Brazil, Tunisia, Moldova, Thailand, Philippines, Indonesia, Pakistan, Sri Lanka, India, and Paraguay. Privately, diplomats I’ve spoken with express their frustrations with the inequities of U.S. trade policies in, well, much stronger language.

The unusually strong criticisms would surprise a casual reader of Froman’s June 30 press release. On the surface, at least, it appeared to be a shining example of American generosity aimed at helping the world’s least-developed countries. The Obama White House, declared Froman, wanted to make “a powerful contribution to lifting people out of poverty and supporting growth in some of the poorest countries in the world, while also reducing costs to American consumers and businesses.”

But will it? More than two weeks of weeks of intensive independent research — including repeated efforts to obtain Froman’s side of the story — suggests otherwise.

Let’s take it from the top:

The intended beneficiaries are African countries like Ethiopia, Rwanda, Ghana, Lesotho and Kenya, and also impoverished Cambodia and Haiti. They will be given preferential access to the $5 billion U.S. market for travel goods: think suitcases, handbags, wallets, and backpacks. No longer will their exports of 28 lines of handbags and such face U.S. tariffs that range from 4.5 percent to a stiff 20 percent. (Last year, Congress authorized adding travel goods to developing countries eligible to participate in the Generalized System of Preferences program, and for the 40 member countries of the African Growth and Opportunity Act.)

The entire American travel goods industry was blindsided. To understate the matter, the executives who actually make the investment decisions were not thrilled that federal officials with scant business experience would think that they knew more than the CEOs about where their future travel-goods investments should be directed. Outraged, the American Apparel & Footwear Association, the Outdoor Industry Association, the Sports & Fitness Industry Association, and the Travel Goods Association, have been demanding that Froman explain his decision, so far without success.

Comparing the June 30 Froman press release with the realities of the $5 billion U.S. travel-goods market sheds light on the emotions the U.S. trade negotiator has unleashed.

First, Froman’s determination does not appear to make anything close to a truly “powerful contribution to lifting people out of poverty,” and does not seem to be supported. Most of the intended beneficiaries, alas, have precious few travel goods to export, so the US preferences won’t help them much.

At least Cambodia, with 0.4 percent of the US market, does have a small-but-vibrant travel-goods industry, apparently mainly involving backpacks, that stands to benefit. So the Cambodians are poised to be winners. Still, Cambodia’s ambassador to the United States, Chum Bunrong, signed the July 18 letter from 14 countries expressing concerns about the discriminatory treatment. Cambodia had sought the GSP preferences, but had not lobbied to exclude other deserving countries.

Meanwhile, the Africans, the major intended beneficiaries, simply aren’t important players in the travel-goods industry. They aren’t positioned to become such anytime in the foreseeable future. All of Africa’s travel-goods exports to the United States amount to a roughly one hundredth of one percent market share.

There is (happily) some foreign investor interest in developing the African travel-goods industry, involving as much Chinese as U.S. and European multinationals. But (unhappily) not much. Stiff U.S. tariffs aren’t the main problems — clogged ports, bad roads, red tape, and too many other economic inefficiencies to list in one line are far more important obstacles to viable African trade expansion.

The Africans also have been slow to take advantage of the generous trade-facilitation financial assistance pursuant to the World Trade Organization’s so-called Bali Package aimed at smoothing the flow of goods across presently difficult borders. The WTO inked its trade-facilitation deal when ministers met on the famous Indonesian resort island in December 2013. To date, only eleven African WTO members have ratified it. One struggles to find a sense of economic urgency.

Moreover, making backpacks, for instance, with all their zippers and complex components, is far more difficult than making T-shirts. Yet even with 15 years of duty-free access to the U.S. clothing market under the African Growth and Opportunity Act, all of Africa’s apparel exports to the U.S. still only amount to about $1 billion annually. That’s less than one percent of the U.S. clothing market.

The Philippines, one of the smaller exporters of garments to the United States, exports about $1.1 billion worth of clothing to the U.S. annually. That’s roughly $100 million more than the yearly garment exports from all of the Africa countries combined. And Bangladesh’s US clothing exports are more than five times Africa’s total.

The Africans get duty-free treatment for their garment exports pursuant to the African Growth and Opportunity Act. But the Philippines, Cambodia, Bangladesh, and the rest of the world’s rag trade face stiff U.S. clothing tariffs. Those tariffs mainly hover in the 12- 16 percent range, but can shoot sharply higher. The unavoidable economic bottom line: African countries that struggle just to make shirts and trousers, even with the existing AGOA duty-free preferences, are not poised to attract major investments in travel goods.

Consider further the June 30 Froman press release’s boast of “reducing costs” for American consumers and businesses by slashing tariffs on travel goods for Africa. Driving up costs by upending multi-million dollar investment plans of major players in the industry — like Coach, Michael Kors, Under Armour, Columbia Sportswear, and Kate Spade — is more like it.

That’s because such stalwarts of the American travel-goods industry have been planning to enhance their investments in the countries which are poised to take advantage of them, mainly the Philippines, Thailand, Indonesia, Sri Lanka, Pakistan and India. The U.S. industry leaders have been aiming to shift production to such developing countries away from China, which holds an estimated 85 percent of the U.S. market. But now, that production will mostly remain in China — ironically making the Chinese the biggest winners of the U.S. trade representative’s decision.

Vietnam holds another 5 percent of the American travel-goods market. As a communist country, the Vietnamese are not eligible to participate in the American GSP preference program. But Froman has agreed in the Trans-Pacific Partnership trade deal to give Vietnam the same duty-free treatment for the same 28 tariff lines of travel goods. Put another way, U.S. trade policy has been shaped to carve out at least 90 percent of the American travel-goods market to two communist countries: China and Vietnam.

Meanwhile, the losers in Southeast Asia and the Indian Subcontinent will just twist in the proverbial wind. Froman’s June 30 announcement did not flat-out deny such developing countries the GSP duty-free preferences. Rather, the U.S. trade chief has said he is merely “deferring” their petitions into an indefinite future before deciding whether they deserve them. The government-induced market uncertainty, of course, is a nightmare scenario for any investor whose plans are thrown into limbo.

Do the math: Froman and President Obama will leave their offices in six months. It takes perhaps 18 months after an investment decision is made to get a travel-goods factory up-and-running. So assuming that such an investment plan were to be made this week, we’re looking at early 2018 before, say, a travel-goods operation would be established in, say, Rwanda. Then it would take another several years before export data would be generated. U.S. trade officials might be able, sometime after the 2020 presidential election, to start a lengthy review process. Imagine how the CEO of a major U.S. multinational would feel about that.

And imagine how poor women in places like the Philippines — a country of 100 million people, some 25 million of whom are suffering in poverty — might feel about the June 30 U.S. trade action that put equally deserving African workers’ interests ahead of theirs, should someone ask their opinions. (To their credit, the Africans did not ask that workers in other poor countries be excluded from the US travel-goods decision.)

Ironically, on June 30, as Froman was releasing his press release in Washington, the Philippines was swearing in a new president. Rodrigo Duterte has not been shy about the fact that over the years he has developed a certain attitude toward perceived American high-handedness.

President Duterte comes from the southern Philippine island of Mindanao. He and some of his key economic and security advisors have seen this sort of discriminatory behavior from Washington before. For years, Washington officials have refused to consider slashing high U.S. tariffs that would boost the economic prospects of (mostly Muslim) workers in Mindanao’s canned tuna industry. This is another example of how U.S. economic policies can be disconnected from important diplomatic priorities to win trust in the Islamic world.

And more recently, U.S. trade chief Froman has even turned a deaf ear on Philippine requests that garment workers in typhoon-ravaged areas be given duty-free treatment for their clothing exports to the United States. While this might be a largely symbolic gesture in the grand scheme of things, America would be highly praised for showing such generosity. Instead, on the very day he was sworn into office, President Duterte was greeted by still another example of American ungenerous economic thinking.

The Philippine travel-goods industry had been looking to create an additional $100 million in annual exports to the United States — that’s $500 million in five years, involving some 75,000 new jobs. Now U.S. Trade Representative Froman has put those aspirations on indefinite hold.

The Philippines is also one of America’s closest treaty allies, and sits astride sea lanes in the South China Sea that are of vital importance to global commerce. But the Chinese have an agenda that would put Beijing in charge of Philippine waters.

On July 12, Beijing’s claims to economic domination in the South China Sea were branded illegal by a well-crafted international tribunal’s ruling in The Hague. But while seriously embarrassed, the Chinese have other cards to play. They are infamous for their special brand of economic diplomacy (suitcases full of money).

China’s top leaders have made it no secret that they will try to offer financial inducements to the new Duterte administration. Meanwhile, the US travel-goods announcement has given Filipinos another reason to doubt America’s trustworthiness as an economic partner. Sometimes in international economic diplomacy, as in personal life, it’s the smaller slights that do the most to fray relationships.

Pakistan, although hardly a trusted ally like the Philippines, is nevertheless another country that is important in the U.S. national security equation. Now the Pakistanis must wonder how truthful President Obama was to their prime minister, Nawaz Sharif, when Sharif visited the White House last year.

On October 22, 2015, Sharif and Obama issued a joint statement that took note of the “importance” of increased “market access’ for Pakistan in the GSP preferences program. “President Obama indicated that the United States will help Pakistan create conditions for accelerated trade and investment-driven growth,” the statement noted. Now, Froman’s June 30 decision to defer Pakistani hopes for duty-free treatment regarding travel goods raises more questions about American sincerity.

Not everyone is unhappy with the U.S. trade representative. Stephen Lande, the president of a respected Washington consulting firm, Manchester Trade, has had many years of experience with Africa. “I am happy” that Froman decided to give African countries preferences on travel goods, Lande says. “Because that’s what AGOA is all about.”

Lande says that he hopes that Froman’s decision will encourage CEOs in the travel-goods industry to put more money into Africa. Countries in Southeast Asia like the Philippines could acquire the same GSP benefits by joining an expanded TPP trade pact, Lande adds.

Froman, meanwhile, is hunkered down. He refused to allow the U.S. trade officials who worked on the case to explain an economic rationale for his June 30 announcement. He wouldn’t even say which office handled the paperwork (apparently the economic-policy shop run by Assistant U.S. Trade Representative Edward Gresser). The organization chart at the Office of the U.S. Trade Representative — who reports to whom, and on what — is considered classified information.

When I pressed, Froman finally asserted through a spokesman, Trevor Kincaid, that “travel goods are a product particularly well-suited to be produced in least-developed countries.”

Will that be the last word? Stay tuned.

 

 

 

 

 

 

 

 

Obama’s Vietnam “Legacy” Trip: A Reality Check

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By Greg Rushford

 Monday, May 23, Washington, D.C. —Air Force One touched down yesterday evening in Hanoi. The White House and influential Washington think-tank scholars are spinning President Barack Obama’s three-day Vietnam visit as a “legacy” moment, validating the president’s “pivot” to Asia. Expect much warm talk of how America is forging ever-closer economic- and security ties with a modernizing Vietnam. Expect the usual heartwarming television images of happy people —including peasants toiling in lush rice fields, wearing their iconic conical hats.

Don’t expect any admissions from Vietnamese Communist leaders of the suffering they continue to inflict upon some of their country’s best citizens. As former prisoner of conscience Cu Huy Ha Vu rightly notes, today’s Vietnam is “a kleptocracy.” Intrepid pro-democracy advocates stand in the way.

Courageous men like Dang Xuan Dieu, Ho Duc Hoa, and Tran Vu Anh Binh, three of Vietnam’s 100-plus current political prisoners. They languish behind bars, while some Washington insiders have averted their eyes.

Some of those insiders are Southeast Asian analysts who work inside the gleaming $100 million headquarters of the Center for Strategic and International Studies, just a few minutes from the White House — and who have undisclosed sidelines as business consultants. They know that to speak forthrightly on Vietnam’s shameful human rights record would threaten their easy access to senior communist officials. Their corporate benefactors who depend upon that political access to win lucrative business contracts in Vietnam could lose the big bucks.

Moreover, Vietnam’s ambassador to the United States has a team of $30,000-a-month Washington lobbyists on his payroll. Their assignment is basically not to let awkward questions about political prisoners interfere with enhanced U.S.-Vietnamese commercial- and security ties, especially the sale of lethal weapons to fend off Chinese maritime intimidation.

One wonders what Dieu, Hoa, and Binh, locked away in their cells, would have to say — if they were free to speak.

Dieu, a devout Catholic citizen journalist, has been imprisoned since 2011. He committed the “crime” of exercising free speech. Dieu has been living “in hell” — beaten, humiliated, and treated like a “slave” for refusing to wear a uniform with the word “criminal” — his brother has told Radio Free Asia. Hoa, also a blogger whose crime was his free speech, has been incarcerated since 2011. Binh, a songwriter, lost his liberty in 2012. His crime was writing music that offended the Communist Party. While Binh’s term is scheduled to end next year, Dieu and Hoa could languish behind bars until 2024.

All three men are associated with the Viet Tan, a U.S.-based political party that is highly effective in using the social media to advocate democratic freedoms of speech and assembly. The Viet Tan reaches a wide audience, both inside Vietnam and in the Vietnamese diaspora. For its skilled high-tech advocacy, the Hanoi’s feared Ministry of Public Security brands Viet Tan as a “terrorist” organization.

Binh, Hoa and Dieu were amongst a group of 17 political prisoners who have been represented by Stanford law professor Allen Weiner, a former high-powered U.S. State Department official. Weiner won a United Nations panel determination that his clients — all either Viet Tan members, supporters or friends — had been unjustly imprisoned. While 14 of Weiner’s clients have been released, that’s unfortunately not quite a happy ending. “Some of those who have been released, however, continue to suffer severe harassment and intimidation at the hands of the Vietnamese security services,” Weiner reports. “They continue to pay a heavy price.”

 That’s the sort of glaring injustice that no credible analyst of today’s Vietnam would want to downplay. Meet CSIS Asia analyst Murray Hiebert — a man who doesn’t deny that Vietnam has human rights issues, yet is careful never to use clear language that would anger senior Vietnamese officials.

Nine months ago, I brought Allen Weiner’s brave clients to Hiebert’s attention, asking if perhaps this would be an opportunity to highlight the injustice by holding a public forum. The CSIS analyst brushed off the inquiry — at the time I had not realized that CSIS has never held such an event. He also declined to say whether he agreed with Hanoi’s characterization of the Viet Tan as a “terrorist” organization.

(The White House and State Department are better informed than CSIS. Not only do they respect the Viet Tan for its peaceable advocacy, but Obama’s national security officials have maintained close ties with the Viet Tan leadership. Radio Free Asia reported that on May 17 representatives of the Viet Tan, along with other respected Vietnamese pro-democracy advocates including Boat People SOS and Vietnam for Progress, were briefed on Obama’s upcoming Vietnam trip in the White House on May 17.)

A few weeks ago, Hiebert once again did not respond to a request to be interviewed on the imprisoned Viet Tan supporters. I then tried to register for a May 17 press briefing that Hiebert and two other CSIS scholars held on the Obama visit. I had hoped to ask about Binh, Hoa and Dieu. But CSIS spokesman Andrew Schwartz — who also had not responded to a recent e-mail inquiry — denied me admission, asserting that the event was “oversubscribed.”

While the briefing room was indeed rather crowded, even full, according to people who were present, Schwartz found room for Vietnam Television. VTV is a Hanoi-controlled media tool that the Communist Party finds useful for spreading the party line. These days, VTV’s best “scoop” has been in warning Vietnamese independent journalists — and specifically the Viet Tan — to stay away from linking corrupt communist officials to a Taiwanese steel mill that somehow obtained environmental clearance to discharge toxic wastes into the sea, which has resulted in a massive fish kill.

(At the May 17 CSIS briefing, a Television Vietnam correspondent asked if the next American president would continue Obama’s “pivot” to Asia — which at least drew laughter. It is perhaps also worth noting that while “journalists” from Vietnam Television are welcome to peddle their propaganda in the United States, authorities in Hanoi continue to jam Radio Free Asia’s Vietnamese language service. And while the BBC is free to broadcast its English-language programs in Vietnam, the BBC’s celebrated Vietnamese Language Service frequently has run into problems.)

As it turns out, CSIS has a history of making life uncomfortable for guests at the think tank’s public events who might pose awkward questions. On May 24, 2015, former political prisoner Ha Vu angered the Vietnamese ambassador to the U.S., Pham Quang Vinh, by asking how Vietnam justified persecuting its political prisoners. Vinh, visibly upset, retorted that Vietnam has no political prisoners — which was pretty rich, considering that at that moment, the ambassador was busy trying to avoid making eye contact with one of Vietnam’s most famous political prisoners.

Moreover, CSIS analyst Hiebert, who chaired the panel, did not challenge the ambassador’s absurd claim. (The CSIS event discussed a study on U.S.-Vietnamese relations that Hiebert had co-authored; that study had not disclosed that the Vietnamese government had secretly financed it, Hiebert subsequently admitted to me.

And last July, Hiebert went to extraordinary lengths to accommodate Vietnamese security officials when Communist Party Secretary General Nguyen Phu Trong spoke at CSIS. Hiebert summoned a guard, escorting Dr. Binh Nguyen, a prominent Vietnamese-American physician, from the premises. Hiebert apologized to Binh, who had been invited, but said that the communist security officials insisted that she be ejected (for details see: How Hanoi Buys Influence in Washington, D.C., www.rushfordreport.com).

Turns out that there are other reasons to doubt Hiebert’s independence. While his official CSIS bio does not disclose it, Hiebert is also a senior advisor to a prominent business consultancy, the Bower Group Asia.

Conflicted interests

Hiebert’s boss at CSIS, Ernie Bower, runs the Bower Group Asia. “Our clients include the world’s best global enterprises,” the BGA website proclaims. “We understand the nexus between politics and economics.” Bower has more than 60 employees in his Washington, D.C. headquarters and in 21 Asian countries (including Vietnam). Another CSIS analyst, Chris Johnson, is a BGA managing director for China. Like Hiebert, Johnson does not disclose his business affiliations on his CSIS website.

Bower, who formerly chaired the CSIS Southeast Studies chair, responded angrily last year when I asked him which was his real day job: CSIS or his business consultancy. He said he was “saddened” that I had suggested he appeared to have conflicts of interest. But perhaps aware that others might also wonder, Bower now identifies himself on the CSIS website as a “non-resident” advisor. The chair remains vacant. CSIS spokesman Schwartz and John Hamre, the think tank’s CEO and one of Washington’s most acclaimed fundraisers, have not responded to persistent inquiries to explain the apparent conflicts.

Here’s how the conflict works:

At CSIS Hiebert has advocated the TPP trade deal. The Bower Group is actively seeking TPP business.

Hiebert has strongly contended that the U.S. lethal arms embargo on Vietnam has outlived its usefulness, and should be lifted. Lockheed, which wants to sell Hanoi its P-3 Orion and C-130 Hercules surveillance planes, has a seat on Hiebert’s CSIS board. So does Boeing, which has been peddling its P-8 Poseidon military surveillance aircraft in Hanoi. Imagine how the giant defense contractors would feel if the money they dole out to CSIS would be used to shine a spotlight on issues involving corruption and human-rights abuses in Vietnam.

Coca-Cola, a Bower Group client, got into Laos a few years ago, thanks to Ernie Bower’s understanding of “the nexus” between business and politics. Coke also has a seat on the CSIS Southeast Asia board.

Chevron, another major CSIS benefactor, also has a representative on CSIS’s Southeast Asia board. Hiebert authored a November 2014 column for the Wall Street Journal defending Chevron in bitter litigation the oil giant had in Indonesia. In his column, Hiebert identified himself only as a CSIS analyst. Then Ernie Bower got busy on the Bower Group’s Facebook page, touting the Journal piece: “BGA’s Murray Hiebert provides much-needed analysis of the court case against Chevron in Indonesia” in the Wall Street Journal. [Full disclosure: I have been an occasional contributor to the Wall Street Journal’s Asian edition for more than two decades.]

In recent months, Hiebert has been quoted widely by major news outlets including CNN, Reuters, the Associated Press, Forbes, Politico, the Financial Times, the Washington Times, and the Voice of America — always only identified as a CSIS analyst. Readers would not know that Hiebert also works for a business consultancy. They would not know that corporations that fund Hiebert’s CSIS programs have serious financial interests at stake. One wire-service report that quoted Hiebert about Vietnam’s new top leadership was picked up by the New York Times in April. This gave Ernie Bower another opportunity to twitter to his clients about how “BGA Senior Advisor Murray Hiebert” had made the pages of the Times.

And earlier today, CNN quoted Hiebert’s approving views of enhanced U.S. weapons sales to Vietnam, identifying him only as a CSIS scholar. Viewers were not aware that this “scholar” is funded at CSIS by major U.S. defense contractors, and has taken money from the Vietnamese government for co-authoring a study that called for the lifting of the U.S. weapons embargo to that country. Nor would viewers know that Hiebert also works for the Bower Group, which also touts its interest in facilitating arms deals.

A little digging illustrates how Bower mixes his CSIS affiliations with business. In 2014, for example, Bower opened some important doors in Washington to a Manila wheeler-dealer named Antonio “Tony Boy” Cojuangco. Tony Boy also sits on CSIS’s Southeast Asia board. Bower brought him to town as the head of an “eminent persons” group — such flattery can go a long way in certain Asian circles.

CSIS arranged appointments for the Filipino eminences in the White House, the Export-Import Bank, on Capitol Hill and of course at CSIS headquarters, where they had a scheduled appointment with the think tank’s president, John Hamre. That was during the day. That night, the Bower Group hosted a lavish dinner for Tony Boy and his associates at the posh Jefferson Hotel. Bower, Hiebert, Chris Johnson, and other CSIS/Bower Group operatives were present. To judge from photos I’ve seen, it was a good night all around, lubricated by bottles of Pomerol. (Hamre has not responded to repeated requests to comment. On the CSIS website, the CSIS head asserts that some unnamed journalists who have questioned CSIS ethical practices have ignored evidence to the contrary that he has provided.)

Agents of Influence

Speaking of influence peddling, if one looks closely, the Washington lobbyists on that $30,000-a-month retainer from Vietnamese Ambassador Vinh unwittingly illustrate how the official spin surrounding the Obama visit to Vietnam doesn’t tell the whole story.

The most recent foreign agent’s disclosure form that the Podesta Group has filed with the U.S. Department of Justice lists some of what the firm did to earn its $180,000 for the last six months of 2015. One is left wondering exactly what the lobbyists did to earn their keep.

The lobbyists disclosed only seven meetings, mostly with congressional aides. The only elected representative who met with Podesta representatives was Matt Salmon, an Arizona Republican who is retiring from Congress at the end of this year.

Rep. Salmon had already met with Vietnamese Amb. Vinh earlier in the year and had been to Vietnam in May. The congressman already had supported an enhanced U.S.-Vietnam trade relationship.

Do the math: $180,000 for seven meetings. That’s about $25,000 a meeting, throwing in about 50 e-mails and five phone calls that the Podesta lobbying form mentions. David Adams, the Podesta lobbyist who has been working to facilitate the Obama visit to Vietnam this week, is a former close aide to Hillary Clinton when she was secretary of state. Asked what he had really done to each the money, Adams declined to comment.

This week, when the television screens show images of happy Vietnamese peasants with their conical hats, toiling in their rice paddies, think of David Adams. The average Vietnamese citizen would have to work 13 years to earn enough money to pay for just one $25,000 Podesta Group meeting with congressional aides.

From the days of French colonialism to the present Communist kleptocracy, the Vietnamese central government has always stolen from its poorest people.

Amb. Vinh’s lobbyist Adams proudly styles himself as a part-time “gentleman farmer” in Virginia’s wine country. Wonder what those Vietnamese peasants would say, if they knew that their stooped labor is helping subsidize such a lifestyle?

 

 

 

 

 

One President Away from Disaster

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One President Away From Disaster
Why the Philippine election threatens to break an economic winning streak.

BY GREG RUSHFORD APRIL 29, 2016
The Philippines offers one of the world’s most heartening economic success stories. Once the “sick man” of Southeast Asia, the country has recently become one of the fastest-growing economies in the region. Over the past six years its annual GDP growth rate has been above six percent.

The credit belongs to President Benigno Aquino.The credit belongs to President Benigno Aquino. Elected in 2010, Aquino promised an honest government, staffed by competent administrators who would start freeing the economy from the shackles of corruption and kleptocracy. He has largely kept his promise: he has awarded public contracts honestly, held corrupt officials accountable, and removed obstacles to much-needed foreign investments. But now Aquinio’s six-year term is nearly over, and the constitution does not allow him to run for president again. As a result, on May 9, voters will head to the polls, when they will pick their new chief executive from a field of five candidates.
The bad news is that none of the frontrunners appears likely to continue Aquino’s reforms, which remain fragile and subject to reversal. In fact, the whole group is downright disturbing — a feeling that will probably be familiar to anyone who has been following the U.S. presidential race.

The frontrunner is a misogynist whose attitude on women makes Donald Trump look like a choir boy, and who has pledged to drown criminals in Manila Bay. Another is dodging criminal investigations that allege money laundering, kickbacks, and bid rigging. Still another is a political neophyte who might be a welcome fresh face, if only she were not backed by some of the worst of the old-style cronies whose main contribution to their country has been to impoverish it. Admittedly, there is one candidate who is widely respected for his personal honesty and wealth of high-level government experience — but he has also earned a reputation for being unwilling to make tough decisions. (The fifth aspirant, Miriam Defensor Santiago, who is polling in the single digits, is not considered a serious contender due to her bout with lung cancer.)

“If this looks like a circus, it’s because it really is,” prominent investigative journalist Marites Vitug told me. In sum, after the new president is sworn in this July, the bad old days, when corrupt politicians were (disastrously) in charge of the economy, could soon come back.

If that happens, the timing couldn’t be worse. The Philippines’ recent progress in becoming a more attractive place to invest has only thrown into sharp relief how much more needs to be done.The Philippines’ recent progress in becoming a more attractive place to invest has only thrown into sharp relief how much more needs to be done. For starters, a whole series of key sectors — ports, shipping, energy, logistics, mining, finance, telecommunications, agriculture, and food — are, one way or another, closed to meaningful competition. To sustain genuine economic growth, the next president will have to take on and break up an array of entrenched cartels, monopolies and duopolies. President Aquino has made a start, but unless these and other structural problems are addressed head-on, the country’s growth is almost sure to slow.

Yet the candidates seem to have other priorities on their minds. The rule of law, for example, is notoriously weak in the Philippines — problems range from poor respect for property rights to a judicial system in desperate need of reform. So it says a lot that the frontrunner is 71-year old Rodrigo Duterte, who for more than two decades has been mayor of the city of Davao on the southern island of Mindanao. He’s known as Duterte Harry, after the Clint Eastwood movie character. That’s because, once a playground for violent criminals, Davao has become perhaps the Philippines’ safest city. The credit for that is widely attributed to death squads, widely viewed to be connected to the mayor, that have taken out an estimated 1,000 street criminals with no semblance of a fair trial.

Whatever the truth, Duterte cultivates his tough-guy image.Whatever the truth, Duterte cultivates his tough-guy image. “If you do not know how to kill people and you’re afraid to die, that’s the problem, you cannot be a president,” he has declared.

If he becomes president, Duterte promises to throw the bodies of thousands of drug dealers into the ocean. “The fish in Manila Bay will get fat,” he boasts. He has also threatened to dissolve the congress and impose martial law as “an extreme option” if corrupt politicians get in his way. Onlookers may cringe, but many Filipino voters, fed up with corruption, applaud.

Duterte’s foul mouth tends to get him in trouble. He has apologized for cussing out Pope Francis in anger after getting stuck in a massive traffic jam during last year’s papal visit to Manila. But he’s never expressed sincere regret for some of his astonishing statements about women. Recently, Duterte recalled a case where an Australian missionary had been gang-raped and killed in Davao in 1989. The rape was regrettable, he said — but somewhat understandable given how “beautiful” the victim was. She was so attractive, Duterte joked, that “the mayor” — meaning himself — “should have been first.” When his insensitivity sparked a flurry of international headlines, Duterte basically shrugged, noting that “was how men talk.”

If elected, the first “big fish” to go to jail, Duterte promises, will be one of his presidential rivals. “I have killed criminals,” the mayor has declared. “But Binay steals from the poor.”

The reference was to current Vice President Jejomar Binay, 73, the former mayor of Makati City, the Philippines’ financial center, who at times has also led the polls. Binay, who ran Makati’s political machine for 21 years, has been accused of amassing unexplained wealth — accusations he has always brushed off as unsubstantiated and politically motivated.

Binay rose from humble beginnings, working his way through law school and into politics, and eventually creating one of the country’s most powerful dynasties. One of his daughters is a senator, another a congresswoman. His son served for a time as mayor of Makati until being dismissed last year to face allegations of corruption.

Meanwhile, a senate subcommittee has investigated allegations that Binay himself indulged in bid rigging during his stint at mayor. The Philippines Anti-Money Laundering Council, an enforcement arm of the central bank, obtained a court order last year freezing more than 200 bank accounts allegedly used for money laundering by Binay and his associates. (His reply was that “allegations are not evidence.”)

Binay has cultivated a base among his poor compatriots.Binay has cultivated a base among his poor compatriots. As mayor of Makati, he generously doled out free scholarships and medical care to his grateful constituents. A video that went viral in Manila showed him handing out what appeared to be small peso bills to a line of grateful constituents — just Christmas presents for the downtrodden, his operatives bragged (without explaining exactly where the money had come from). Binay told one audience last year that poverty, not corruption, would be the number one “moral problem” he would address as president. This, needless to say, offers little hope that he would prove effective at fighting graft, often cited by Filipinos as one of their country’s most pressing problems.

Binay has raised eyebrows by being the only presidential candidate to suggest that, if the price were right, he might agree to let China buy its way out of its maritime disputes with the Philippines in the South China Sea. Chinese naval forces have seized control of some 80 percent of the Philippines’ internationally recognized exclusive economic zone, which includes valuable oil and gas reserves and traditional fishing grounds. To his credit, President Aquino has stood up to the intimidation, even embarrassing Beijing by filing an international legal challenge in The Hague. Chinese officials have made no secret of their hopes to settle the dispute by contributing money for “joint development” projects — if the Philippines will accept that China is entitled to keep control of lucrative resources that rightfully belong to the Philippines. An accommodating President Binay could be just what Chinese officials have been hoping for.

Senator Grace Poe, the adopted daughter of popular movie stars, is the third leading presidential aspirant. At 47, Poe is still considered a neophyte, having only been in the senate for three years. But she does have a team that includes several respected economic advisers who understand that the Philippines will never enjoy sustainable growth without addressing the many structural weaknesses that have held the country back for so long.

Yet Poe, too, comes with baggage that casts doubt on her capacity to sort out her country’s economic problems. Above all, she has close ties to the bad old crowd that created many of the problems that plague the Philippines today. One of her strongest political backers is former President Joseph Estrada, a boozer and womanizer who was hounded out of office in 2001 and convicted of corruption. (He has certainly demonstrated political resiliency, having been elected Manila’s current mayor in 2013.) Estrada is one of Poe’s godfathers, a relationship that has real meaning in the Philippines.

Even more worrisome, another godfather, Danding Cojuangco, is pushing hard for Poe’s election. Cojuangco, one of the country’s most notorious crony capitalists, became one of the Philippines’ richest men (and perhaps the richest) during the old Marcos dictatorship. He was on the plane when Ferdinand Marcos fled the country for Hawaii in 1986. Now chairman of the giant San Miguel conglomerate, Cojuangco has made his corporate aircraft available to fly Poe around the campaign trail.

San Miguel beer holds some 90 percent of the Philippine beer market, and the conglomerate’s revenues are estimated at some 5 percent of the country’s GDP. Besides beer, San Miguel is into chickens, hot dogs, oil refining, insurance, property developments, banks, power plants, and more. If investigators from the new Philippine Competition Commission start asking questions about undue concentration of economic power, where would a President Grace Poe stand?

The good news about Mar Roxas — a viable candidate, although never a frontrunner — is that he’s one of the rare Philippine politicians who has never been tainted with allegations of malfeasance. And although just a couple weeks short of 59, he’s had a wealth of high-level experience: senator, trade secretary, energy secretary, interior, and transportation. But he also has a reputation as a relatively weak administrator. During his stint as transportation secretary, for example, he proved unable to push through plans for a long-overdue international airport project.

Happily, the picture isn’t completely bleak. The Philippines still boasts inherent strengths that could compensate for the possibility of a severe leadership deficit following the presidential election. The country has a high literacy rate and a resourceful and talented workforce. And the country’s 100 million people are in a demographic sweet spot — their average age is in the 20s, making for a youthful, energetic population that can drive consumption and growth.

All this offers at least a faint hope that present growth trends will continue no matter who wins on May 9. Even so, pessimists are entirely entitled to ask why, despite its virtues, the Philippines always seems to be just one president away from disaster.