WASHINGTON, D.C. -- Philippine President Joseph Estrada
was here last week to deliver a message: He is serious about opening the
country's economy and attracting foreign investment. In his meetings with
U.S. business leaders and U.S. President Bill Clinton, Mr. Estrada projected
just the right amount of gravitas. Sticking to a prepared script, the
Philippine leader told business executives at the U.S. Chamber of Commerce
that despite what they had read, foreigners "can do business with
profit and comfort" in the Philippines.
But there's another side to Estrada, as Filipinos well
know. When the president spoke on Thursday at a three-hour gala dinner
for the Philippine-American community, he came across as more of a stand-up
comedian than a leader with vision. As for extending opportunities for
"profit and comfort" to the majority of his citizens, Mr. Estrada
showed that he still doesn't get it.
First, the good news. American companies are coming
to the Philippines and doing well. America Online set up operations in
the Clark Economic Development Zone two years ago with 15 employees. Now
AOL employs about 800 Filipinos. At a recent investment seminar held in
Northern Virginia's high-tech corridor, AOL Vice President Mike Ritonia
spoke about his talented, English-speaking Philippine workforce in glowing
terms. "American workers are getting a little spoiled," Mr.
Ritonia told the audience. But AOL's Filipinos "show up on time,"
ready to work, he added.
Other U.S. technology firms are right to consider doing
what competitors like AOL are doing. This explains why Mr. Estrada apparently
succeeded last week in attracting the interest of tech powers like Oracle
Corp. and Cisco Systems Management.
But this isn't a new phenomenon. American companies
like Avon, Procter & Gamble, Intel, Texas Instruments and Motorola
have been making money in the Philippines for decades, during much worse
economic times than the present. Philip Morris recently announced it will
spend $300 million on a new factory to export cigarettes around Asia,
in partnership with local associate La Suerte Cigar & Cigarette Factory.
Newer investors don't even have to care much about the
inefficiencies and government corruption that have long been the biggest
obstacles to foreign investment in the Philippines. This is because of
something called PEZAs -- Philippine Economic Zones -- that were created
by legislation in 1995. Like the duty-free zones at the former U.S. military
bases, Clark Field and Subic Bay, PEZAs are wonderful for foreign investors.
Set up in a PEZA, and you pay 5% tax on gross income, instead of 32%,
and you don't have Philippine tax leeches coming around to shake you down.
You can bring in any raw materials and capital equipment you need to manufacture
duty free. Then you export happily.
But the success of the special zones highlights the
problems with the rest of the Philippine economy. President Estrada has
not made the connection that what is good about duty-free zones for foreigners
would also be terrific for all of the Philippines and its citizens. Consider
the country's poor record of trying to protect domestic industries from
foreign competition.
A recent controversy over imported chickens is a great
example. Crippled by high tariffs, quotas and high prices for the corn
feed they need to eat, Philippine chickens are scrawny and uncompetitive.
Accordingly, it's no wonder enterprising Filipinos are tempted to smuggle
chickens from the special zones into local restaurants. While consumers
love cheap, tasty chickens, Mr. Estrada's government is outraged over
chicken smuggling and has gone on a tear to keep imported "hot chickens"
away from Filipinos.This doesn't make economic sense. While Mr. Estrada
was in the U.S. last week, employees of duty-free shops back home, who
want to be able to sell chickens at attractive prices to foreigners, were
screaming to Manila newspapers that the crackdown on hot chickens could
cost more than 4,000 Philippine jobs.
Why not just make the entire Philippines a PEZA-like
free trade zone and let the Philippine people in on the good times? Mr.
Estrada doesn't seem to understand the economic logic that cries out for
dismantling the protectionist barriers that make Philippine chickens (and
a lot of other products) uncompetitive. He has, however, taken an interest
in economic issues which involve his friends.Those friends are doing quite
well.
The most visible of them is tycoon Lucio Tan, who amassed
his wealth during the reign of his friend, former Philippine dictator
Ferdinand Marcos. This month, Mr. Tan succeeded in buying out the Philippine
government's stake in the Philippine National Bank. This sparked grumblings
about "crony capitalism" from the bank's respected minority
shareholder Templeton Emerging Markets Group. "We feel it's not prudent
for us to increase our holdings in view of the fact that the bank is controlled
by Mr. Tan and we feel there is conflict of interest," Templeton
President Mark Mobius said in a television interview. Undeterred, Mr.
Tan showed up in Washington last week as part of the official Philippine
government delegation, standing with officials at a ceremony for Mr. Estrada
at the Pentagon.
The Estrada administration has been very good to Mr.
Tan and his Philippine Airlines, largely at the expense of the overall
economy. Foreign airlines are frustrated because they are not allowed
to fly tourists to the Philippines unless they allow PAL to fly the same
numbers of people to their home countries. Taiwanese authorities resisted
the administration's insistence that they indirectly subsidize PAL by
limiting their flights, and twice flights between Taiwan and the Philippines
have been completely suspended. Travellers were forced to transit through
Hong Kong, and predictably tourist arrivals from Taiwan have fallen. The
Philippine government's position: Let the tourists go to Thailand.
The president and his family have been listed as incorporators
or board members of 31 companies, 11 of which have been acquired since
he assumed the presidency two years ago, according to a report published
earlier this month by the Philippine Center for Investigative Journalism.
The report called for Mr. Estrada to give a full public accounting of
his wealth, an offer to which the president has yet to respond.If Mr.
Estrada is concerned about the misperceptions he's creating, he sure didn't
let on at Thursday's dinner for the Philippine-American community. After
pleasing the crowd with wisecracks, Mr. Estrada turned serious, saying,
"I'm here to tell you where the Philippines is headed." He promised
to deliver peace to Mindanao, and to counter a "disinformation campaign"
against him in the press. He promised to help "especially the poor,"
and give his country "food security."
But exactly how all these things will be accomplished
went unmentioned. The Philippines needs a leader. Right now it has an
entertainer.
