The man who holds a candle: Cesar Virata in the Marcos regime

HINDSIGHT By F Sionil Jose (The Philippine Star) Updated November 13, 2011 12:00 AM

A quiet visage: Minister of Finance Cesar Virata during the martial law years.

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I purposely omitted several personal details about Cesar Virata in the preceding essay last week because I focused on the moral dilemma that men of good will face when they work with leaders who do not share their ethical values. Cesar Virata, now in his 80s, is taller than most Filipinos and stands out in a crowd primarily because of his hair that has turned grey. He is very unassuming in manner but underneath that reserved and quiet visage is a superb intellect grounded in the realities of this country, the region and the world. His knowledge of Philippine geography, our regional resources and problems are impeccable — he will always be an asset in whatever sector he works, public or private. I asked if the P-Noy government has consulted him in its strategic economic planning, and he said he had participated in some of the meetings of the economic planners. Given his Cavite ancestry, he is deeply interested in our history and in the manifold forces that shape it. Marcos was reputed to have this sense of history, too; but if he truly had it, he would not have strayed. As Virata explained (I can only give advice), the major decisions were made by Marcos and Marcos alone. He is also actively interested in our cultural development. This interest, I am sure, is inspired by his wife, the former Joy Gamboa, who was his student at the state university.

The couple have three children: Steven Cesar, an architect and builder; Gillian Joy, a teacher, now with the Business Processing Association of the Philippines; and Michael Dean, a doctor specializing in infectious diseases, now with the Yale Group of Hospitals in the United States. Joy, Cesar’s wife, is of course well known as an actress and a pillar of the Philippine stage.

With then World Bank president McNamara and wife Joy Virata

Cesar likes good food, particularly Japanese; I shared with him a dinner in a Japanese restaurant the previous week. We went over these questions, all of which he readily answered.

PHILIPPINE STAR: How would a moral man like yourself rationalize serving Marcos who is perceived to have plundered this country?

CESAR VIRATA: I was at the UP when President Marcos designated me to hold positions in government. I considered it a duty to serve our government and our people so I performed my assignments as best as I could. I also believed that I could contribute to reform and better government programs and in leadership by example, that is why I was brave enough to punish/dismiss officials in government if I found them accepting bribes. In fairness, President Marcos did not force me to do what I considered to be wrong, otherwise I would have resigned.

You had no inkling that Marcos would declare martial law? What was your initial reaction to his declaration?

I first learned about it from an American reporter stationed at the Department of State who called me at about 4 p.m. in my hotel room in Washington, D.C. I was then heading the Philippine delegation to the World Bank/IMF Annual Meeting.

The experience of our neighbors with their authoritarian governments was positive. I thought, perhaps, we would be able to do the same.

Wash SyCip said that in the first two years of martial law the rate of growth was very high — nine percent. To what was this increase due?

The growth in GNP and GDP was quite high due to the continuing effects of the floating of the exchange rate (devaluation) in 1970 which boosted exports and the Cuban crisis which increased sugar planting and exports. Tax collection also improved due to fear of martial law and a tax amnesty was also declared in 1973. It yielded about P900 million. This increased budgetary resources for development purposes for infrastructure investments. The legislative reforms encouraged new investments, for example in oil exploration, mining, geothermal. Furthermore, more Export Processing Zones (EPZA) were created in Baguio, Cavite and Cebu. The Laurel Langley issues were already settled at that time, so American corporations transferred their landholdings to private hands or foundations. The utilities sold out earlier.

In agriculture, there were new investments in banana production for export. Corporate farming was encouraged to produce rice for their employees. Food production was emphasized, supported by building irrigation facilities and farm-to-market roads, extended credit facilities and planting new varieties which are high yielding.

The growth took place in spite of the rapidly increasing oil price brought about by the OPEC cartel.

To what do you attribute the succeeding decay in the economy?

The very rapid increase in oil, price from $2 a barrel to $36 a barrel or18 times within a period of eight years was too much for the highly dependent oil-consuming countries to absorb. Inflation caused by increased cost of fuel and energy led to high prices for all imported goods like capital equipment — machinery and raw materials like iron and steel, fuel, fertilizer, plastics. This resulted in an overall world recession, which was bad for certain commodity exports like sugar, coconut oil, copper and nickel. Prices went down such that the Philippine trade index went down to 0.6, which meant that the Philippine export dollar was worth in effect just 60 cents.

The situation put so much stress on the exchange rate and the foreign exchange reserves of the country. It also strained the budget because of the increased price of imported items and reduced profitability of business resulting in lower tax intake for the government. Inflation also increased interest rates thus borrowing costs and debt went higher.

The Philippines, however, was able to reduce energy dependence on imported oil which was about 95 percent in 1972 when the price was still $2 a barrel to about 55 percent. The change in the energy profile required heavy capital investment such as the building of dams for hydropower, geothermal development, change from oil to coal fuel and gas exploration, use of biofuels — alcohol and coconut oil and others. Solar and wind power and programs for conservation and improved efficiency were also instituted.

At that time, I even recommended an energy tax, which the President approved. I justified the energy tax because the government needed more revenues to carry out the change in energy dependence. Furthermore, the government was spending more due to inflation brought about by the oil price increase and therefore needed additional revenue. I also reasoned out that the higher price would also positively contribute to conservation. This tax is still enforced now.

Swearing in at the Batasan

The Philippines exerted great efforts to overcome the external forces impacting on Philippine development. These programs had the approval of the President. In agriculture, agrarian reform and integrated rural and island development (rice production, corn, root crops, coconut), food production, hybrid varieties, researches regarding biotech, agrarian reform system, credit and co-op development guarantees and crop insurance, the Land Bank became a universal bank, irrigation, feeder roads, post-harvest facility, NARIC was transformed to NFA. The Philippines was a net food exporter then.

In education and training: school buildings, courses, training modules for agriculture and agribusiness, technical and vocational, construction work, mariners, rural health — doctors and mid wives.

In health: nutrition (calories, veggies) primary health care, improvement of provincial hospitals (reduce so-called emergency clinics), maternal care, school feeding, responsible parenting, safe drinking water, control of infectious diseases, TB, malaria, gastrointestinal, worms, suppressing smoking and drinking by taxation.

In business/industry: BOI and EPZA industries, mining and oil, natural gas, forestry, pulp and paper, social forestry, business tourism to encourage investments, restructuring the construction industry, investments by providing guarantees/avoidance of double taxation, joining GATT to promote trade and investment, the ASEAN-AFTA trade agreement.

Who were your allies in the economic program and who were your opponents?

I had many allies: Paterno, Ongpin, Sicat, Laya, Alba, Pena, Tanco, Dans, Corpuz, Mendoza, Estrella, Ople, Teodoro, Carlos P. Romulo, Valdepeñas, Melchor, Ponce Enrile, Consunji, Juinio.

Two very formidable individuals were my opponents. Imelda — she wanted to succeed Marcos. She wanted to use public funds for her projects. I did not permit that. The other was Roberto Benedicto — a very close crony and Marcos’s ambassador in Tokyo. He objected to the economic program that would have emasculated his hold on the sugar monopoly. He was responsible for the building of infrastructures that were horribly overpriced.

Did you get the impression that Marcos was applying the “divide and rule” principle in his regime?

After his second term he tried to move away from the control of some of the oligarchs and their politicians. By favoring those who allied with him and were loyal to him the President was able to counteract the displeased oligarchs. He tried to unite the political parties (NP and Liberal) after martial law into a government party — KBL. He adopted a new ideology, the New Society. I don’t think his choice of technocrats in the cabinet was an effort to divide and rule. I believe the President wanted a blend of technical people and politicians.

What were the virtues of Marcos as an executive?

He was very intelligent. He quickly appreciated the need to implement unpalatable measures that were necessary to strengthen the budget and the economy and help implement measures using the political and institutional processes.

He was a wide reader and a deep thinker. He liked the philosopher-king model, and was open to discussion.

He was calm and calculating. He delegated authority, but had to be informed. He had leadership qualities not only at the national level but also among the developing world. He wanted the Philippines to be independent and mature in its policies towards other countries, unlike before where the Philippines followed the US practically all the time.

What were your greatest difficulties as finance minister? As prime minister?

As finance minister my greatest difficulty was tax collection. Since tax examiners know the weakness of evaders, they pounce on them and get agreements on what they will pay and the corresponding bribe for them to keep (silent) which is difficult to catch. However, their patrons demand sharing the bribes or they are forced to collect and deliver amounts to their “bosses.”

The same is true for tariff duties on imports — smuggling, under-declaration or misdeclaration of goods; prohibited imports such as drugs, weapons and ammo; corruption of officials and personnel.

As prime minister, I was faced by a very difficult economic period: high oil prices and inflation; high interest rates (the US decision to raise the prime interest rate to cure US inflation due to the Vietnam war); global recession; Mexican and Latin-American defaults. In addition, the assassination of Ninoy Aquino and the sickness of President Marcos.

When did you first see the cracks in the regime? What did you do to prevent their widening?

Speaking at annual meeting of the World Bank

In the case of the President’s illness, there was the family’s ambition to secure economic and political power; there was a lack of political succession in favor of family succession.

The rivalry of Enrile against Ver also showed an emerging opposition, and growing strength of the opposition. Then the earlier lifting of martial law.

(In terms of what I could do), I took the frugal approach versus lavish expenditures meant to “show off.”

With your good reputation in international financial institutions, you assisted Marcos in acquiring loans in the billions which were squandered or squirreled abroad. Can you explain this?

The loans acquired by the Philippines from multilateral (agencies), governments and international financial institutions were for specific purposes and projects that were implemented by various departments, agencies and government financial institutions re-lending to the private sector.

We emphasized public bidding when funds came from governments and from multilateral financial institutions. In case of loans from governments, usually only their national companies can bid although they may get subcontractors. Most of the loans extended to the Philippine National Bank and Development Bank of the Philippines and Central Bank of the Philippines (CBP) were re-lent to the private sector or to government-owned and -controlled corporations (GOCCs); practically half of the external debt was used by the private sector. Whenever there is connivance between supplier and buyer then it is possible that monies can be kept abroad. This could be true in the case of export under-declaration or under-valuation or overpricing of imported equipment and/or raw materials. We undertook various measures in Customs/Bureau of Internal Revenue (BIR)/CBP but there were leakages.

On the basis of investigations undertaken subsequently, it should be noted that there were a number of people who shared ownership, income and “spent” for a number of officials.

You are for changes in the Constitution. Why?

A parliamentary system will be more efficient, less expensive. The constitution needs to be amended to meet changing needs, to promote development.

What is your model for our economic recovery (the current situation)?

For internal measures, we need good managers — not corrupt ones; punish the corrupt. The private sector makes up 80 percent of the economy while government is only 20 percent. Government must facilitate good and socially/economically beneficial activities. (We must) reduce hurdles for those entering into business, stabilize regulations and have good regulators. As a priority, the President must increase revenue and reduce unnecessary expenses.

The government must spend for infrastructure or partner with the private sector; review “mega” projects; improve transportation and infrastructure to support agricultural production.

For education and health: improve both, including reproductive health; build more school buildings; get better teachers and learning materials.

For competitiveness: adoption and introduction of modern technology — better technology requires high levels of education followed by good training.

Plan for programs that are sustainable. Watch budget allocations and reduce the deficit. Credit-worthiness is important. Strengthen weakened institutions. Drive for education, industry and unity of action.

In terms of law enforcement, there are so many laws that are not enforced or are selectively enforced.

Externally, the recovery of major world economies will improve exports. (We should) increase trade with China and India as well. Competitiveness is very important for manufacturing, processing and trade.

Internally: we need a reliable and trustworthy judicial system. We need to define our concept of national interest so we can deal effectively with other countries. We should seek assistance for infrastructure development and policy reform.

Do you think we will ever be able to feed our people? How pertinent is agrarian reform?

If population growth is not slowed down we probably will not be able to feed our population adequately. Up to the ‘80s, the Philippines was a net food exporter, but due to shifting priorities there was neglect in the maintenance of farming systems (irrigation and roads). The Comprehensive Agrarian Reform Program (CARP) required funds to buy property and lend to the beneficiaries. It resulted also in substantial withdrawal of capital from agriculture. The lack of support to the beneficiaries exposed them to the natural risks (typhoons, floods, droughts, pestilence) but at the same time they had to service their loans for the land that they bought plus the crop loans. What used to be the burden of landlords was shifted to the new owners.

Definitely, there are still agricultural lands that can be developed but the development has slowed down due to the fear that this will be transferred to waiting tillers.

The demand for food and feed is great and therefore there is opportunity for production. Agricultural development should be a priority government program. There are also international questions, for example in sugar: even if the Americans and especially the Europeans do not subsidize sugar, the sugar industry in the Philippines is still competitive and therefore we could expand our production and stop importing excess subsidized sugar to the market which is sold below our production cost.

So far, agrarian reform results in the Philippines in terms of productivity and income gain have been minimal. According to some studies it improved income by 0.1 percent, after spending P225 billion. I made several suggestions when the bill extending the Agrarian Reform Law was being considered. Agrarian Reform also resulted in good agricultural land being converted to other uses — residential, commercial, golf courses, etc. Politically, I suppose it is difficult to modify Agrarian Reform so we are not getting the promised beneficial effects. Correlatively, should factory workers own the shares of the company they are working in? Since we have a stream of remittances from OFWs, the Philippines will be able to buy food that cannot be supplied internally.

What is your vision for our country?

My vision is to have our people educated and trained, kept healthy, with a sense of purpose for our nation and for the people to unite and progress steadily and equitably in a sustained way over the longer term.

To be able to attain steady progress and sustainability we need broad-ranging and deep reforms that will encourage unity of purpose; strengthen institutions for planning, implementation and enforcement; and promote peace and render timely justice.

All these involve constitutional change, good politics and governance, enhanced competitiveness, and a sense of community (so that we can) eventually reach an honorable and dignified niche in the world.