AQUINO NEEDS A NEW MIRACLE The plucky housewife-turned-President of the Philippines can take credit for the country's recent return to growth. And blame for its failure to move a lot faster.
By Louis Kraar REPORTER ASSOCIATE Edward C. Baig

(FORTUNE Magazine) – THE SHATTERED Philippine economy is finally perking up, thanks largely to President Corazon Aquino. But the recovery is more sluggish and uncertain than it should be, and Aquino bears responsibility for that too. In the 18 months since she ousted Ferdinand Marcos, she has been unable to quell the violence by Communist insurgents and gun-toting ordinary criminals that scares off foreign investors. Illegal strikes abound. And her ''people power'' democracy sometimes resembles anarchy, especially within her own quarreling cabinet. ''There's furious debate on every bloody thing,'' complains Finance Secretary Jaime V. Ongpin, a Harvard MBA. ''It's time to get moving.'' Of course Cory Aquino, 54, inherited an economic mess. About the only thing the cabinet readily agrees on, says one member, is that ''Marcos raped the nation.'' The government has filed suits in a Philippine court seeking to recover $10 billion it claims Marcos and his family stole during his 20-year rule (see box). And Marcos's economic mismanagement went further than plunder. While much of Southeast Asia was enjoying an unprecedented boom, growth in the Philippines slowed, stopped, and reversed. Foreign debt soared to $29 billion. While neighbors grew rich, inflation-adjusted per capita income of Filipinos actually dropped. Some 60% of the country's 57 million people still have incomes below the official poverty line, $110 a month for a family of six. Half the work force lack full-time jobs. Marcos's cronies ran many of the big conglomerates that dominated the economy into the ground, defaulting on government loans. Aquino's economic team has been remarkably effective up to now. Ongpin, 49, was well known in the U.S. financial community from his days as chief executive of Benguet Corp., a mining company listed on the New York Stock Exchange. In long, hard bargaining sessions, he persuaded American banks to give Aquino breathing room by stretching out loan repayments. Interest rates, hovering around 20%, dropped swiftly. Dismantling monopolies run by Marcos's relatives and friends worked wonders. ''Our business is terrific now,'' says Felix Maramba Jr., vice chairman and president of Liberty Flour Mills. In the Marcos days, Maramba's mill had to buy wheat from a government food authority headed by Marcos's wife, Imelda. Says Maramba: ''We'd manufacture it into flour, which her monopoly bought at a price it dictated.'' Coconut growers were long squeezed by another Marcos monopoly. In a newly free market, the price farmers get for copra, or coconut meat, has more than doubled in the past year. The miraculous aura of Aquino's ascent from housewife to giant killer has not completely worn off. Many Filipinos still think of her as a saint. The result has been a sense of new confidence among consumers. Filipino businessmen are ecstatic about brisk sales of products ranging from soft drinks to home appliances. A burst of construction has outrun local supplies of cement. Such enthusiasm is great news for Aquino. Says George Drysdale, president of the American Chamber of Commerce of the Philippines: ''This experiment in democracy won't make it unless the economy grows and gets Filipinos back to work.'' Most private economists forecast that the economy will grow 4% to 5% this year. Growth hit an annual rate of 5.5% in the first quarter. That seems breathtaking, considering that the economy shrank in 1985 and grew just 1.5% last year. But it is not good enough. According to the government's own ; economic plan, the Philippines must average 6.5% annual growth through 1991 just to restore per capita income to its level in 1980. In addition, much of the recent growth resulted not from private enterprise but from increased government spending. A large part came from government building of roads and housing. Senate and House elections spread money around too. Candidates dashed through the country's 7,000 islands spending for posters, TV time, and hotel rooms. BUT THE PHILIPPINE economy needs more than the renewed confidence of many Filipinos. Says an international economist in Manila: ''Unless there's some investment from abroad, I can't see this country sustaining growth.'' The government figures that to attain that 6.5% annual rate, the country needs private investment of $3 billion, including $1 billion from foreigners, over the next six years. Jose Concepcion Jr., 55, a businessman who serves as secretary of trade and industry, insists that ''we have a fighting chance'' of getting that capital. He could be right. British mutual funds and Chinese investors around Southeast Asia have pumped up shares on the Manila stock exchange by over 700% since Marcos fell. The Philippines offers considerable attractions, including semiskilled workers for less than $1 an hour and scores of idle industrial plants for sale at bargain prices. Bernardo Villegas, an influential economist with a private think tank in Manila, forecasts ''a significant flow'' of investment from Asian neighbors during the next several years. Companies from Japan and Taiwan are already sniffing around to see if the Philippines is the right place to make garments and toys that have become too expensive to produce at home. John Elliot, chairman of the Australian conglomerate Elders IXL, told President Aquino recently that he hopes to invest $200 million in agriculture, brewing, gold mining, and oil. A few U.S. multinationals now in the Philippines, such as Texas Instruments, are expanding a bit. Japan's Matsushita, which has long participated in a joint venture making such consumer electronic products as television sets and refrigerators, has just added production of computer disk drives for export. Villegas, whose optimism prompts fellow economists to call him ''the prophet of boom,'' expects a lot of new European investment too. As early signs of it, he points to Astra, a Swedish pharmaceutical company that is building a $15- million plant in Manila, and to Philips of the Netherlands, which is expanding , a light-bulb factory. Says Villegas: ''The Europeans are a lot more accustomed to political risks, having dealt with Lumumba and Idi Amin in Africa.'' The trouble is, the Philippines might match even those paragons of instability. Aquino, who has survived numerous coup attempts, has had little more success than did Marcos in battling 24,000 Communist insurgents and 20,000 Muslim separatists. One cabinet member, Jaime Ferrer, 70, recently was gunned down about a block from his home in suburban Manila. The prime suspects: a group of Communist assassins known as sparrows, for their swiftness. The sparrows allegedly have killed more than 50 policemen and soldiers in Manila this year. Crime is rampant and law enforcement uneven. So-called carnapping, or organized auto theft, is the latest criminal craze. Uncertain that police will protect them, many citizens walk around armed. Guards at hotels and stores search everyone for weapons. The manager of Mitsui's branch in Manila was kidnapped apparently without political motive. The gang wanted ransom, which the company evidently paid. Says a Japanese economist in Manila: ''Our government says that Japan will invest here, but companies can't be forced to drink from a well that they do not quite trust yet.'' Rather than rule by decree as Marcos did, Aquino is counting on a big dose of democracy to restore order. Her new constitution was ratified by 76% of the voters, and most of the new legislature is pledged to support her. Her ultimate weapon against the Communist insurgency, which breeds on poverty, is a plan to redistribute land to peasants. Aquino's way probably has a better shot than Marcos's. But her dedication to democracy within her own cabinet often gives the impression of chaos. While Ongpin was trying to reschedule debt with international banks, Solita Collas ''Winnie'' Monsod, 47, the director of economic planning, publicly advocated ''disengagement'' from debts involving fraud and corruption. Her statement, which seemed close to debt repudiation, did not help the negotiations. Then Aquino took much the same line in a speech to the Philippine congress. Endless arguments and inefficiency delay almost everything. Aquino's commitment to privatize a vast array of enterprises, such as an idle auto plant and Philippine Airlines, has produced more talk than action. During a visit to the U.S. last September, she announced that her government soon would spell out the rules of the game in an investment code. A 53-page document appeared nearly a year later. Jose Concepcion, the trade and industry secretary, claims the code will create ''a new business climate in the Philippines.'' It offers tax breaks similar to those of other Southeast Asian countries and usually limits foreign ownership to 40% except in export and high-tech industries. One reason the code took so long was that Winnie Monsod, a passionately outspoken free-market economist, held it up for six months. She argued that the draft code gave too much power to the Board of Investment, a bailiwick of favoritism under Marcos, and in the end the language was rewritten. She defends the delay as ''the price you pay for democratic consensus building.'' A former university professor and a mother of five, she wears her brashness like a badge. ''I'm very unpopular because I serve as a conscience,'' she says. ''People who feel you're stepping on their turf ask, 'Who the hell is this bitch?' '' Joker Arroyo, a lawyer and the President's executive secretary, is even more unpopular with economic pragmatists in the cabinet because he sometimes holds up papers that need Aquino's signature. His critics say he delayed implementation of tax reforms that the cabinet approved but he opposed. One widely respected cabinet official keeps urging the President to make up her mind on economic philosophy and appoint subordinates who support it -- ''even if that means firing half the cabinet.'' Aquino, however, resists doing anything that smacks of authoritarianism. A few other blemishes mar Aquino's sainthood. Though only a faint echo of the old days, cronyism has not disappeared. Filipino businessmen seeking government contracts for port services in Manila or franchises to operate gambling casinos have discovered that Jose ''Peping'' Cojuangco Jr., 52, a congressman who also happens to be President Aquino's younger brother, is a good man to know. Cojuangco has acknowledged greasing deals for supporters of the government. Other bits of tarnish: Samsung of Korea this summer started a joint venture to assemble color television sets in Manila; in charge of the new operation is Fortunato J. Jayme, son of Aquino's public highways secretary. And Aquino's face appears on government-sponsored instant sweepstakes tickets, to the horror of the Catholic Church. Says Winnie Monsod: ''That's in the poorest taste imaginable -- sleazy advertising.'' Then she adds, ''But very effective.'' Corruption is still a problem. It is no longer at the highest levels, but ; two-thirds of officials get salaries that put them below the official poverty line. That is practically an engraved invitation to make a little on the side. Both Filipino and international businessmen are alarmed by the growing number of illegal strikes and by the government's failure to enforce court decisions adverse to unions. A cabinet official admits that ''there has not been strict implementation of labor laws, but we're getting to it.'' One American company has already pulled out. Caffco International, which employed 550 Filipinos making artificial flowers, has just shut down its $2-million plant in Baguio, 200 miles north of Manila. The KMU, a union suspected of Communist infiltration, organized Caffco workers in a disputed election and staged three strikes. James Thompson, the company's chairman, says nobody in the government will make a decision on the legality of those union moves. To escape a leftist union he is moving his operation to the People's Republic of China. POTENTIALLY THE BEST investment opportunities for foreigners are the hotels, factories, and whole companies that the government plans to sell. Investors can knock off about 20% of their acquisition cost by using debt- equity swaps -- buying Philippine loans from foreign banks at a discount, then trading them for equity in Philippine businesses. Some of the assets, including the 75-year-old Manila Hotel -- where Douglas MacArthur lived just before World War II -- and Philippine Airlines, have been state owned for years. Others fell into government hands when Marcos's pals defaulted on guaranteed loans. The Philippine treasury got stuck with shuttered factories and defunct companies with a book value of $5 billion. David SyCyp, 69, a retired banker known for his integrity who is handling the sales, says the government will be lucky to get $1 billion for the property.

So far not much has been sold. SyCyp has raised only about $40 million through auction of a hotel and a nylon filament plant. Some of the original owners are still fighting foreclosures in court. And bureaucrats are sometimes reluctant to let go of state-owned companies that provide them with director's fees and other benefits. Though a cabinet-level committee has approved sale of the Manila Hotel, for instance, the government pension fund that owns it has brushed off ten prospective buyers, including Swissair and Nestle. According to a government official, the head of the pension fund likes to use the hotel for lavish entertaining. Privatization is supposed to finance much of a $2.5-billion land reform program. Aquino's aim is to transfer rural land from a few wealthy families to millions of poor peasants, paying the original owners market value and giving the new owners credit and tips on growing and marketing crops. This sweeping agrarian scheme, which the President decreed in late July, will include breaking up the Aquino family's large sugar plantation. Says she: ''Nobody is above the law, and that includes me.'' Many big landowners, who once dominated the nation's politics, are fighting the reform. Foreign operators of agribusinesses are nervous too. Says George Drysdale, the American Chamber president and chief executive of the Marsman Group, which operates banana and mango plantations: ''Land reform would make it very problematical whether we could ever realize anything on this investment. Dole, Del Monte, and other companies are also concerned.'' The government insists that corporate farms could lease large tracts, as many do now. Ongpin, among others, sees land reform as the key to giving the poorest Filipinos ''a permanent stake in the society.'' That is what Japan, Korea, and Taiwan have done with great success. Making it work in the Philippines, Ongpin says, ''is a tremendous management problem.'' But so is most of Aquino's peaceful, centrist revolution.