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Scenarios
By Michael Alan Hamlin
May 04, 2001
After being up much more of the night than I had anticipated
Monday evening and early Tuesday, I spent the rest of the day doing
some pretty commonplace things. In the morning I went to a wedding
¾ originally planned to take place at Villa San Miguel ¾
in Makati. Post-reception entertainment included a mini-concert
by the bride's talented, San Francisco-based siblings and ballroom
dancing. Despite occasional references to the "trouble,"
it was a pretty normal world.
Tuesday evening was largely taken up by a wake for
the mother of another close friend, who had suddenly passed away
that morning, a couple of hours before the police and military got
serious about dispersing the hooligans gathered around Malacañang.
The ordinariness of these events was surreal against the backdrop
of anarchy and violence in the streets of Manila meant to bring
about the downfall of a reform government just 100 days old.
Reality did break in from time-to-time. A financial
news network called to ask what's next for the Philippines during
the wedding reception. The effort to switch gears from happy celebration
to serious reflection on the fate of this troubled country was not
entirely successful, my thought processes broken by the laughter
of children fleeing the adult atmosphere of the reception to the
sanctuary of the foyer, where I struggled to hear the questions
of an anchor sitting somewhere in Tokyo.
More inquiries came that night. One journalist concluded
his inquiry wondering when, and if, stability would return to the
Philippines, noting that politicians were already positioning themselves
to take over from Gloria in the next presidential election. The
next evening I was at it again, this time for a domestic audience
primarily, arguing that the Philippines' most significant challenges
remained political, rather than economic.
Interviews like this are always troublesome. On the
one hand there is the natural, I hope, tendency to talk up the Philippines,
its attributes, and its potential. For the most part, that's something
I've been doing for nearly 20 years now. And while the Philippines
has made progress, it is far ¾ very far ¾ from achieving
its potential. That's sad enough. But what's sadder is that there's
no good reason for being where we are today, and not being where
we should be.
And so that breeds in any analyst, I think, a deep
skepticism about the future, and the potential for another government
dominated by a powerful yet minority slice of contemporary society.
Of course, God knows that the populist government that preceded
the present administration was in so many respects a sorry, lamentable
disaster. But was its failure simply more public than its own predecessors',
and potentially, its successor's?
Although I haven't been asked to dwell on that unhappy
question in any specific way this week, each question I have been
asked is certainly relevant to its context. That's because whatever
achievements the current administration manages to realize will
be evaluated against her predecessor's record. For example, when
asked about the effect of the attack on Malacañang on investor
sentiment, I've replied in two ways. First, there will be those
who believe that government's response to the attack and its firmness
in its aftermath suggest that the worst is over for the Philippines.
That's part of the reason we saw a 4.1 percent uptick in the market
Wednesday. Of course, a significant part of the increase was attributed
to buying by government institutions. And that brings us to the
second part of my answer.
And that is that the stock market is a very poor indicator
of the state of the economy. There are lots of reasons why. Most
have to do with the residual effect of the BW Resources scandal,
and increasing opportunity comparatively across the region. Just
this week, for example, Malaysia finally removed the last restriction
on foreign funds invested there, a 10 percent tax on repatriated
funds, with positive results. Hong Kong and Singapore are locked
in a fierce duel for foreign funds. Meanwhile, the Philippine Stock
Exchange has moved exceptionally slowly to reform itself. Political
upheaval or not, the stock exchange offers little incentive for
investors.
The strength of the peso - and later on foreign direct
investment ¾ is probably a better indicator of confidence.
That the peso appreciated two days in a row to P50.375 to the US
dollar is encouraging, and can be legitimately taken as a sign of
confidence in the government and its declaration of a State of Rebellion
in Metro Manila. But is that confidence sustainable? And will be
provide the linchpin to better government and faster development?
That of course is the only really important question.
By proclaiming a State of Rebellion, the administration made a tradeoff,
as all decisions entail. It traded getting the principal threats
to the administration, in its view, off the streets immediately
in return for the perceived good will of sectors fearful of heavy-handed
government a decade and a half after former president Ferdinand
Marcos was deposed. In making that tradeoff, the administration
put itself both on the defensive and at risk for being overruled
by the judiciary.
So far, the administration has handled its defense
of the proclamation well. The danger rather is how the Supreme Court
will rule on the petitions of Senators Defensor and Enrile, and
that of former police chief Panfilo Lacson. If the proclamation
is ruled unconstitutional, all bets are off. Instead of being perceived
as a government in control, the Macapagal-Arroyo will be seen as
an administration without the option to exercise control.
And whether you believe the proclamation is constitutional
or not, there goes the peso, there goes what's left of the market,
and there's goes business opportunity.
(Mr. Hamlin is managing director of the consultancy
TeamAsia and the author of two books on Asian economies and managing
in Asia. His latest book is The New Asian Corporation: Managing
for the Future in Post-Crisis Asia. His e-mail address is mahamlin@teamasia.com.ph.)
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