Subject: HOW MARTIAL LAW CORRUPTION DOOMED OUR ECONOMY FROM SECOND BEST TO BASKET CASE IN ASIA
Here's why it would be betrayal of public trust and disloyalty to the nation if PCGG would not do what it takes to really recover martial law ill-gotten wealth, which should have been used for our economic development and vital public services if not lost to corruption.
HOW MARTIAL LAW
DOOMED OUR ECONOMY FROM
SECOND BEST TO BASKET CASE IN ASIA
Attaining and sustaining economic growth through industrialization, commerce, export, and other economic activities are a collective function of private business, not of government. The role of government is to provide favorable business climate conducive to economic growth, through, among other things, consistent and business-friendly economic policies, adequate infrastructures, internationally competitive power rates, minimized red tape, peace and order, and—quite important—crucial level playing field that promotes fair play and inspires investor confidence.
Crony Capitalism Discouraged Investments
In Growth-Promoting Increase in Production Capacities
Corruption in the form of crony capitalism deprived legitimate local and foreign investors of level playing field during the long years of martial law. Instead of setting up new industries and expanding existing businesses, martial law cronies merely gobbled up already operating profitable big companies, as well as controlled money-making industries like sugar, coconut, key-product importations, etc.—thereby discouraging local and foreign investors from investing in our economy. They feared full or partial confiscation of their companies once these become big and prosperous. The result was lack of increase in production capacities for years that stunted our economic growth and got us overtaken by our now more progressive Asian neighbors.
For Every Project Funded
By Foreign Loan, a Commission?
To fill in the slack in private-sector capital investments, the martial law government had to bear the brunt of spending for infrastructures, power plants, and other projects financed mainly by foreign loans. Consequently, the martial law administration had to incur multi-billion-dollar foreign debts (from roughly $1 billion before martial law in 1972 to $28 billion as of EDSA I in 1986) to finance overpriced projects, such as the Bataan Nuclear Power Plant (BNPP). The foreign borrowing spree became possible because the martial law administration was propped up by touted Filipino economic and financial experts.
As it turned out, based on the huge hidden wealth discovered and partly recovered after EDSA I by the Presidential Commission on Good Government (PCGG), various infrastructure projects were vigorously pursued as fertile source of kickbacks and commissions.
One Power Plant for the Price of Three!
Classic example of martial law corruption was the clearly overpriced Bataan nuclear plant that Filipinos have to pay at great sacrifice for many years after EDSA I. For its 620 MW capacity, its total cost before interest on financing was $1.95 BILLION, or more than three times what it should have cost us at that time: $0.62 BILLION ($620 million) based on the standard $1 million cost per MW capacity. In other words, Marcos martial law regime obtained foreign loans for the cost of three power plants to be paid for by the people, but had only one plant constructed and stole the funding for the remaining two power plants! Then, when President Cory did not operate the constructed nuclear plant for SAFETY REASON—those who were for operating it live far away from it—she was condemned for it to this day, but nobody cursed Marcos for the stolen and undelivered two power plants.
The $2.3 BILLION total cost of the nuclear plant was arrived at as follows:
Construction cost per National Power Corporation's
printed booklet on the Bataan nuclear plant ................ $1.95 billion
Add: Interest expense on financing, 68% or $0.27 billion
of which was incurred on the $1.33 billion stolen
overprice out of $1.95 cost before interest expense ...... .40 billion
Total Cost ..................................................................................$2.35 billion
If there was such a staggering overprice, why did the Philippine government lose in its suit abroad vs. the contractor-supplier Westinghouse?
Answer: The dollar component of the construction cost contracted with Westinghouse was $562 million, which appeared within norm in relation to the $1 million standard cost per MW capacity. The huge overprice was on PESO COSTS handled by the martial law government, not by Westinghouse! Thus, then cabinet secretary Vicente Paterno had to resign from his post because he did not want to be part of the corrupt martial law administration.
[NOTE: As shown in a National Power Corporation's printed booklet I have in my files, the indicated BNPP cost was already $1.95 billion as of 1983. As for power plant construction cost, the present rule of thumb is $2 million per MW capacity (Inquirer Staff, "Biz Buzz: More Power,” Philippine Daily Inquirer, June 2, 2014), which gives credence to pre-inflation $1-million cost per MW capacity when the $2.3-billion overpriced BNPP project (including interest cost) was awarded to its builder. If this $2.3-billion cost of three power plants was actually spent for three power plants during martial law, then the second and third power plants would not have been nuclear plants owing to lack of readily available prospective feasible second nuclear plant, as well as the need to have actual experience and expertise on it first before going all out for it. If so, the second and third non-nuclear plants without safety risks would have been operated by the Cory administration and there would have been no power-supply shortfall then.]
Staggering Magnitude of Corruption
Ruined Our Economy and Consigned it
From Second Best to Sick Man of Asia
With crony capitalism that discouraged legitimate local and foreign investors from investing in new and expanded industry production capacities, the economy temporarily survived from multi-billion-dollar foreign loans that financed apparently overpriced big-ticket martial law infrastructure projects. These projects funded by big-time foreign borrowing appeared to have been rich sources of kickbacks and commissions that accumulated as martial law ill-gotten wealth, some in the form of dollar holdings stashed in layers upon layers of bank accounts and dummy foundations abroad, never remitted to the Philippines during martial law even if badly needed, such as shortly before EDSA I when our economy was already in crisis and starving from lack of enough foreign exchange, needed in paying imported raw materials and essential finished goods.
To dampen dollar demand that undermined the peso and caused it to depreciate, then Central Bank of the Philippines issued bankruptcy-inducing high-yielding central bank “Jobo” bills that drove bank lending rates to as much as 60%, as admitted much later by former central bank Governor Gabriel Singson (“Bangko Sentral Chief: Worst is over,” MarketWatch, June 1999, page 8).
The central-bank-induced ultra high interest rates provoked unprecedented bad loans, business bankruptcies and closure, and rampant loss of jobs. The old central bank itself suffered losses and incurred P302-billion debt, which caused its collapse and subsequent replacement by Bangko Sentral ng Pilipinas (BSP) in 1993, with its obligations assumed by the national government, payable by suffering Filipinos for 30 years at P30 billion per year (Belinda Olivares-Cunanan, “Another P30-billion-a-year solution?” Philippine Daily Inquirer, March 11, 1999, page 7).
As foreign loans were either lost to corruption or spent mainly in overpriced and non-income producing projects, without corresponding REVENUE generation for needed loan REPAYMENT, when the inevitable breaking point was reached in 1983, our bankrupt central bank had to unilaterally declare holiday in our foreign loan amortization, consequently making us a pariah in the international financial community for many years. After EDSA I, when we resumed paying our foreign borrowing, our foreign loan repayment has wastefully eaten up a sizeable portion of the national government’s annual budget, as much as a third of it during the past Arroyo administration.
To quote from a news item: "Estimated amount of wealth stolen by the Marcos family members, relatives, and cronies, according to ex-senator Jovito Salonga, first chair of the PCGG: $5 to $10 billion. Amount already recovered by the PCGG: $4 billion. (ANC: "VITAL STATS: How much of the Marcoses' ill-gotten wealth have been recovered by the PCGG?" https://anc.yahoo.com, February 18, 2014; Reuters, “PCGG still seeking $1B in Marcos wealth,” Philippine Daily Inquirer, February 25, 2016, inside front cover)
The $4 billion ill-gotten wealth already recovered by PCGG is incontrovertible proof of big-time martial law corruption, which sucked the lifeblood of the people and deprived them of wherewithal for economic growth.
In the end, our second best economy next to that of Japan became the basket case in Asia. Diaspora of many jobless Filipinos started, with millions of them spread as OFWs in different parts of the world, in land and on the high seas. At great sacrifice to them and social cost to their families, they earned precious foreign exchange not only for our foreign loan repayment but also for the resuscitation of our gasping economy in ICU.
Why the Economy Seemed Better
During Martial Law than After EDSA I:
Post EDSA I is Handicapped by Huge
Foreign Loan Repayment
With our second best economy in Asia at the start of the Marcos regime in 1966 plus new huge foreign-loan spending during martial law, which jacked up our foreign debt from less than $1 billion before martial law to $28 billion as of EDSA I—with roughly one-third of the foreign loan diverted mainly to secret foreign bank accounts and dummy foundations—a FALSE IMPRESSION is created to many of us that our economic lives were better during martial law.
The FALSE IMPRESSION is understandable because the cited huge foreign loan—less one-third of it lost to corruption—was used in SPENDING over the martial law years and pumped into the economy that created artificial temporary easy money and prosperity, while in stark contrast, after EDSA I, our economy has to suffer from huge UNDERSPENDING in infrastructure and other vital public services, because substantial part of our scarce public funds is being diverted to and used in huge foreign-loan REPAYMENT, as much as roughly one-third of our national-government budget during President Gloria Arroyo’s time.
The Lingering Vestiges of Martial Law:
Culture of Corruption and Struggling Economy
After EDSA I, struggling local industries operate under unfavorable business environment, characterized by martial-law-trained corrupt government, abnormally high power cost, poor infrastructures, inadequate public services, and many other disadvantages—the result to a large extent of government corruption and bankruptcy during martial law. They can hardly compete against their experienced Asian counterparts, which have already achieved efficiency, perfection, and economies of scale in their manufacturing operations, as well as gained foothold and goodwill in foreign markets.
Thus, almost P2-trillion idle local capital has languished in Bangko Sentral's Special Deposit Account (SDA) facility for some years now, not invested in industries owing to various problems that the government has not fully addressed—because it takes time, money, and herculean effort to undo the vestiges of martial law.
MARCELO L. TECSON
A CPA and Concerned Citizen
San Miguel, Bulacan
9-23-14, 8-30-15, 2-25-16, 8-30-16, 9-5-16, 12-17-16, 7-1-17
Cc through separate letters/emails:
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Emailed “TESTIMONY” of an Expert
WHARTON Business School ALUMNUS:
----- Forwarded Message -----
From: Ricky Sobrevinas....
Sent: Tuesday, October 9, 2012 1:43 AM
Subject: [Worldwide-Filipino-Alliance] Re: Why....
From: Ricky Sobrevinas....
Sent: Tuesday, October 9, 2012 1:43 AM
Subject: [Worldwide-Filipino-Alliance] Re: Why....
When Marcos left, the country was bankrupt, and I know first hand because I was then in the Security Pacific International Banking area and was aware of the financial condition of the country.