The Philippines is a Neocolonial State

April 4, 2008

The administration of President Gloria Macapagal-Arroyo regularly touts the economic success achieved during her tenure:

• Average annual GDP (Gross Domestic Product) growth of 4.9% since 2001, accelerating to 7.3% growth in 2007, the fastest such expansion in 31 years, making the Philippines the fastest-growing economy in Southeast Asia.
• Seven million new jobs in seven years.
• Philippine stock market soared to all-time high (May 2007).
• Record foreign currency reserves: $36.1 Billion (Feb. 2008).
• Appreciation of the Peso: P40.6 / $1 (April 2008).
• Steady increases in foreign investment: $2.5 Billion in 2007.

• According to a National Statistical Coordination Board (NSCB) poverty survey released in March 2008, the number of "poor" Filipinos grew from 23.8 million in 2003 to 27.6 million in 2006.
• 65 million Filipinos or 80% of the population are struggling to survive on the equivalent of US$2 per day.
• 14.8 million Filipinos or 16% of the population live on less than $1 a day.
• Philippines has a growing foreign debt: $62.5 Billion (2007).
• National economy increasingly dependent on remittances of 10 million OFWs (Overseas Foreign Workers.)
• Deteriorating national food self-suffficiency: in 2007 the country required importation of 1.87 million tons of rice.

These sets of seemingly contradictory information are well explained by the idea that the Philippines is a neocolonial state:

• Globally, the Philippines still functions largely as it did when colonized: the economy and government are structured to serve the needs of its former colonial master the USA, and increasingly, global capital.
• Internally, Philippine society reflects its colonial past: a grossly inequitable, class-divided society largely controlled by an oligarchy descended from the historic ilustrados; a "capitalist bureaucracy" that functions by serving its foreign and domestic masters while skimming off huge sums through corruption; and a vast underclass of desperate poor that is increasingly deprived of the fruits of economic development.

(Thanks to Walden Bello for introducing me to the concept of neocolonialism as a critical tool for understanding the Philippines.)

 

The rest of this page expands upon these ideas.

Colonialism is "the extension of a nation's sovereignty over territory beyond its borders by the establishment of either settler colonies or administrative dependencies in which indigenous populations are directly ruled or displaced. Colonising nations generally dominate the resources, labor, and markets of the colonial territory, and may also impose socio-cultural, religious and linguistic structures on the conquered population." In the 19th century, England was considered the premier colonial power, with a truly global empire.

 

Neocolonialism describes the control of formerly colonized countries through economic, cultural and military power.
It is sometimes called economic (or ‘dollar’) imperialism, but can also take a cultural form (as in the worldwide prevalence of US films and television). Even ‘aid’ from the West may be seen as neo-colonial from this perspective. Today many developing countries, heavily dependent on the leading industrial nations, are subject to this type of imperialism, with large proportions of their national product being used for the payment of interest on accumulated international debts.
During the late 20th century the USA was considered the dominant neocolonial power, but with the emergence of the global financial system since 2000, neocolonial states function within the context of a world financial and political milieu.

 

 

1521-1898 Spanish Colony
The Spanish colonial era was characterized by....

• The encomienda system, similar to the feudal land management system in Europe.
• "Polo y Servicio" forced labor system.
• Manila-Acapulco Galleon Trade.
• 400 years of resistance by the Moros (muslims) of Southern Philippines.
• Creation and empowerment of the ilustrados, the "rich intelligentsia", who later became the landlord class.

 

1898-1946 American Colony
"When I next realized that the Philippines had dropped into our laps I confess I did not know what to do with them... And one night late it came to me this way...
1) That we could not give them back to Spain - that would be cowardly and dishonorable;
2) that we could not turn them over to France and Germany - our commercial rivals in the Orient - that would be bad business and discreditable;
3) that we not leave them to themselves - they are unfit for self-government - and they would soon have anarchy and misrule over there worse than Spain's wars; and
4) that there was nothing left for us to do but to take them all, and to educate the Filipinos, and uplift and civilize and Christianize them, and by God's grace do the very best we could by them, as our fellow-men for whom Christ also died."
- U.S.President William McKinley.

 

The American period was characterized by:

• Suppression of the Philippine Revolution during the bloody Philippine-American War of 1898-1913 in which as many as one million Filipinos died.
• Administration of the Philippines by the US Government as a Territory (1902-1935).
• Administration of the Philippines by the US Government as a Commonwealth (1935-1946).
• Establishment of a public school system using the Thomasites, a group of volunteer American teachers.
• Reinforcement of the Ilustrados in a dominant position within Filipino society. Friar estates were sold to the Ilustrados and most government positions were offered to them. The US trained them to become their surrogates in government. The US created "bureaucrat capitalism".

1946 Independence

Formal independence arrived on July 4, 1946, with the signing of the Treaty of Manila between the governments of the United States and the Philippines. The treaty provided for the recognition of the independence of the Republic of the Philippines and the relinquishment of American sovereignty over the Philippine Islands.

 

1946 Bell Trade Act (Philippine Trade Act)
The was passed as a precondition for receiving war rehabilitation grants from the United States. It exacerbated the dependency by further tying the economies of the two countries. Provisions:

• The Philippine peso was to be pegged to the US dollar.
• The Act required that the Philippine constitution be revised to grant U.S. citizens and corporations equal access to Philippine minerals, forests and other natural resources.
• The Act stipulated that free trade be continued until 1954; thereafter, tariffs would be increased 5 percent annually until full amounts were reached in 1974.
• The Act allowed the U.S. to import whatever products/goods it wanted with no import duties.

 

1946 Dodds Report

In 1944 as the Pacific war came to a close, the U.S. decided to use Japan in the postwar period as the base from which to project U.S. military power in the region.
In 1946, the Truman administration adopted the recommendation of the Dodds report which proposed that Japan be developed as the primary industrial powerhouse in the Asia-Pacific region and that countries like the Philippines should be preserved as raw material economies, to service the requirements of Japan's factories (Japan was basically bereft of natural resources.).
Claro Recto described this as "America's anti-industrialization policy for the Philippines."

 

1947 U.S.-Philippine Military Bases Agreement.
The Roxas Administration signed this pact granting the United States a 99-year lease (later reduced to 25 years) on military bases, guaranteeing "the right to retain the use, free of rent, of sixteen bases, an indeterminate number of cemeteries and historical sites, and the option to use seven other bases as the United States determines to be required by military necessity." Included were Subic Bay Naval Station (photo), Clark Airbase, Cubi Point Naval Air Station, Zambales Training Area, San Miguel Naval Communications Station and U.S. Naval Station Sangley Point.
The agreement also allowed the U.S. Military Advisory Group to advise, equip, and train the country's military officers and forces.

 

1965-1986: Marcos Administration

• The early years of the Marcos era were characterized by economic growth and ambitious public-works projects, financed by foreign loans.
• Through a system known as crony capitalism, Marcos sequestered businesses owned by oligarch families and redistributed them to small-time businessmen. Monopolies were established in most sectors of the economy, including manufacturing, media, construction, financial services, and agriculture. These were controlled by Marcos, his wife and their closest associates and relatives.
• The system worked well for awhile, but by the mid-1980s the country's continued borrowing and inability to repay its foreign debts led to a severe economic recession. In the same decade, the IMF (International Monetary Fund) and World Bank introduced the Structural Adjustment Program (SAP), emphasizing the policy of privatization, to underdeveloped countries. In 1984, in return for a $300 million World Bank loan to bail out the staggering economy, Marcos issued presidential decress 2029 & 2030, paving the way for privatization of state assets.
• Foreign debt grew from from US$3 billion in 1975 to US$28 billion in 1986.
• In spite of an abysmal human rights record, Marcos enjoyed unwavering support from a series of US Presidents due to his dogged support of US foreign policy and the seemingly vital US bases at Subic Bay and Clark. However when his policies began to drive the Philippine economy into the ground in the 1980s, US support tapered and his friend Ronald Reagan was ultimately forced to pull the plug: in 1986, Marcos was instructed to abandon Malacanang Palace and get on a waiting USAF C-141 for exile in Hawaii.

 

The Bataan Nuclear Power Plant was a pet Marcos project. Construction began in 1976 and was completed in 1984 at a cost of $2.3 billion. The project was eagerly embraced by the World Bank which arranged funding, with the majority of the loan coming from the U.S. Export-Import Bank. A Westinghouse light water reactor, it was designed to produce 621 megawatts of electricity. This huge project was situated on an earthquake fault line, badly designed, unsafe, extremely overpriced (which EXIM knew), and a magnet for corruption. Because of these safety and other concerns, the plant never became operational.
The plant was finally paid off in 2007, following 41 years of Filipino taxpayer payments, and presently sits mothballed, having never produced a single kilowatt of electricity. For the World Bank, the Westinghouse Corporation and Marcos cronies, the fate of the plant is almost irrelevant: huge profits were generated by its construction.

 

1986-1992: Aquino Administration

The Aquino administration was notable for:

• "Restoration of the oligarchy": dismantling of monopolies established under Marcos and confiscation of the assets of Marcos' crony-capitalist buddies, with assets being returned to the previous elite owners.
• Failure to institute substantive reforms to alleviate massive poverty. A land reform law was approved by the legislature in 1988, but Aquino exempted her own family's sprawling Hacienda Luisita estate from the land reform process, giving a green light to other big landowners to circumvent the land reform.
• Facing massive foreign debt accrued during the Marcos years. The Aquino government sought debt relief from the IMF, which required severe austerity measures and structural reform. This led to:
• Initiation of privatization of state assets in order to stimulate the private sector. Aquino issued Proclamation 50, which created the Committee on Privatization to identify assets which could be sold, and the Asset Privatization Trust which took charge of disposing of public assets.
• Initiation of a policy promoting "nontraditional" exports such as textiles, footwear, electronic components, and fresh and processed foods.

 

1992-1998: Ramos Administration

Under the banner of "Philippines 2000", President Ramos pursued an ambitious economic reform program based on trade liberalization, privatization and deregulation, as mandated by the IMF and World Bank.

• Ramos opened banking and business to foreign investment and transferred government assets to private ownership. His government improved tax-collection policies and practices, and this combined with the growing economy to generate higher tax revenues for the government. In 1994 and 1995 the country had its first consecutive government budget surpluses.
• Philippines joined the WTO (World Trade Organization) in 1995.
• Unemployment remained a serious problem in spite of the "miracle" of economic growth under Ramos.
• The first big privatization effort of the Ramos Administration was in response to frequent brownouts due to huge demand for electricity and antiquity of power plants (partially due to the National Power Corporation's staggering debt caused by the Bataan Nuclear Plant.) Ramos ordered the issuance of licenses to independent power producers (IPP) to construct power plants within 24 months. This resolved the power crisis, but in turn created a financial crisis: the supply contracts guaranteed the government would buy whatever power the IPPs produced under the contract in U.S. dollars, but when the East Asian Financial Crisis hit in 1997 the demand for electricity contracted and the Philippine Peso lost half its value, with the price of electricity soaring to become the second highest in Asia. Philippine ratepayers footed the bill.

 

The second big privatization of Ramos was that of Manila's Metropolitan Water Works and Sewerage System (MWSS) in 1997. One of the largest privatizations anywhere in the world, the formerly public utility was broken into two concessions: East Concessionaire Manila Water Company Inc. (owned by the Ayala family with foreign partners), and West Concessionaire Maynilad Water Services, Inc. (owned by the Lopez family and also with foreign partners.) The privatization resulted in 500%-plus water rate increases for Manila residents.
The case has been publicized by privatization critics as demonstrating that the process leads to increased rates for poorer service; they suggest that cost-recovery and profit-making are the primary goals of privatization, even at huge economic and social costs to consumers and citizens.

 

1998-2001: Estrada Administration

President Joseph Estrada, a former Marcos loyalist, vowed to help the poor ride the wave of economic development through an ambitious synthesis of being pro-poor and pro-market.

• Coming to power during the Asian Financial Crisis, Estrada tried to resist protectionist measures, while continuing the privatization and liberalization reforms begun by the Ramos administration.
• During his administration, some Marcos cronies crept back to power.
• Provided protection to monopolies such as Philippine Airlines including limiting the flights of competing foreign airlines; a presidential order that placed all petrochemical product imports at the discretion of petrochemical producers and users; an administrative order protecting present providers of port services as purportedly a mean to modernize the industry; and a reconcentration in the telecommunications industry, among others.
• Despite touting his "para sa masa" (pro-poor) program as the lynchpin of his presidency, Estrada was very slow to activate an anti-poverty program, notably the National Anti-Poverty Commission (NAPC).
• Slashed funds for DAR (Department of Agrarian Reform implementor of the agrarian reform program) in 1999, which seemed to belie his commitment to helping the poor.
• Estrada's conviction on charges of massive plunder by the Sandiganbayan graft/corruption court in 2007 ultimately showed that Estrada actually had no interest in helping the poor.

 

2001-2008: Macapagal-Arroyo Administration

President Gloria Macapagal-Arroyo is a Georgetown-educated neoliberal economist who has been a complete blessing for the financial triumvirate of the IMF-WB-WTO, for transnational corporations (TNCs) doing business here, and for the Philippine elites who desire maintenance of the social status quo so they can continue to live in luxury far from the squalid slums. Her accomplishments include:

• Maintenance of a delicate domestic financial stability concurrent with the pursuit of increasingly large international loans. She has kept the IMF and international banks happy by adhering to a strict loan repayment schedule, thus feeding the cycle of increased borrowing and a growing national debt.
• Total net portfolio investment inflow (FDI: Foreign Direct Investment.) of US$3.68 billion in 2007.
• Increasing the VAT (value-added tax) in 2004 by two percent, up to 12%, a regressive revenue -generating tax which has hit the poor hard.
• Dramatic expansion of the Business-Process Outsourcing (BPO) sector. It is estimated that 200,000 people were working in 120 BPO (mostly Contact Centers) in the Philippines in 2006, with revenues of $2.1 billion. The sector expanded significantly in 2007 and is expected to keep growing.
• The Arroyo government, spurred on by the World Bank, has made mining a central plank of its economic recovery program, naming 24 proposed large-scale mining projects as "priority projects" that the government is determined to permit in the coming years (The TNC-dominated mining industry in the Philippines has been heavily criticized because of a long history of environmental disasters, displacement of indigenous communities and mineral resource depletion.)
• Increase in the number of OFWs (see below.)

Who sits at the Philippines poker table?

 

President of the Philippines

The President plays the crucial role of high-stakes brokering between the various parties. The role of President in the Philippine requires a skilled player, and Gloria Macapagal-Arroyo is a true master.
Filipinos apparently agree: a 2007 nationwide survey by independent pollster Pulse Asia found that 42% of Filipinos believe President Gloria Macapagal-Arroyo is the most corrupt leader in Philippine history.

 

Philippine Oligarchy

Although the roots of their socioeconomic power can be traced to the development of landed elites in the 19th century, it was in the American colonial period that major families emerged as the national oligarchy, able to dominate the country's political and administrative apparatus and shape it to their own ends.

• Variously estimated to number between 60 and 400 families, the Philippine oligarchy have expanded beyond agriculture to build empires in commerce, manufacturing, services, and finance.
• Taking advantage of Philippine laws that restrict freedom of operation by TNCs within the Philippines, the oligarchy frequently act as local partners without having to actually do or risk much. Content with rent-seeking and paper entrepreneurship, they are thus failing to make the most of the OWF-generated boon as a medium for sustainable growth and development.
• By using the Trapos (traditional politicians) as surrogates, the ruling class is able to a great degree control the domestic political process and thus assure their continued access to prime economic opportunities. At the same time, the oligarchy finds comfort when members of the political class like Arroyo, are beset with scandals which limit their opportunities to impose change on the national status quo, the maintenance of which remains the over-arching objective of the ruling class.
• The Zobel de Ayala family (pictured here) own and control the Ayala Corporation, the country's largest and oldest conglomerate that includes the Bank of the Philippine Islands, Ayala Land Inc., the Manila Water Company, and Globe Telecom, one of the largest mobile phone networks in the Philippines.

 

Philippine politicians

The Philippine political elite are usually either members of, or else are backed by, the oligarchy. They are virtually a class, whose prime goal is to win elections and to assure that the interests of their families and/or oligarchic patrons are protected. To protect the family welfare, powerful families transform their electoral offices into lasting family assets, building "political dynasties." Whether they are members of the elite or not, throughout their political career politicians need to build, maintain and expand their network with elite families in their city, province and other parts of the archipelago.

An excellent example of Philippine politicians benefitting from the neocolonial status of the Philippines is the recent NBN-ZTE scandal. The $329 million project (which has since been cancelled due to allegations of corruption involving the President) was to have been funded by a loan from the Chinese government, with $130 million of the total as a 'commission' to Commission on Elections chair Benjamin Abalos, Sr. (left) and $70 million to First Gentleman Mike Arroyo (right.) The $329 million was to have been paid off by Philippine taxpayers.

 

IMF-WB-WTO Triumvirate

The global financial institutions International Monetary Fund, The World Bank and the World Trade Organization are substantially controlled by the US Government, the European Union, and the international banks. These agencies work closely together to "manage" countries like the Philippines.
The World Bank benefits directly from loans by charging interest; the Philippine oligarchy benefit by using these loans to make even more money; and the long-suffering Filipino people, through a regressive taxation system that hits the poor relatively hardest, pay it back.
Is it mere coincidence that the Philippines, which has been under the continuous supervision of the IMF for 40 years, is one of the few countries in the region that has not industrialized?

 

 

 

International banking sector

Although they have only a small number of branches in the Philippines, International banks are nevertheless making large profits through the loans they provide to the Philippine Government and to foreign investors in the country.

 

Transnational Corporations (TNCs)

Although the Philippines offers limited investment opportunities compared to many of its neighbors, hundreds of multinational corporations operate successfully here. Investment is facilitated by locating manufacturing and business processing outsourcing (BPO) facilities in special economic zones (SEZ) where tax rates are low and there are no limitations on capital repatriation.
Sectors and sample corporations:

• Agriculture and food processing: Del Monte, Dole, Franklin-Baker, Marzell Inc., Monsanto, PRAJ Industries.
• Automotive parts manufacturing and sales: Ford Motor Company, Furukawa Electric Autoparts, Honda Parts Mfg. Corporation, Isuzu, Mitsuba Manufacturing, Toyota.
• Business process outsourcing (BPO): AIG, Citibank, Dell, Hinduja TMT, IBM, ING Group, Mitsubishi Industries, NEC Telecom, Sumitomo Group, Wipro (* the Philippines BPO industry employed 300,000 people and generated revenues of $5 billion in 2007.)
• Electronics assembly: Acer, Globetronics Philippines, Hitachi Global Storage Technologies, Intel, Nippon Antennae, Sanwa Electric, SPI Semicon Asia, Thomson SA, Timex, Yumex Philippines.
• Mining: Coral Bay Nickel Corp., Crew Gold, Indophil, Lafayette Mining, Oceana Gold Ltd., Share Blossoms, TVI Pacific.
• Oil Refining: Shell Philippines.
• Retail food sales: Coca Cola, Pepsi, Nestle.
• Shipbuilding: Hanjin Heavy Industries Corp., Tsuneishi Heavy Industries Cebu Inc.
• Textile and garment manufacturing: Indo-Phil Textiles, Kawashima Textile, TS Tech Trim, Yashima Sangyo Philippines, Inc.

 

United States Government

The United States gave its former colony nominal independence in 1946, but the relationship remains close and the power balance lopsided. The Philippines modeled its governmental institutions on those of the U.S. (in some respects they are virtual carbon copies.) Deftly wielding a combination of sticks and carrots, the US Government generally gets what it wants (with a few exceptions, most notably the abrogation in 1992 by the Philippines Government of the 47-year Bases Agreement.)
While the Philippines' financial importance to the United States has receded, the country retains a vital strategic function as an offshore outpost in the "Global War on Terror" and as a military bulwark against China.

 

United States Embassy

The US Embassy in Manila coordinates American political, administrative, economic, public diplomacy, and consular affairs. The current US Ambassador Kristie Kenney appears a consummate master of her trade: presenting an always-smiling face to represent the world's biggest stick.
The Embassy's Defense Attaché’s office handles bilateral military affairs.

 

United States Military

• Following the closure of the US-run Clark Air Base & Subic Bay Naval Complex in 1992, the US military assumed a low profile in the Philippines.
• In 1998 the US Government negotiated a Visiting Forces Agreement (VFA) which led to resumption of bilateral military exercises such as the annual "Balikatan" (shoulder-to-shoulder) series. 
• In 2001 following the 911 attacks, the US Government designated the Philippines as a “Second Front” (after Afghanistan) in the War on Terror. Relations between the US military and the AFP began to warm again. The Philippines was rewarded with increased military aid, joint military training with US troops, establishment of new US “cooperative security locations”, and US military guidance in the counterinsurgency wars against Muslim separatists and the Maoist New People's Army. The US Government has also obligingly looked the other way while the AFP ratcheted up extrajudicial executions, abductions and torture.
• Hundreds of American troops are now stationed within the Philippines at any given time, in spite of their presence being expressly forbidden by the Philippine Constitution, which prohibits the presence of foreign troops in the country. The US troops hold dozens of joint exercises annually with their Philippine counterparts, with the focus now shifted from joint training exercises to humanitarian development projects (for public relations purposes.)
• The Philippines has again become an important basing location for the US. One Philippine researcher suggests that the primary strategic consideration is a desire to check the perceived growing regional military power of China.

 

Armed Forces of the Philippines (AFP)

• The primary mission of the AFP is to contain/defeat two domestic insurgencies:
  1.The New People's Army (NPA), a Maoist guerrilla force waging a "protracted people's war" against the government;
  2. Muslim separatist insurgency in the Southern Philippines, led by three groups: The Moro National Liberation Front (MNLF), the Moro Islamic Liberation Front (MILF), and the Abu Sayyaf Group (ASG).
• The AFP is plagued by poor leadership, deep corruption and low morale. It is also a source of political instability arising from a history of coup attempts including the most recent in December 2007. Critics trace the last problem to politicization of the military during the Marcos era.
• The AFP has been implicated as a significant human rights violator during the eight years of the Arroyo Presidency. In this sense the military serves an important role in discouraging dissent by means of the application of state terror.

 

Overseas Foreign Workers (OFWs)

This group of about eight million Filipinos (nearly ten percent of the entire population) who live and work abroad plays two increasingly important roles:

• Collectively, they sent home a record $14.45 billion in 2007, a major factor in the country's economy.
• They also serve as an important social safety valve for the Philippines: by sending them abroad, the government is relieved of the presence of a relatively well-educated and motivated group who might otherwise be vocal critics of the system and a powerful catalyst for change.

 

The Poor

• They have no cards nor chips; that's a difficult way to win a poker game.

 

The Philippines has been unable to follow many of its East Asian neighbors in achieving significant economic development and a more equitable distribution of wealth. Blindly following the advice and dictums of the US Government and the IMF-WB-WTO triumvirate have not helped the country to prosper; somehow Filipinos must find a way to create a new society, blazing a new path to find their own solutions to deep-seated problems. The United States Government and the international "development agencies" (sic) can help by ending their historic and destructive meddling.

 

Please share your thoughts on this subject with me: chrispforr@hotmail.com

 

• American Empire Project
• BAYAN Leftist Philippine political coalition.
• Focus on the Global South Critical analysis of globalisation, neo-liberalism & militarisation.
• Ibon Foundation Philippine research-education-information development institution.
• International Monetary Fund
• The Anti-Development State book by Walden Bello
• The Roots of Crisis: A Neo-Colonial State by Alejandro Lichauco
• US Embassy, Philippines
• World Bank
• World Trade Organization

• My Philippine Webpages
• chrispforr.net Homepage