NOVEMBER 1983 - VOLUME 4 - NUMBER 11
Philippie Crisis Leaves Investors Wary
by Robin Broad
"Economics is the Achilles' heel of Marcos..." Philippine opposition leader Benigno Aquino Jr. prophesied at a U.S. Congressional hearing just two months before his brutal assassination plunged his country into political turmoil.
Multinational corporations and banks didn't have to be told this by ex-Senator Aquino. Nor did they have to wait for the numerous post-Aquino warnings that the Marcos ship was sinking economically as well as politically.
Instead, they could have paid $500 to the New York-based Business Environment Risk Analysis (BERI) in March 1983 for 43 pages of dire warnings to interna tional lenders and corporations against "any long-term commitments in the Philippines." BERI's report on the Philippines provides a glimpse into the remarkably frank assessments of political and social conditions that a new breed of consultants prepare for their corporate clients.
BERI is one of the oldest and largest of the risk analysis firms whose business took off after multinationals lost tens of billions of dollars in the Iranian revolution. Developed in the early 1960s for a closed group of top corporations, BERI became open for subscription in 1966. For $775 a year, its clients are given three rundowns of where trouble may be brewing and how to prepare for it. By 1981, more than 300 inter-national corporations had subscribed, including AT&T, IBM, Kennecott Copper, Mitsubishi Motors, and Westinghouse Electric.
The Philippine report is an extra frill - one of the in-depth "Forecasts of Country Environments for Strategic Planning" (FORCE) for a five-to-ten year period that BERI does on what it calls "countries of vital concern to international business." In its "FORCE '83 Report on the Philippines," BERI puts the threat to international banks over the next five years in the "high" range of its risk scale. Facing "chronic account deficits, high dependence on energy imports, a decline in the terms of trade and mounting debt service," the Marcos regime "will be forced to reschedule its debts in 1983 and 1984."
Moreover, warns BERI, don't be fooled by the government's doctoring of debt-service figures (it excludes approximately $7 billion in short-term debt) or the "numerous promises" it is likely to make to the International Monetary Fund or World Bank. The "Philippine economy will continue to be in serious trouble throughout the forecast years."
Since economic problems breed political problems, BERI cautions multinational corporations that the risk for them is even greater than that facing banks - with the risk barometer moving from the "high" to the "prohibitive" range. Although such inducements as the ability to pay workers in export processing zones only 75 percent of minimum wages for six-months employment "may appear attractive," multinationals are advised to avoid the temptation. "Strikes, demonstrations, violence, and support for radical groups will become more common," BERI forecast five months before Aquino's assassination.
Indeed, not only should multinationals put any thought of new investments in the Philippines out of their minds, but also "firms having operations in the Philippines should prepare plans for the withdrawal of those units when de facto civil war erupts."
The turmoil following the Aquino assassination has followed the lines of BERI's analysis and led corporations and banks to act in accord with BERI's advice. There is said to be a moratorium on new bank loans to the Philippines. Since the assassination, $2 million a day has been leaving the country according to a banker quoted by the Wall Street Journal, and many multinationals are holding back on further investments.
How far the corporations and banks go in distancing themselves from the current turmoil will be a key determinant in the survival of the Marcos regime.
Robin Broad recently received her doctorate from Princeton University for work related to the Philippines.