US Base Pullout Puts Philippine Economy at Risk

LAWYER Enrique Belo says that passing an American military treaty would have been a vote of confidence for the shaky Philippine economy.After all, the adviser to overseas investors had four potential clients closely watching the outcome of a Philippine Senate vote on a new United States naval base lease. But the new treaty was rejected, and the Philippines plunged into a new round of political confrontation. After two weeks, the politicians compromised on a three-year US pullout, raising hopes of reconsideration before the Americans left. For Mr. Belo, though, that only means more uncertainty. "Investors are willing to come, but they're holding off because of all this insecurity," he says. The already battered Philippine economy faces a cut in US aid next year. At the annual meeting on the World Bank and the International Monetary Fund (IMF) in Bangkok this week, Philippine officials will press for a new aid package, Finance Secretary Jesus Estanislao says. Mr. Estanislao hopes to persuade key donors to call a new pledging session in January and raise up to $2.5 billion in fresh funds for an economy already carrying a $29 billion foreign debt.

Mounting problems But that won't be easy as growth skids to less than 1 percent this year, the economic damage from Mount Pinatubo's eruption continues to cascade, the IMF stalls the latest credit drawdown amid worries about the Philippine deficit, and investors remain skittish after the treaty rejection. "What this all adds up to is a tremendous air of uncertainty," says Peter Wallace, a Manila business analyst. Crucial to the Philippines' economic rescue is IMF and World Bank acceptance of a deal to resume lending to the cash-strapped National Power Corporation, the government electricity monopoly. The IMF is refusing to release $50 million in credit until Manila raises electricity charges to cover the utility's mounting losses. The World Bank, the power corporation's largest debtor, already has frozen loan disbursements. Estanislao, the finance secretary, said recently that the two sides were nearing an agreement to postpone an electricity rate hike until next year and control the utility's losses through privatization. After the country was hit last year by higher energy prices following Iraq's invasion of Kuwait, President Corazon Aquino postponed any rate increase under intense political pressure. Revamping the power corporation, says a Western analyst, "is a critical test case of government resolve and acts as a bellwether to the IMF."

US naval-base lease Further rankling the economic crisis is the uncertainty thrust on the Philippines by the Senate rejection of a new 10-year lease for the US Subic Bay Naval Station. By threatening to call a referendum to overturn the vote, Mrs. Aquino bought time with a three-year American withdrawal and an improved likelihood of reversing the action when a new government and Senate take office next year. Aquino insists she will not seek reelection. Still, the Philippines, which is waiving compensation during the pullout period, faces the loss of $360 million in annual rent for US facilities. Despite calls to convert Subic into a commercial shipyard, there is no definite plan. That has set Manila scrambling for new revenue amid government predictions that the economy could suffer a 2 percent decline in output next year. In addition, special American treatment on trade and quotas could be in danger. However, some Philippine analysts don't expect harshness from the US, which is suspiciously watching Japan's growing economic clout. "If the United States beggars the Philippines too much, the political stability in the region will be undermined," says Amando Doronila, a newspaper editor and economic commentator. Some Western and Asian diplomats says that, with nationalism on the rise following the Senate action, the Philippines could begin to wean itself from its economic and political dependency on the United States. "For years, American businessmen have seen the Philippines as easy meat," says a Western diplomat. "This just might give them the jolt they need."