Philippine Daily inquirer, op-Ed commentary, November 17, 2014

A new book, Cesar Virata: Life and Times Through Four Decades of Philippine Economic History (UP Press, 2014) by Gerardo P. Sicat provides a broad sweep of post-war economic history. Yet it details important aspects of how economic policy evolved.

I first met Cesar Enrique Aguinaldo Virata in 1991 when I represented ADB in a United Nations economic mission, of which he was a member, to Cote d’Ivoire in West Africa. Aware of his previous lofty positions in government, I approached Cesar gingerly, expecting him to be aloof. Much to my surprise, I found him to be a regular, unassuming and gentle human being.

Cesar took after his parents his simple and self-effacing nature and, more importantly, his abiding love and willingness to serve his country. His intellectual acumen and administrative skills he inherited from his father, Enrique, while from his mother, Leonor Aguinaldo, he got his sense of discipline and order. These values and straits must have driven Cesar to work tirelessly toward what’s only good for the country against all odds particularly during the widely unpopular martial law years.

After a long struggle for independence, our country’s early post-war atmosphere was suffused with a strong sense of nationalism manifested by political leaders which  extended into economic nationalism. This was the circumstance in which the young Philippine economy was to evolve. An economy of Filipinos, by Filipinos, and for Filipinos — a mantra advocated by Claro M. Recto.

The seeds of economic protectionism were sown circa 1949 when Elpidio Quirino’s  advisers – seeing the country’s dollar reserves rapidly dwindling due to excessive import and consumption spending – urged the president to impose import and foreign exchange controls. Import-substitution industrialization that began as the dominant strategy in the 1950s persisted through 1960s-80s with the controls replaced by protective tariffs, and continues to linger since.

Most economists regard an inward-looking strategy as misguided and counterproductive – a root cause of our country’s prolonged economic weakness. Protectionist  policies inherently militate against exports, limit the size of the market, and render the economy uncompetitive and lacking dynamism. Unlike Asian neighbors, protectionism has been embedded in our country’s Constitution. Our neighbors have been able to more easily shift policy from import substitution to export promotion, making their economies more dynamic.

Ironically, to this day, not a few businessmen, politicians and political activists want to fortify protectionist policies. For instance, they’d like to see the power and oil industries nationalized or re-regulated.

Economic nationalism via the preferential treatment of domestic industries shaped the milieu in which domestic and foreign investments were to be promoted.  Cesar Virata was tapped by President Marcos in1967 to chair the Board of Investments (BOI). The BOI was designed to oversee the implementation of the Investment Incentives Law (IIL), authored by Senator Jose W. Diokno. Under this law incentives were to be accorded Filipino citizens to set up businesses in preferred and pioneer industries. These actually bolstered the constitutional restrictions on foreign direct investments, e.g., the 60%-Filipino to 40%-foreign ownership rule on businesses.

Virata initially thought that ‘nationalistic’, if restrictive, policies made sense. He basically agreed with the mainstream view that national progress should be pursued by Filipinos and primarily for the benefit of Filipinos.

He tried to work within the restrictive IIL framework by looking for imaginative ways to bring in foreign investments and technologies. For instance, through a presidential decree, service contracts with production sharing upon the discovery of oil and gas sites became the basis for energy exploration during the 1970s. Though earlier efforts proved largely fruitless, a later breakthrough was the substantial natural gas finds in Malampaya, which have become a major source of energy for the country since 2000. Similar arrangements were extended to geothermal energy, hydroelectric power, and coal.

More formidable challenges were awaiting Virata when he was made secretary of finance in 1970-1981, and subsequently prime minister in addition till 1986. An economic crisis was brewing, necessitating the floating of the peso to alleviate the balance of payments strained by the heavy demand for dollars with Marcos’ emphasis on public investments in roads, irrigation and school buildings, besides private spending.

There was an urgent need to put the fiscal house in order while seeking as well international assistance for the country’s development effort. Virata saw in the International Consultative Group a vehicle for breaking the policy gridlock and moving reforms forward to streamline the bureaucracy and reduce rampant corruption.

Realizing the pitfalls of the Investment Incentives Law, Virata wanted to accelerate the liberalization of industry and trade. He was also responsible for the reform of commercial banking which was no less challenging than the industrial and trade policy reforms. The martial law setting would help accelerate reforms in the domestic banking sector, leading to the merger of banks, increased capitalization, foreign participation, and stronger competition in the sector.

All told, the book helps one better appreciate the real Cesar Virata and the reforms he initiated which laid the groundwork for later reforms that have largely benefited the economy; likewise, why he stuck it out in public service during the much-disdained martial law regime. He seemed like a hard-wired optimist, doggedly hoping that his contribution to economic policy under those difficult circumstances will make a long-term difference for the country.