‘Hal Hill’s review of the Cesar Virata biography’

January 12, 2017

 

(The Philippine Star) January 4, 2017

 

As I am on a brief vacation, I take the liberty of using my column space to present a work of Professor Hal Hill, who is H.W. Arndt Professor of Southeast Asian Economics, Australian National University. He reviewed my book: Cesar Virata. Life and Times through Four Decades of Philippine Economic History (University of the Philippines Press, 2014).

The review appeared in the May 2016 issue of the Asia Pacific Economic Literature and  presents an abridged version below:

This intellectual blockbuster is highly unusual in several respects. The author is the distinguished living father of the Philippine economics profession. Cesar Virata is one of the country’s most distinguished post-independence public officials.

Until around 1980, this was a hopeful period in the Philippines. In that cold war era, the country appeared to be the only robust democracy in its hemisphere apart from Japan. The country’s economic progress appeared to be more or less at par with the rest of Southeast Asia.

Unusually in the country’s history, in 1969 Ferdinand Marcos had won a second presidential term, and he appointed some of the country’s best minds – in particular the author and subject of this book – to his Cabinet.

During the 1970s, the declaration of martial law, the increasingly corrupt and authoritarian nature of the Marcos presidency and the slowing economy all took their toll on the regime’s international reputation.

But much as the so-called ‘Berkeley Mafia’ enhanced President Soeharto’s credibility, so too did these two key Cabinet officials add to Marcos’s respectability, and to the sense that economic management was in good hands.

Cesar Virata performed outstandingly during his school years, leading to a scholarship in business at the Wharton School at the age of just 20.

Returning home, Virata successfully combined academic and business careers, the former as dean of the country’s leading business school at the University of the Philippines, the latter through his work with the country’s top business consulting firm SGV.

As a prominent and well-regarded citizen, a career in government beckoned. In 1968, at the age of just 37, he entered the Cabinet with his appointment as chairman of the newly created Board of Investments (BOI).

Virata entered a policy environment constrained by economic nationalism and patronage, complicated further by the now failing two decades of comprehensive import substitution.

He was a highly effective ‘doer,’ and he sought to regularize and simplify the business environment. His tenure at the BOI was relatively brief, and he was unable to overturn the restrictive (maximum 40 percent) foreign ownership provisions in the constitution. But he was widely respected in both the political and business communities for his integrity and effective leadership.

Promotion came rapidly. In 1970 Virata was appointed to arguably the toughest position in government, as finance secretary (minister). It occurred in the wake of a balance of payments crisis, not unrelated to the presidential election of the previous year, and the forced float of the peso.

Virata inherited a department weak in technical expertise, a weakness he was able to remedy in his long tenure in that position, the longest in the country’s history. He also embarked on a major cleanup of the Bureaus of Internal Revenues and Customs, dismissing some 5,000 officials over the years, including some politically well-connected staff. There were constant battles with corrupt officials, and Virata could not, of course, be expected to win all of them.

The political landscape changed dramatically with the declaration of martial law in September 1972. However, notwithstanding the erosion of democracy, Sicat’s analysis reflects the guarded optimism of the times.

More professionals had been brought into government, the fractious dealings with congress disappeared, and Marcos appeared to be reform oriented. Indeed, in the first five or so years, as Virata led the government’s economic team, important reforms were introduced.

However, by the late 1970s the optimism began to fade. The borrowing strategies in the wake of the first oil shock posed new macroeconomic risks. The economy was slowing.

Political opposition was mounting. The power of the president’s wife and business cronies was rising. Marcos himself is portrayed by then as an almost hapless figure, attempting to placate his wife, Imelda, especially as salacious details of his private life were publicized.

Imelda Marcos began to enter politics center stage, including through the newly created posts of governor of Metro Manila, minister of human settlements, and much else. Thus began a complex and protracted tug of war between Virata and Imelda Marcos, which Ferdinand Marcos attempted to mediate with varying degrees of success.

With the relaxation of martial law in 1981, a prime minister was to be appointed. Unexpectedly perhaps, the post went to Virata, in addition to his finance responsibilities. As the regime faltered, Sicat (who had by then left the Cabinet) observes that ‘… to the outside world, Virata was a major asset of the Marcos government … (who) inspired confidence in the management of the economy’ (p. 440).

However, the economic and political fortunes of the administration continued to slide. With the assassination of Benigno Aquino (the father of the current president) in August 1983, a full-blown economic and political crisis developed, compounded by rising debt at home, declining terms of trade, rising international interest rates and financial collapses.

As the administration began to implode, Virata offered to resign, but it was not accepted. Instead, he was forced to introduce a program of fiscal austerity, for which ironically – given that he had earlier been trying to curb the profligacy that caused the crisis – he received further domestic opprobrium.

There was also a desperate search for funds from friends abroad in order to counteract the mounting capital flight, and inevitably the IMF entered center stage. In the end, Marcos’s fall from power in February 1986 was sudden and bloodless. Virata could have deserted him in the last days, as the others did.

I would encourage the serious readers not to be deterred by the 850 pages but to stay the course in this immensely readable volume. Professor Sicat writes very clearly and he has done a remarkable job in sifting through a daunting amount of material.

We gain a deeper analytical understanding of the reasons for the country’s troubled economic performance during the 1970s and 1980s, including the difficulties of transitioning to a more open trade and investment regime, the unproductive and risky borrowing strategy at a time when there was international pressure to recycle the petro dollars, the political economy of cronyism and patronage, and the adventurous macroeconomic policy settings.

But most of all, we gain fascinating insights into the inner workings of Philippine economic policy and political life, through the prisms of arguably the country’s two most distinguished economists and civil servants of the past half-century. This is a rare treat, and this reviewer is unaware of anything comparable for any other major Asian country.