Murky In Manila

Estrada's muddling has markets in a mess

When Finance Secretary Jose Pardo rang the opening bell at the Philippine Stock Exchange on Mar. 8, it was no standard cameo appearance. The night before, Perfecto Yasay, chairman of the Philippine Securities & Exchange Commission, had tried to halt trading in support of the stock exchange's compliance team. The team of regulators had just quit in protest over pressure to whitewash an investigation of stock-price fixing that implicated Dante Tan, a close friend of President Joseph Estrada's. But other SEC officers, acting under pressure from the presidential office, overruled Yasay's attempt to close down the market. Keeping the exchange open was supposed to signal that the dispute was over and that investors could trade with confidence. Instead, the Manila bourse slid almost 3% that day as spooked investors sold out.

The market fiasco is the latest in a series of debacles that have trashed President Estrada's public image and eroded confidence among investors. Polls taken even before the latest incident put the President's approval rating at an all-time low of 53%, down from 75% when he took office in June, 1998.

SECOND GEAR. The majority of Filipinos fault the president for a sluggish economy and rising prices; but the urban and affluent worry about government graft and corruption, according to Felipe Miranda, president of polling organization Pulse Asia. Other critics charge the former action-movie hero with cronyism, policy drift, and tampering with government institutions. The President, they say, has too many informal advisers who impart their wisdom on matters involving personal business stakes over late-night drinking sessions at the presidential palace. "People see that as a system of patronage," says Guillermo Luz, executive director of the elite Makati Business Club.

The President denies he's influenced by cronies. But the cost of this bumbling is becoming clear. The Asia crisis hit countries like Thailand and South Korea hard, and forced them to embark on painful reforms. In contrast, the Philippines had already been reforming under President Fidel Ramos when the crisis hit, and it was not as severely battered. But now the Philippines seems stuck in second gear, while regional rivals are picking up speed. The World Bank projects economic growth of 3.5% this year for the Philippines, compared with 7.5% for Thailand. "Other countries have moved to clean up the situation, but we see the Philippines sliding back," says Jenny Sofian, a fund manager who sold all Philippine holdings from her Indocam Asian Growth Fund because of the country's deteriorating prospects.

The backsliding has also curtailed international lending. Late last year, the Asian Development Bank canceled a $75 million loan tranche because the government has yet to pass a new stock-market law improving transparency and disclosure, says ADB Chief Economist Shiladitya Chatterjee. A further $1 billion in loans from the ADB and Japan are in jeopardy because donors want to see more reforms before they shell out more cash.

Private investors, too, are spurning the country. Foreign investment fell 38% in 1999 over 1998. In the past two years, multinationals, including Royal Philips Electronics and Johnson & Johnson, have closed Philippine plants and relocated in the region, citing better infrastructure and cheaper labor. "There is a big stigma of cronyism and unfair business practices," Astro del Castillo of Manila-based A&A Securities laments.

Domestic investors aren't any happier, saying that cronyism and corruption are reaching heights not seen since the days of deposed dictator Ferdinand Marcos. Estrada only dropped close friend Mark Jimenez as an adviser after the U.S. requested his extradition last June to face tax fraud and illegal campaign contribution charges. He remains in the Philippines. Estrada's term has also seen the ascendancy again of Lucio Tan, a Marcos-era crony and tycoon who controls Philippine Airlines. The government's decision to ban flights by Taiwan carriers to Manila was seen as another favor to a pal whose airline badly needed a boost.

PRESS MUZZLE. The most damaging blow to Estrada's credibility could yet turn out to be the Dante Tan affair. Last July, stock regulators began an investigation into Tan's gaming concern, BW Resources Corp., suspecting insider trading. Its 2-peso stock price rose to 107 pesos in nine months. But before the SEC investigation was even finished, Yasay says Estrada ordered him to clear Tan and the brokers involved. Estrada has publicly denied the charge. Yasay complains that Estrada was elected on a campaign pledge of clean government: "I thought he said no friends, no relatives. He's doing the opposite."

Critics also say Estrada has tried to curb unfavorable press coverage, organizing an advertising boycott of Manila dailies and filing a libel suit against the Manila Times. The suit was dropped, but the paper was sold--to the son of presidential pal Jimenez--and has since halted its criticisms. At the same time, critics accuse Estrada of inertia on reform bills introduced under Ramos, including legislation to lift restrictions on foreign investment in banking and utilities, and the stock market reform bill.

There's still a possibility Estrada could turn things around. A new Cabinet lineup in January earned the President praise from the business community for its strong economic team. There are hopes that the newly formed Economic Coordinating Council of academics, technocrats, and businesspeople will help the beleaguered President chart a new course. "This is really a temporary setback and we expect investors to come in," says presidential press secretary Rodolfo Reyes, who dismisses charges of cronyism as "old hat" and disinformation. Aides say Estrada, famous for not being an early riser, has even vowed to show up at work earlier and cut back on his late-night drinking.

But these attempts to turn a new leaf came before the most recent standoff at the stock exchange. That dustup provoked fresh doubts about Estrada's ability to change his ways--and learn a few new lines.

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