Ferdinand Marcos: Business as Usual


Ferdinand Marcos: Business as Usual

Business as Usual


Ferdinand Marcos: Iron Butterfly

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Ferdinand Marcos
Ferdinand Marcos 2
Ferdinand Marcos
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Ferdinand Marcos
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Ferdinand Marcos
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Ferdinand Marcos

Business as Usual


“THE AMERICAN BUSINESS COMMUNITY in the Philippines,” The New York Times reported on March 11, 1972, “has greeted with relief the … declaration of martial law.”

America was the chief beneficiary. With thirty-five thousand U.S. servicemen in the islands, American bankers managing a tenth of Manila’s $2.1 billion national debt, $74 million in emergency relief, $75 million in aid, and upward of $2 billion in U.S. investments, America encouraged and condoned the new Marcos dictatorship just by continuing to do business as usual. Martial law would instill discipline, keep guns off the streets, and solve the law-and-order problem, so the temporary loss of freedom of speech, the suspension of the writ of habeas corpus and all constitutional safeguards for individual rights were not important. One telegram to President Marcos read: “The American Chamber of Commerce of the Philippines wishes you every success in your endeavors to restore peace and order, business confidence, economic growth, and the well-being of the Filipino people and nation.” A State Department official commented that American corporations were “very bullish” on martial law. Since it was discovered later that Ferdinand had consulted with Nixon and Kissinger before promulgating martial law, could there have been more involved? Did he offer any concessions in return for their endorsement? Was there, in fact, more going on than met the eye? The answer is, yes.

Four weeks before martial law was declared, the Philippine Supreme Court announced that it had decided to enforce a law restricting all retail trade in the islands to Filipinos. Henceforth, American citizens and corporations could no longer purchase or own private agricultural lands, and all other economic privileges acquired under the 1946 Parity Amendment would expire on July 3, 1974. By then, American ownership must be sold off or reduced to 40 percent.

It was the old Marcos game of stick-and-carrots again. Americans saw it as an omen of worse to come. That is clearly what they were intended to fear. As Ferdinand had done to all his business rivals when he first became president, he was now threatening to beat Americans with a stick. The prospect of forfeiting these lucrative and generally trouble-free Philippine holdings was enough to cause deep anxiety in Wall Street. But the assurances that Ferdinand then gave to Nixon, Kissinger, and Byroade were a marvelous palliative. As an American oilman in Manila reported, “Marcos says, ‘We’ll pass the laws you need — just tell us what you want.’” Having manipulated these decisions through a Supreme Court packed with Marcos appointees, Ferdinand now was in a position to guarantee by presidential dispensation that they would not be applied so long as America showed enthusiasm for his regime. He did not scrap the court decision, but he applied it selectively — to any U.S. businessmen who refused to give him a piece of the action. “When I was there,” said William Sullivan, U.S. ambassador from 1973 to 1977, “foreign investors did not come into the Philippines without distributing shares to Imelda … or Kokoy or some of the other cronies.”

These kickbacks, bribes, inducements, and other forms of extortion were similar to armed robbery, but they were not carried out in such a blatant fashion. And the companies involved thought they were worth it, in the beginning. As Alex Melchor put it while he was still executive secretary, such deals were “cooked.” Ferdinand was an expert chef, and he was always careful to grease the pan.

During the early days of martial law, the international banking community also was completely taken in by the public pretenses of the Marcos regime. Stern discipline, President Marcos professed, was necessary to transform the Philippines from a corrupt feudal society into a new era of modern technology and export-oriented industry. Until the system could be purged and modernized, martial law was imperative. This sounded reassuring to middle-class Filipinos weary of the folly and blatant corruption of the old legislature. It sounded exciting to young technocrats eager to introduce their concept of a thriving modern economy. And it was a siren song to the ears of the International Monetary Fund (IMF) and the World Bank, then headed by the aging “whiz kid” Robert McNamara. Bankers appreciate discipline. Imelda and Ferdinand Marcos were doing everything they could to woo the World Bank, for reasons that nobody outside of Malacanang fully understood at the time, except a few analysts at the CIA and the account managers of Crédit Suisse.

Eager to believe, the World Bank secretly named the Philippines a “country of concentration,” which meant the amount of aid would be “higher than average for countries of similar size and income.”

McNamara and his advisers were duped by a “sting” operation. The sting began with martial law, gathered momentum with a number of bold business takeovers by the regime, which gave the impression that Ferdinand really meant business, and climaxed in the staging in Manila of the International Monetary Fund-World Bank Conference of October 1976.

The Marcoses had been bidding furiously for the privilege of playing host to the conference. Late in 1974, Manila was picked, and Malacanang let it be known that no expense would be spared to assure that the international banking community found Manila a showcase of stability, prosperity, dynamism, and beauty. It was none of these things. The prospect of six thousand bankers and their guests descending upon the country for a week brought more lip-smacking in the palace than it did in the brothels, and caused a stampede to build fourteen new five-star hotels.

President Marcos, now ruling by decree, offered incentives to anyone building a hotel for the World Bank meeting, including tax holidays, deferred deduction of losses, tax exemptions, duty-free imports of equipment, and tax credits on locally purchased materials. He opened the coffers of government lending agencies — the Development Bank of the Philippines, the Government Services Insurance System, and the Philippine National Bank were directed to lend up to 75 percent of building costs. (Ultimately, they had to lend 90 percent, and in the case of Imelda’s new Philippine Plaza Hotel 100 percent.) The Philippine National Bank was headed by crony Roberto Benedicto, and the Government Services Insurance System by Imelda’s protégé, Jun Cruz. Imelda’s favorite, Tourism Minister Jose Aspiras, approved applications to build the new hotels and other tourist facilities. Originally a Magsaysay/Lansdale man, Aspiras was an Ilocano and a tireless zealot for the Marcos 1965 presidential campaign. He had been a loyal friend of Ferdinand for many years, but his career really took off when he rescued Imelda during the 1972 “assassination attempt.”

By early 1975, fourteen hotel projects were approved by Aspiras. Builders had only to promise to open in time for the World Bank meeting. Behind the rush to build was simple greed — Marcos cronies wanted to take advantage of the cheap loan money, which at 12-14 percent interest and a two-year grace period on the principal was as good as free. William Overholt, vice president for international economics at Bankers Trust Co., explained the dodge: “A Marcos crony would borrow $100 million with government guarantees to build a hotel. He’d spend only, say, $40 million on building the hotel, leaving the remaining $60 million to be stashed away in Switzerland. Of course, the hotel was undercapitalized and would go bust, so the government would have to step in and assume the obligations.” This happened so often during the Marcos era that the Philippine government ended up controlling nearly four hundred corporations, mostly money losers. Losses by these firms came to $3 billion a year, roughly what it cost to run the entire government.

When all the bills were in, the fourteen new hotels cost over half a billion dollars. During the months of frenzied construction, fifty thousand workers toiled around the clock, ten thousand of them on Imelda’s Philippine Plaza Hotel. Nearby, her International Convention Center (the platform for the World Bank-IMF Conference) was ready ahead of time at a staggering cost of $150 million. This should have alarmed McNamara’s advisers and given them second thoughts about the pretensions to discipline of the Marcos regime, but it did not, for reasons that will become clear.

Despite the frenzy, only two of the fourteen hotels were completed in time. Imelda had been frantic to have McNamara stay at her Philippine Plaza, but it was not finished, and he wound up at the Hilton. The First Lady was not happy. Several of her contractors reportedly packed up their families and emigrated. The extra hotel capacity was not needed in any case — only three thousand of the forecasted six thousand delegates and observers showed up.

When the conference opened, delegates and their wives were wined, dined, and whisked around town in a fleet of three hundred new Mercedes-Benzes. If the bankers had been a bit more suspicious, they might have realized that what they were witnessing was one of the country’s worst investment disasters. Instead, they took the spectacle of bustling Manila as a sure sign of health.

McNamara’s own performance was incongruous. In statements broadcast throughout the archipelago, he called for an end to world poverty, advising impoverished Filipinos that what was required was “people who care, people who make sacrifices, people who take practical steps to see the task through … We have to ask ourselves — each one of us — where we really stand.”

Residents of one of the world’s great slums — Manila’s awesome Tondo — asked McNamara to meet with them in Tondo to see where they stood. The $32 million the World Bank had given Imelda to fix up Tondo had not trickled down. McNamara was presumably too busy implementing “people-oriented development” to respond.

Just in case any banker blundered onto Tondo, before the conference Imelda ordered sixty thousand families forcibly removed from the slum and four hundred more evicted from its edges. Their houses were quickly demolished to make it look as though the Tondo renewal project was making progress. The displaced families were carted off in garbage trucks under police guard, to isolated sites 20 miles outside Manila where they were left to put up shanties like the ones they had just left.

Unlike McNamara, the World Bank’s program director for East Asia, Gregorio Votaw, was on the spot and could see what the First Lady was up to. Patiently, he explained that the Bank’s concept of urban development was development in place, and this was precisely what Tondo needed — minimal relocation and dislocation. That, he said, was part of the project contract. Imelda and Ferdinand had McNamara fire him.

The flood of money to the Philippines was not exclusively the result of bureaucratic inertia and misjudgment at the IMF and World Bank. American and European private banks also were pouring great amounts of capital into the Philippine economy — with absolutely no backing except that the loans were “guaranteed” (in a manner of speaking) by the regime itself.

In 1975, American banks had $110 billion in loans outstanding overseas; by 1982, a mere seven years, the figure had risen to $451 billion. Many of these loans were made to countries like the Philippines, Brazil, Mexico, and Argentina whose balance of payments were so far in arrears already that their ability to repay no longer mattered to loan officers. A loan officer’s performance is rated according to how many loans he makes. By the time the borrower defaults, the loan officer has moved to a better job at another bank. The bad loan is simply rescheduled, to allow repayment over a longer period when still other loan officers will be stuck with the burden. Whether or not a loan ever gets paid is not as important as maintaining the interest payments that affect a bank’s annual profit-and-loss statement. So long as interest is paid, a bank can have a very good year on paper, even if many of its loans are in serious trouble.

When a country or a foreign corporation defaults, international banks cannot collect the hotels, oil refineries, or earth-moving equipment paid for by their loans; they do not deal in collateral. International loans are secured instead by the guarantee of a third party — which may be a private commercial bank, a government-owned commercial bank, or a government itself. If the guarantee looks good on paper, little else matters. A loan will go through even if a company has borrowed much more than it can ever repay. Borrowing beyond your means is called leverage, and it is not unusual for international banks to lend great sums to companies at a leverage ratio of seven to one, especially if the loan is to be used to buy equipment or services from another customer of the bank, which makes a bad loan look decidedly better.

A case in point was S. C. Gwynne, a twenty-five-year-old American who took a bank job fresh out of college. Because he spoke French, he was promoted in less than a year to loan officer for North Africa. Six months and twenty-eight countries later, he arrived in the Philippines in 1978 to negotiate a $10 million loan for crony Rudolfo Cuenca, head of the Construction and Development Corporation of the Philippines (CDCP). Cuenca wanted the money to buy earth-moving equipment from another customer of the U.S. bank where Gwynne worked.

Gwynne was met at Manila International Airport by a genial CDCP “expediter.” A red Jaguar was waiting outside, complete with a pretty girl who informed him that she and the car were at his disposal throughout his stay. Gwynne was checked into a five-star hotel, then wined and dined by Cuenca at a premier restaurant, where the finance minister of the Philippines “just happened” to drop by the table. He let Gwynne know that Cuenca was a good friend. Gwynne was then invited to fly off in the company plane to Baguio where a very nice time had been prepared for him.

Gwynne had severe reservations about authorizing the loan, but when he got back to headquarters, he began to feel pressure. The earth-moving equipment manufacturer called to make sure Gwynne took a “hard look” at the loan. The president of the bank called him to say the same thing. Said Gwynne, “He want[ed] to see this thing in loan committee, ASAP, damn the company’s leverage, and damn the balance-of-payments problems in the Philippines, period.”

Gwynne easily secured a partial guarantee from a large Philippine bank. (The heads of both the bank and the construction company, Gwynne knew, were “wired into the same political terminals.”) Eighteen months later, Gwynne moved to another bank on the West Coast. He was no longer around when Cuenca’s interest payments stopped.

In Rudi Cuenca’s office, there was a framed photo showing him on the golf course with his best friend. “To Rudi,” read the autograph. “Good golfing always. F. E. Marcos.” A college dropout at age nineteen, Cuenca got into road construction with a loan from his father, the highway commissioner. The money was part of postwar U.S. reconstruction funds. In three years Cuenca was bankrupt, but he rescued one truck from creditors and made a comeback hauling building materials. In 1965, he was a fundraiser for Ferdinand. When the government ran out of money to finish an expressway north of Manila, Cuenca offered to do it for nothing and then collect tolls. With the encouragement of his golfing buddy, he set up the Construction and Development Corporation of the Philippines. From then on, CDCP won nearly every fat contract, including the San Juanico “Bridge of Love.” Under Cuenca, in only five years road-building costs escalated ten times, from 100,000 pesos per kilometer to over 1 million pesos. Some of these projects were partly financed by the World Bank. Cuenca got a $1 billion contract to reclaim 500 hectares of Manila Bay. Through Marcos friends in the Middle East, CDCP also won more than $1 billion in Arab contracts, including $350 million to build a cross-Iraq highway. (When that project was due to be 70 percent complete, less than 4 percent of the work had been done.)

Although Cuenca’s work ended up costing much more, he got most of the government’s business. While Ferdinand began his congressional career as a “ten percenter,” as president he demanded more. As inflated bids worked their way down the system from general contractor to subcontractor to supplier — each adding 10 percent — the total kick-backs grew to 80 percent of overall cost.

Many Filipino businessmen who were not cronies prudently turned over to Ferdinand or Imelda shares in their companies, or gave donations that amounted to protection money. Other businessmen learned the hard way. In a form of armed robbery, Ferdinand used the military and the Constabulary to seize control of businesses from people who refused to turn shares over. These takeovers were then patched together in corporate quilts to make a monopoly, squeezing out all competition. This took place in the primary industries of the islands — the sugar industry, the coconut industry, bananas, and so forth. Some of these deals were so intricate that it takes great patience to figure them out. One of the simplest was the great banana scam.

The top banana was Antonio Floirendo, who ran many of the Marcos offshore banks and corporations set up in international tax havens and frequently fronted for the First Lady. Floirendo was a banker who owned a car dealership and many other businesses in Mindanao, and was a charter member of Imelda’s globetrotters.

Until martial law, the Philippine banana industry was dominated by two big international food houses, Castle & Cooke and Del Monte. Unable to win the kind of concessions he wanted from those entrenched corporations, Ferdinand decided to break their grip by bringing in United Brands. Floirendo did it for him, with the help of a prison farm.

The Davao Penal Colony in Mindanao was a Japanese POW camp during World War II, and since then had served as a prison for common criminals. Ferdinand issued a decree in 1972 giving Floirendo a lease to develop a 12,000-acre banana plantation inside the penal colony. Floirendo paid the government only $9 a year per acre to lease the rich delta land; the going rate to planters elsewhere was $30 to $50 per acre. The prisoners provided a guaranteed work force at less than 20 cents a day per man.

When the deal was offered to it, United Brands was enthusiastic. The Cincinnati company, which claims to be the world’s largest producer and marketer of bananas, had been unable to enter the Philippine banana industry before. The chance to invade the territory of rivals Del Monte and Castle & Cooke was worth a lot. Loans from U.S. banks and financial assistance from United Brands flooded into Manila to pay for the development of the huge plantation. The farm’s entire output, estimated at nearly seventeen million boxes of fruit a year, worth $100 million, was taken by United Brands — comprising around 10 percent of the company’s $1.1 billion banana sales worldwide. Ferdinand ordered construction of a 15-mile road down to Floirendo’s private dock on the Davao Gulf, where United Brands freighters were loaded. The farm bought a $1 million private jet to fly Floirendo and his executives back and forth.

To teach them a lesson in martial law economics, Ferdinand ordered that Del Monte and Castle & Cooke had to pack a percentage of their fruit in boxes manufactured by Floirendo.

Taking over the sugar industry and the coconut industry took a bit longer. Ferdinand went after sugar with a vengeance as he forced out the Lopez clan and other old-guard sugar barons. Big money was involved — sugar amounted to 25 percent of all exports. Eventually the entire sugar and coconut businesses, from growing to harvesting, processing, and selling, became the personal monopolies of three Marcos cronies: Roberto Benedicto, Eduardo Cojuangco, Jr., and Juan Ponce Enrile.

“Bobby” Benedicto hailed from Negros, the country’s sugar center. Teodoro Benedicto had founded the family fortune there at the end of the nineteenth century. With a gang of armed men, Don Teodoro burned out peasant villages, bribed local officials, and amassed an enormous property of 11,200 hectares, the largest in Negros. The Spanish Lands Department ruled that the methods Don Teodoro used were criminal and recommended that he be put on trial, but he bought off the court. Bobby inherited the fortune and the dedication. Studying law at the University of the Philippines in the thirties, he became a fraternity brother of Ferdinand Marcos. During World War II, when a submarine landed secret agent Jesus Villamor on Negros to organize an intelligence net, Villamor chose Benedicto as his local commander. Villamor said Benedicto impressed him with “his coolness, his energy … and his logical, analytical and cuttingly sharp mind.”

Benedicto was one of the earliest Marcos backers, and chief fundraiser of his presidential campaign in 1965. Ferdinand then made him president of the Philippine National Bank. Under martial law, only his newspaper, the Daily Express, and his television station were allowed to stay in operation. As Ferdinand seized the assets of rivals, Benedicto was given the Lopez media chain of print, TV, and radio.

Once he had taken control of the entire sugar industry, sugar exported from the Philippines was stored in Benedicto warehouses, shipped by his tankers, insured by a company he controlled, and financed by California Overseas Bank, the Beverly Hills bank that stock certificates found in Malacanang Palace indicate Benedicto owned jointly with Ferdinand Marcos. Benedicto awarded the construction contracts on new sugar mills, receiving additional kickbacks estimated at $250 million that he shared with Malacanang.

There were many other ways Marcos and Benedicto found to squeeze the juice out of the cane — for example, by controlling local trade contracts. Friends of Marcos were given contracts to buy and sell sugar. These “paper traders” simply sold the rights to actual traders at a markup, in effect taking a cut off the top of every deal. This practice cost the industry $205 million from 1975 to 1984. In this way, the sugar industry was used to make political payoffs to anyone Ferdinand wanted to reward — politicians, military officers, relatives, and friends.

Everybody wanted in on the sugar orgy. Two U.S.-based refineries, Sucrest and Revere, were bought by Imelda and her family. Revere was purchased for $11.8 million with top banana Antonio Floirendo fronting for Imelda. Thereafter, the Marcoses could buy raw sugar from Filipino planters at whatever price they chose, have it refined by Revere and Sucrest in the United States, warehouse it till prices were good, then capture the profits overseas. The First Lady made millions by underpaying for her own country’s sugar. During the period 1975-80, Revere refined and sold Philippine sugar paying 2 cents per pound below world market prices. Other U.S. refiners complained, prompting a congressional investigation. Thanks to a special deal arranged between Benedicto and Revere, the Philippine sugar industry lost $110 million by 1980. In their last ten years in power, Ferdinand and Imelda diverted more than $1.15 billion from Filipino sugar producers.

In Negros, which was now completely Benedicto country, wage disputes and labor protests were crushed by a Constabulary unit called Task Force Kanlaon. Benedicto saw to it that sugar profits purchased the Task Force’s trucks and paid for their fuel and expenses. In the altar on the dashboard where Filipinos ordinarily keep a saint’s image, each truck had a photo of Mr. and Mrs. Benedicto. The 431,000 sugar workers in the Philippines were already desperately poor before Marcos and Benedicto took over; cane workers were paid less than a dollar a day. The sugar barons always had been criticized for this exploitation and for salting their profits abroad, but under the Marcos-Benedicto monopoly, costs rose and profits fell, planters stopped their old-fashioned paternalism (such as it was), abolished free services, cut payrolls, and forced laborers to pay old debts. Said one grower: “If the planters are squeezed, we squeeze our labor.” Real income in the canefields dropped to the lowest point since the beginning of the plantation system in the late eighteenth century. In 1986, after twenty years of Marcos rule, most Filipino sugar workers received less than 80 cents a day, in pesos that had lost their buying power by more than half, so in real terms they earned one-third their 1940 wages. On Negros alone, 750,000 children were suffering malnutrition, existing on meager rations of sweet potato and cassava, hundreds of them going blind, thousands suffering brain damage. While the world agonized over famine in Ethiopia, a worse famine was sweeping what Manila travel brochures persisted in calling Sugarlandia.


If any one rivaled Bobby Benedicto in Ferdinand’s affections it was Eduardo Cojuangco, Jr. While army officers called him “Santa Claus,” his critics referred to him as “Cujo.” A billionaire several times over in Australia, America, and the Philippines, Cojuangco was a collector: he collected breweries in both hemispheres, he collected ponies at a $25 million stud farm in Australia, he collected other people’s companies and other people’s land, and he pulled together what was reputed to be the world’s largest individual collection of Uzi machine guns. Nearly twenty years younger than Ferdinand, he had been an energetic supporter since the 1960s, and was the godfather of the president’s son, Bong-Bong. Only two civilians ranked among the “Rolex 12” — Minister of Defense Juan Ponce Enrile and Eduardo Cojuangco, Jr.

Critics said of Cojuangco, “He does not want to run the Philippines, only to own it.” Cojuangco was called “the unseen hand that everyone tends to see behind important events,” “the untouchable crony,” and “the second richest man in the Philippines.”

Cojuangco’s rise was not spectacular, because he started out on top. He was born into the powerful Cojuangco clan of Tarlac, the wealthiest Chinese family in the Philippines. It was the Cojuangcos and the rival Aquinos in the early years of this century who created the conditions in Tarlac leading to the peasant revolt of the 1920s and 1930s, eventually provoking the Huk movement. Eduardo’s great-grandfather, Jose I, was a tough, pigtailed immigrant from Fukien Province who started as a building contractor in Manila in 1861, then moved to Tarlac where he invested in rice and sugar lands; he was also a moneylender, which enabled him to enlarge his landholdings rapidly through foreclosure. Nobody ever thought they were nice folks. The family acquired 16,000 hectares of prime sugar-land, a 6,500-hectare tobacco plantation, and a sugar mill. Eventually Cojuangcos also came to own the Philippine Bank of Commerce, the First United Bank, and the Philippine Long Distance Telephone Company, which in 1969 grossed $150 million. Cojuangcos took pains to be popular with American colonial officials, and after World War II their great Hacienda Luisita became a base for the CIA, a guarantee of preferential treatment.

The clan split into warring factions when Ninoy Aquino married Cory Cojuangco and campaigned for Tarlac governor in 1960. Don Jose Cojuangco, Sr. (his father-in-law), and Jose Junior (his brother-in-law) underwrote Ninoy’s campaign. This aroused the wrath of other Cojuangcos, primarily Eduardo and his father, who continued to regard Aquino as an interloper from the rival clan. Eduardo accused Ninoy of consorting with the Huks. Replying to the charge, Aquino said: “It is true that I have to deal with the Huks now and then. Besides the Huks are not all bad. Without them, the rich will run amok.” As to Eduardo, Ninoy added, “He thinks he can corrupt everything with his millions.”

With the imposition of martial law, their situations were reversed with Aquino in jail and Cojuangco on the “Rolex 12.” He acquired a seat in the Marcos rubber-stamp Congress, was the ruling party’s chairman for Tarlac, governor of Tarlac, and international roving ambassador. Ferdinand put Cojuangco in charge of the horse-racing and basketball franchises, two of the biggest gambling operations in the islands. He became the director of the Manila Hilton, the owner of Filsov Shipping, the director of First Philippine Holdings (previously a Lopez firm), and eventually took over more than one hundred forty companies. Applying the full leverage of the Marcos regime, he pulled off an executive suite coup just before the downfall and became chairman of the Philippines’ largest corporation, San Miguel, with branches in Hong Kong, Spain, and Mexico.

He participated in the Marcos sugar orgy, increasing his canefields with 2,000 more hectares in Negros and 5,000 in Mindanao. As a condition of purchase, he required that all workers living on the land be evicted. Cojuangco was not short of men to do his dirty work — he had a private army of five thousand mercenaries armed with M-16s, Uzis, and Galil assault rifles, which can only be purchased in bulk with Israeli government approval. Cojuangco’s army was trained on Palawan by Israeli commandos, also with the approval of Tel Aviv (it would have been impossible otherwise). Cojuangco forged a godfather association with senior Filipino military officers by cultivating them and distributing financial favors discreetly, leading to his other nickname, “Santa Claus.”

With a little help from Ferdinand and Juan Ponce Enrile, Cojuangco took over the entire coconut industry. They created a monopoly by controlling funding, processing, marketing, and development.

Their coconut cartel attempted to manipulate the market in America by buying up Philippine coconut oil cheap, shipping it to America, and warehousing it there till prices rose. But a sudden increase in interest rates and the Soviet grain embargo (which flooded the American market with soybean oil) caused coconut-oil prices to plummet. Cojuangco and Enrile were forced to sell their U.S. inventory at a $10 million loss. The U.S. Justice Department filed a suit charging that they had conspired to create an artificial shortage, and several U.S. firms lodged anti-trust actions, but after strings were pulled in Washington the Justice Department settled for a mild reprimand “not to do it again.”


While sugar and coconut prices could be manipulated by monopoly marketing, the simplest Marcos business technique was the blunt takeover. When Ferdinand identified a choice business, he demanded a percentage of the stock. The shares could be endorsed in blank or held on Ferdinand’s behalf by a dummy company, like the many set up for him by Jose Campos.

Seafront Petroleum and Mineral Resources was an oil exploration company that flowered in the mid-1970s amid reports that major oil reserves lay off Palawan Island. Early in 1976, Ferdinand demanded that the owners of Seafront turn over to him all their oil options. Grudgingly, Seafront owner Alfonso Yuchengco made the transfer to Mid-Pasig Land Development Corporation for 1 peso. Said Yuchengco, “Marcos called for me and said he wanted the options … I signed unwillingly.” Mid-Pasig was controlled by Ferdinand’s frontman, Campos. Seafront’s shares were then turned over to another Marcos front, Independent Realty Corporation, controlled by Campos and another Marcos frontman, Rolando Gapud. Seafront’s first well came in dry. But President Marcos announced on national television that there had been a major oil strike. This caused a stampede on the Manila stock market. Ferdinand and his cronies made at least $9.5 million and dumped all their Seafront stock. A few days later, the stock crashed by 65 percent and Ferdinand announced that he was “launching an investigation” to discover if there had been inside trading. This, said former Seafront owner Yuchengco, was “the biggest hypocrisy of all time.”

Ferdinand and his cronies were masters of such manipulation. Their biggest deal was the Westinghouse nuclear power plant in Bataan, the fattest single contract ever landed in the Philippines.

The crony who engineered the deal for Ferdinand was Herminio Disini. Disini was part of the royal family, married to Inday Escolin, a first cousin of Imelda Marcos who also served as one of her physicians. Like Eduardo Cojuangco, Disini was twenty years Ferdinand’s junior; like Rudi Cuenca, he was a golf partner. After martial law, Disini became president of the Wack Wack Country Club, the preserve of Manila’s old money. Other players groused that Marcos and Disini cheated. Explained former golf partner M. J. Gonzales, “When Marcos played golf, he used his caddies, aides, and bodyguards to do the dirty work. You could never pin anything on him personally.” Ferdinand had the lowest handicap of any chief executive in the world, which meant a lot to him.

Disini’s big break came in the early 1970s, when Ferdinand used him to take over the cigarette filter business in the islands — long dominated by a British-American firm called Filtrona Philippines, Inc. Together they forced Filtrona out of business, leaving Disini’s Philippine Tobacco Filters Corporation with a monopoly worth $1 million a month in profits. Disini then made a deal with Ferdinand’s friend Lucio Tan, head of Fortune Tobacco, selling Tan filters so cheap that his cigarettes could undercut rivals and drive competition out of the market. In appreciation, Tan gave President Marcos $11 million in campaign contributions, plus $2.5 million a year. (In the process, Tan avoided paying some $50 million a year in taxes.)

With all the money he made in these deals, Disini created Herdis Group, Inc., a conglomerate of fifty companies with $1 billion in assets. Not wanting to tie up his own millions, he did it all with borrowed money, exploiting the Philippine government guarantees that were irresistible to foreign bankers. Disini hardly seems like the sort of man you would trust to build a nuclear power plant. There were other strange aspects to the project. The power plant sits on a jungle bluff in Bataan overlooking a stretch of the South China Sea — a site subject to tsunami tidal waves, 5 miles from a dormant volcano, and only 25 miles from three geologic faults.

It all began in 1973, when President Marcos ordered National Power to negotiate a deal to buy two 600-megawatt nuclear plants. General Electric showed interest and began negotiating with National Power. The Westinghouse district manager for the Philippines sought help from Jesus Vergara, president of Asia Industries, which handled distribution in the islands for Westinghouse. Vergara knew how things worked and advised Westinghouse that if it wanted to beat GE to the punch, it should hire a lobbyist close to Marcos, a man like Disini.

On the golf course, Vergara mentioned the job to Disini, pointing out that his commission could run into the millions. Disini arranged for Westinghouse executives to discuss their proposal in private with Ferdinand. Westinghouse offered to supply a single plant with two 620-megawatt reactors at a price of $500 million. Additional charges for fuel, power transmission lines, and so forth raised the estimated total to around $650 million.

After this private audience, Ferdinand ordered the general manager of National Power, Ramon Ravanzo, to give the business to Westinghouse. There was to be no competitive bidding.

During nine months of cultivating National Power and discussing its own proposals, GE had never gone straight to the palace. At a meeting with officials of National Power in the office of Executive Secretary Alex Melchor, GE learned to its dismay that Westinghouse had the contract sewed up.

Melchor, thinking that he still might persuade Ferdinand to drop Westinghouse if the GE proposal proved to make more sense, assembled a team of experts to compare the costs and technical details of the two proposals. Melchor’s team found nearly every alternative cheaper than Westinghouse. But whatever deal Ferdinand had struck with Westinghouse pleased him so much that he was not moved by any of these arguments.

Already, the Westinghouse price was beginning to grow. When Westinghouse first got the deal, U.S. Ambassador Sullivan had told Washington that the reported cost of $500 million appeared to be low by at least 20 percent. By September, Sullivan was advising Washington that Westinghouse now said the cost would be over $1 billion. Sullivan cabled Secretary of State Kissinger: “I stressed that embassy considered great deal of American prestige riding on Westinghouse performance, and that therefore we intended to follow project closely. I pointed out that this was in effect Filipino Aswan Dam, being largest and most expensive construction project ever undertaken in this country … current cost estimates are over one billion dollars.”

By the time a formal contract was signed in February 1976, the deal was hardly recognizable. The power plant would now have not two but only one 626-megawatt reactor. At the prices Westinghouse was now quoting, international banks would not give Manila a loan big enough to finance the second generator. Instead of getting two reactors for $650 million, the Philippines was getting one reactor, with half the power output, for $722 million. It would cost another $387 million for interest and escalation costs, bringing the total price to $1.1 billion. Given past experience, Filipinos naturally assumed that Westinghouse had bribed the president — or, to put it the other way around, that Ferdinand had demanded a huge kickback, and that Westinghouse had agreed in order to snatch the deal away from GE. They speculated that “in the usual manner” the Marcos slice had grown larger and larger, to accommodate Disini and other cronies down the line, and as the First Lady and her family and followers queued up.

According to Vergara, who had asked Disini to intercede with Malacanang in the first place, Westinghouse paid Disini a commission of at least $50 million. Vergara said Disini gave Marcos $30 million of that, and split the rest with Vergara and Disini’s business partner, Rodolfo Jacob. This meant that Ferdinand demanded and received from Disini not just 10 percent or 20 percent or 40 percent, but a whopping 60 percent. Jacob confirmed that kickbacks went to Marcos, without verifying how much. A new Disini company, Power Contractors, Inc., became chief subcontractor of civil works in the project. Another Disini outfit, Technosphere Consultants Group, provided engineering and construction management. The contract to install communications at the site was also won by a Disini-related company. And Disini’s Summa Insurance Corporation was paid a $10 million premium to write a $668 million policy on the project — the largest single policy ever written in the Philippines. Disini took over Asia Industries, becoming Westinghouse’s Philippine distributor.

Westinghouse denied that any money went to Marcos, and said it paid Disini only $17 million in commissions. According to the U.S. Securities and Exchange Commission, a district manager for Westinghouse in the Philippines destroyed six volumes of documents related to the project, then retired.

Once financing was finally arranged with the U.S. Export-Import Bank, Westinghouse needed a place to build the plant. The Marcos and Romualdez families had taken over a large part of Bataan, opposite Corregidor, some of which was used to build a presidential seaside retreat, the rest turned into a tax-free industrial development zone — in which the lure of tax incentives was used to induce companies to buy sites from the royal family. Apparently Ferdinand made it a condition of the Westinghouse contract that the nuclear power plant had to be built in Bataan.

National Power, with help from the U.N.’s International Atomic Energy Agency (IAEA), picked a seaside location there, and hired Ebasco Services, a subsidiary of Enserch Corporation of Dallas, to test the safety of the site and monitor construction. Ebasco concluded that the site was vulnerable to tidal waves. National Power compromised on a nearby bluff. Westinghouse began clearing the site in March 1976, before National Power had obtained a construction permit and while Ebasco engineers were still trying to determine whether the bluff site was safe; bulldozers interfered with their seismic tests. Filipinos wondered if anyone had considered the danger of earthquakes and the dormant volcano, Mount Natib, five miles away. A team from the International Atomic Energy Agency visited the site in 1978 and recommended that construction be halted until further tests were completed. By then, Westinghouse had already spent about $200 million on the plant.

The head of the Philippine Atomic Energy Commission, Librado Ibe, said his arm was twisted by cabinet officials to let the project proceed, and that he was wined and dined and offered prostitutes by Westinghouse, with continual reminders that this was a pet project of President Marcos. Ibe gave in and issued the construction permit in April 1979, a week after the Three Mile Island accident, then took his wife and two younger children and moved to the United States. His fear for their safety seemed justified. Bankers who had questioned earlier deals by Marcos cronies had been assaulted by thugs, and were warned that their families were in danger.

Several months later, Ferdinand acted on his own experts’ advice and halted construction himself, ordering an investigation (into the technical side, not the financial side). The investigators concluded that the design was unsafe, and recommended changes to incorporate new safety features after Three Mile Island. Westinghouse renegotiated the contract to meet these objections and the price rose to $1.8 billion — $55 million for added safety equipment, $645 million for higher interest costs and inflation. Eventually, the cost reached $2.2 billion. Work on the project was pushed through to completion in 1984, as if Westinghouse itself had had enough and wanted to get out. Observers wondered whether Ferdinand had really interrupted the work because of concern for safety — or because he had found yet another way to hold Westinghouse’s feet to the fire.

At about the same time, Disini’s business empire suddenly collapsed. He left the Philippines hastily for Austria, where he had taken the precaution of salting much of his wealth, and where he had purchased a palace outside Vienna. Fortunately, Disini had lots of friends in Austria. During his travels with Imelda, Disini and the First Lady had become good friends with Kurt Waldheim.


As former secretary of defense and head of the World Bank, McNamara surely had access to secret information about Ferdinand and Imelda. Could he have been ignorant of the dark side of the regime? Since martial law, the World Bank had poured more than $2 billion into the Philippine economy, much of it diverted by the Marcoses into Swiss banks. It was partly at the encouragement of the World Bank that private international banks and banking consortia were footing the bills for improbable ventures by Marcos cronies involving land grabs, company takeovers, gigantic kickbacks, and policies provoking widespread famine. How could the Marcos regime be a “good risk”?

It appears that the Bank was not as ignorant as it pretended to be, which became clear with the leak of the Ascher Memorandum in December 1980. This provided what one critic called “a rare glimpse of the cold rationality and lucid class consciousness that guide the actions of one of the capitalist world’s most tight-lipped institutions.” The Ascher Memorandum laid down guidelines by which the Bank could begin to distance itself from the Marcos regime as it headed toward disaster. That it was leaked right after Ronald Reagan was elected president revealed the concern of some people in the foreign policy community in Washington that Reagan was going to put his support behind Marcos at the very moment when Ferdinand’s bubble was about to burst. What emerges from the memorandum is a simple rule of thumb: There is nothing wrong with the Bank actively supporting a brutal and unscrupulous regime so long as the Bank gets out from under before the regime collapses. The Bank can then demand payment of debt from whoever picks up the pieces. From the World Bank’s point of view, a dictator’s bills can be paid just as readily by his victims.

The memorandum was prepared by World Bank staff members and consultants under the direction of William Ascher, a specialist in “political risk” at Johns Hopkins University. At this time the World Bank had budgeted $3 billion for the Philippines through 1986. From 1976 to 1980, $680 million had been spent on McNamara’s grand panacea: rural development. Asher’s grim assessment was that these millions were completely wasted because of the tactics of Ferdinand’s administration. The regime’s land reform program had stopped dead and gone into reverse. Moreover, there had been a 50 percent decline in the real wages of Filipino workers between 1965 and 1975, due in part to the manipulations of men like Benedicto and Cojuangco. It was also due to the devaluation of the peso imposed by the IMF and the World Bank in 1969, before they would give Ferdinand the loans he needed to keep the economy going after he squandered the treasury to get re-elected.

Under pressure from the Bank and the IMF, Marcos had also committed himself to liberalizing Philippine industry by dismantling tariffs, withdrawing subsidies, creating incentives for foreign investors, and establishing tax-free industrial zones. The idea was to promote industry geared to produce for export rather than for domestic consumption. By 1980, the Bank could no longer ignore the failure of this policy as well. Because of the Bank’s failed policies, and the extravagance of the Marcos regime, experts made the alarming projection that Manila’s external debt would jump from $12.2 billion in 1980 to $19.3 billion in 1984.

Martial law had not changed the pattern of income concentration in the hands of a few. If anything, income was now even more concentrated — entirely in the hands of Ferdinand and Imelda and their inner circle instead of the traditional oligarchs.

The suspension of party politics had merely produced a “new ruling coalition” consisting of the Marcos family, its cronies and courtiers, high-level technocrats, bureaucrats, generals, and a few wealthy businessmen like the Ongpins, Zobels, and Sorianos who cohabited with the regime.

Some people in the Philippine business sector and middle class, the memo said, were now making their position clear by supporting the anti-Marcos movement and the bombing campaign. The forces of free enterprise were taking up arms against Marcos. The Bank had to adjust its policy accordingly.

The Marcos regime was being maintained artificially by the IMF and World Bank, and the Bank’s principal sponsor, the United States. They were providing a diseased, brain-dead, terminally ill regime with a very expensive life-support system. To cut its losses and place itself in a better bargaining position with whatever government succeeded Marcos, the memo concluded, the Bank might have to help pull out the plug. The memo was ignored.







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