Political change key to recovery: Expert
JAKARTA (JP): Democratic political change is essential to foster economic recovery and improved social harmony, a visiting Philippine expert said on Wednesday in drawing on his country's experience.
Jesus P. Estanislao, a prominent academic who served in Corazon Aquino's Cabinet, said his government focused on political reform before restructuring the economy to bring the country out of crisis in the late 1980s.
"We focused very much on politics. Unless there is political change, no economic and social changes would happen," he said at the 1999 Panglaykim memorial lecture.
Indonesian economist Mari E. Pangestu agreed that political change was a basic prerequisite for economic recovery.
She noted the success of Indonesia's current economic recovery programs, including the massive banking recapitalization, depended heavily on stability of macroeconomic indicators.
Improvement of macroeconomic indicators like inflation and exchange rates hinged on political change, she said.
Estanislao said his government's political measures included establishing an independent judiciary, installing a "noisy, noncooperative" legislature through elections, introducing a new constitution, guaranteeing press freedom and reducing the military role.
"We needed three years to bring the soldiers back to barracks and keep them there. Of course, they were not very happy. So, you have to be patient."
He acknowledged there always would be strong resistance from the military and incumbent government, which would try to cling to power through various ways, including intimidation, violence and deception.
However, he believed an unwavering public endorsement of democracy would succeed in bringing about political change, a prerequisite for economic restructuring.
After political change was in motion, the government would have more room to restructure economic institutions to provide solid fundamentals fur sustained growth.
The Philippines initially moved to clean up the financial system of bad assets and restructured corporations.
With the help of international lending institutions, the Philippines revamped the banking sector but "it took five years just to clean up the books of the central bank".
He said in the beginning of the restructuring process, the debt-service ratio -- the ratio of foreign debt servicing to export earnings -- was 40 percent. It fell to 18 percent in the Aquino administration's last year in 1992, and was 12 percent when Fidel Ramos took office.
"With that restructuring, our corporate and financial sector is probably better prepared to cope with current crisis," he said.
Estanislao suggested that all countries in East Asia and Southeast Asia use the crisis as an opportunity to forge closer links to prevent another crisis in the future.
"We have sunk together. Perhaps, we can swim together too."
Choosing to go it alone, he warned, would require huge amounts of funds and take longer to achieve.
Quoting World Bank figures, Estanislao noted the crisis-hit economies in the region would need only US$10 billion of additional foreign funding to support new fiscal stimulus equivalent to 1 percent of their GDP.
It also would have the potential to boost their real GDP by as much as 2 percent.
Estanislao also suggested more cooperation among authorities in the region in restructuring the financial sector and the real sector, as well as maintaining currency stability.
He cited five founding members of the Association of Southeast Asian Nations -- Indonesia, Malaysia, the Philippines, Singapore and Thailand -- plus Hong Kong and Taiwan as the most prepared nations for such regional cooperation. (rid)