A debt trap threatens the political future of the American-backed government of Ferdinand Marcos. The threat lies in a slack economy and higher joblessness in the Philippines while talks remain stalled over rescheduling of the nation's $25 billion in foreign debts.
So far, the delay has been caused by Mr. Marcos's refusal to impose greater economic discipline before the May 14 elections for the National Assembly.
Without taking such austerity steps, the Philippines will not receive a long-delayed $630 million standby credit from the International Monetary Fund (IMF), under negotiation for more than six months.
Funds from the credit are not likely to flow before September. This means that a 90-day moratorium on foreign payments first imposed in October last year will have to be extended for another three months to July.
Only approval of the IMF credit can bring 400 foreign creditors to the table for talks on rescheduling the Philippines debt, and for the acquisition of about loans are in place, the Philippines's only source of foreign exchange is exports , the proceeds of which are barely enough to cover payments for imports of oil, food, and raw materials for export industries.
A chronic shortage of foreign exchange in the Philippines has not spared multinational companies that, despite long financial strings, are having to retrench or shut down their Manila operations. The latest victim is the giant Ford Philippines, which announced last week its decision to shut its vehicle assembly plant.
Hit even harder by the dollar crisis are local companies, which are quite dependent on raw material imports and which, as early as November last year, have been retrenching operations, throwing tens of thousands of Filipinos out of work. An independent economic research group, the Center for Research and Communication, estimates that if the current foreign exchange crisis persists in the next few months, more than 300,000 workers will lose their jobs this year.
A Western banker in touch with the IMF says the Philippine government is responsible for stalling the negotiations. He says the government and the IMF have agreed that the package of austerity measures will first have to be implemented by the Philippines before the government formalizes official request for credit. That request, in the form of a letter of intent, also contains a commitment to comply with certain economic performance criteria. The package includes a substantial devaluation of the peso, tight control of domestic credit , and higher taxes to raise the government's revenue.
''However, the austerity measures are politically explosive moves that could hurt the campaign program of Mr. Marcos's ruling political party, which is fielding candidates throughout the country for the National Assembly (parliament) elections in May,'' the banker said.
Marcos thus seems to be marking time on the loan until after the elections, at which time it might be somewhat safer to introduce the politically unpalatable belt-tightening measures.
A previous delay in the negotiations for the IMF credit was caused by the discovery of overstatements and inconsistencies in data submitted to the IMF by the Philippine central bank. Last year, it was found that the bank had overstated the country's foreign exchange reserves by some $600 million, leading to the resignation of former central bank governor Jaime Laya and the appointment to the post of private banker Jose Fernandez Jr. Shortly after the reserves controversy, the IMF found errors in the money supply figure.
Despite the central bank's program for tightening the money supply, there has been a remarkable increase in cash entering the economy - just before the election. Yet the government was supposed to have agreed to the austerity measures.
Through the standstill in the flow of new loans, the Philippines is surviving on the trickle of export earnings and some emergency bridge financing provided by more generous institutions and governments.
The United States Commodity Credit Corp. has granted $200 million in credit guarantees for Philippine imports from the US. Another emergency donor is the Manila-based, largely US-backed Asian Development Bank, which has accelerated disbursement of $50 million in loans originally scheduled to be disbursed in the course of 1984.
Japan, however, has held back from a Philippine request to convert part of a are waiting for the IMF credit.
Foreign bankers are awed by the government's resistance to the austerity measures during the pre-election period.
They are puzzled as to how Marcos can afford to deliberately hold off the IMF credit. The bankers fear that a further delay in the credit, which is now the key that would set the stagnant economy back on track, could lead to massive dissatisfaction and unrest among urban Filipinos who either live in fear of losing their jobs, or whose incomes have been eroded substantially.
For Marcos, the answers are in the legendary resilience of the Filipinos and the impressive creativity of local businessmen that has enabled them to continue operating, although at minimum survival levels.
Resilience has helped local and foreign businessmen obtain precious dollars from all possible sources, including the black market, in order to sustain their operations. This has somewhat dissipated the rate of worker layoffs.
On the other hand, the Filipinos' capacity to silently withstand economic hardships, coupled by the extended family system that somehow provides financial aid to distant relatives, have cushioned the impact of unemployment which, in other countries, would have led to riots.