High interest rates imposed by universal and commercial banks in the Philippines, earning from 14% to 30%, have placed small and medium scale enterprises, mostly owned by Filipino capital, at a very precarious position, amidst the financial crisis besetting the economy. Filipino businessmen in Cotabato City have even gone on a one-day strike, during which all businesses were closed, to protest the high interest rates allowed by the Ramos government. With the resulting bankruptcies of many local firms due to high interest rates on loans, 81,000 workers (conservative estimate of the government) have been laid off since July 1997.
The government is trying to pass off the blame for the escalating interest rates to individual banks, owned by close associates of Vice President Joseph Estrada, thus, capitalizing politically on the crisis. But it is the Ramos government's own policy of unregulated interest rates, as dictated by its commitment to the IMF, that is pushing interest rates to as high as 30%. In its Memorandum for Economic and Financial Agreement (MEFA) with the IMF in 1994, the Ramos administration promised that "interest rates and exchange rates will remain flexible and market determined (meaning unregulated). Finance Secretary Salvador Enriquez, in response to the demand of Filipino businessmen for the government to set a ceiling to interest rates, asserted that: "It is not correct to regulate lending rates. We can only influence interest rates, but we cannot regulate it..." (Bulletin Today, March 12, 1998) The Bangko Sentral ng Pilipinas (BSP) instead of regulating interest rates, has adopted stricter measures to limit lending by banks, which would discriminate against small and medium scale businesses. Following commitment to the IMF, the BSP will increase the liquid reserves of banks from 3% to 7% and would place additional specific provisioning requirements for certain kinds of "weak" loans, meaning loans given to companies with weaker creditworthiness, (The Philippine Daily Inquirer, March 13, 1998) Of course, with all these measures, which are added burden to Filipino businessmen, it is the TNCs doing business in the Philippines and their partners who would benefit. It is they who would be placed at an advantage in the marketplace for capital, as they could very well afford high interest rates and corner more loans with the stricter provisions on borrowings from banks adopted by the BSP, which disfavors the ordinary Filipino businessmen.
The monetary policy of the Ramos government, in line with the IMF program for the Philippine economy, is itself the reason of the financial and economic crisis wracking the country. With the passing of the new Banking Law in 1994, which fully liberalize the inflow of foreign capital into the Philippines, speculative capital started to enter in greater magnitude into the financial market. In 1994, the share of speculative or portfolio investment to total foreign investment to total foreign investment was 70%, this increased to 75% in 1995 and to 86% in 1996. As of the first quarter of 1997, portfolio investments comprise 70% of the total investment inflow. In the overall, 85% of portfolio investments are foreign (BSP).
With the sudden flight of speculative capital in July 1997 in the amount of $2 billion, the Philippine peso was devalued. As a response to this, the government allowed banks to increase interest rates to control money supply to strengthen the peso. The Ramos administration also is suffering a liquidity problem and to solve this it has resorted to increasing interest rates on treasury bills to as high as 20% in other to attract capital. What the government is more concerned about is the IMF's demand for it to maintain a budget surplus. But this is at the expense of increasing interest rates by private banks as a high TB rate lessens circulating commercial capital pushing the interest rates of private banks. Also, in its effort to maintain a surplus to pay off foreign debts, the Ramos regime has long ago reduced expenditures for social services like education and resorted to privatization of government-owned corporations.
Now, the government has the temerity to require higher capitalization for banks, increasing this to P5.5 billion from P3.5 billion for universal banks, P3 billion from P1.6 billion for commercial banks and P400 million from P200 million for thrift banks. This government policy of increased capitalization for banks is based on the IMF's dictate of rationalizing the banking sector, which means eliminating the so-called inefficient banks or their being absorbed by the bigger banks. This only leads to the further consolidation of finance capital in the Philippines.
With the establishment of the unibanks in the 1980's. which are allowed to have investments or linkages in other industrial sectors, the phenomenon of the financial oligarchy has emerged in the Philippine scene. With the current financial and economic crisis and the further strengthening of the financial oligarchy, which is dominated by the TNC's and transnational banks, mostly owned by US capital, the extraction of higher surplus value (thereby higher profits) from the Filipino working class is made possible. With the easing out of small and medium-scale Filipino enterprises and the proletarianization of Filipino businessmen, the TNCs and TNBs with their local partners, specifically the Ayala and Lopez Groups, will further monopolize business in the Philippines. The policy of the contractualization of workers, which the TNCs and their partners are the leading practitioners in the country, will become more extensive. And even the ordinary Filipino consumer will be at the greater mercy of the monopolies in our land.*