The Washington Diplomat / December 2012
By Larry Luxner
On Oct. 7, 2012, Philippine President Benigno S. Aquino III announced the signing of a peace agreement between his government and the Moro Islamic Liberation Front (MILF). The deal, which paves the way for a settlement to one of Asia’s longest-running ethnic conflicts, may turn out to be the crowning achievement of the Aquino presidency — one that’s eluded half a dozen presidents before him.
Jose L. Cuisia Jr., Manila’s ambassador to the United States, said the secessionist guerrilla war has killed an estimated 120,000 people since the early 1970s and has impoverished millions more on the southern island of Mindanao, whose Muslim residents have long chafed under rule by the Christian-dominated central government.
Under the complicated settlement — which took years of countless back-and-forth negotiations to achieve — the Aquino government and MILF leaders agreed to create a new political entity, called Bangsamoro, that will offer the region autonomy but not full indepedence. It also provides for a transition period over the next few years to establish this new entity, as well as passage of a “basic law” that would define the scope of power and wealth-sharing between the national government and Bangsamoro.
“The Muslims living there will enjoy more rights under the government’s new setup, although there will be certain functions still retained by the central government — for example, defense, security and monetary and fiscal policy,” Cuisia told The Washington Diplomat in an interview three days after Aquino’s announcement. “They will be allowed to raise tax revenue in their particular area, take on subsidies from government grants and get revenue allotments from the central government.
“It’s still a work in process, but the important thing is that there’s an agreement in principle,” the ambassador added. “I think it’s a fantastic development. This is why our government immediately expressed its congratulations.”
So did U.S. Secretary of State Hillary Clinton, who called the accord “a testament to the commitment of all sides for a peaceful resolution to the conflict in the southern Philippines.” In a press release issued hours after Aquino’s declaration, Clinton said “the next steps will be to ensure that the framework agreement is fully implemented. We encourage all parties to work together to build peace, prosperity and greater opportunities for all the people of the Philippines.”
Peace, prosperity and opportunity — these days, the Philippines seems to be enjoying a little of all three. “Times are pretty good in the Philippines if you are young, skilled and live in the city. Young urban workers are helping to give the country its brightest prospects in decades,” wrote Floyd Whaley in an Aug. 27 New York Times article. “With $70 billion in reserves and lower interest payments on its debt after recent credit rating upgrades, the Philippines pledged $1 billion to the International Monetary Fund to help shore up the struggling economies of Europe.”
The article also noted that by HSBC estimates, the Philippines could become the 16th-largest economy in the world by 2050 if current trends hold.
Geopolitically, as tensions roil the waters of the South China Sea, where nations compete for territory and resources, the Philippines is also capitalizing on the Obama administration’s military pivot to Asia as a counterweight against growing Chinese assertiveness in the strategic waterways. In fact, U.S. foreign military financing for the Philippines nearly tripled in 2012 over the previous year, from $12 million to around $30 million, and since 2002, the Philippines has received nearly $500 million in military assistance from the United States, according to the U.S. Embassy in Manila.
The ambassador said his country’s long relationship with the United States — which ruled the Philippines from 1898 to 1946 — has had its share of ups and downs, “but this is the best we’ve ever seen.”
Bilateral ties took a nosedive in 1991 when, in the face of strident nationalism and anti-American sentiment, the Philippine Senate rejected a deal that would have turned over Clark Air Base to the Philippine government the following year while allowing the Pentagon to remain at Subic Bay Naval Base for another 10 years. Instead, the United States had to turn over Clark, one of its oldest overseas bases, to the Philippine government two months after the senate’s decision; Subic Bay closed the following year.
“It was probably only in 2002 that we saw some improvement, when we joined the Coalition of the Willing in the Iraq War,” Cuisia said.
More recently, “we’ve seen a resurgence in the relationship between the Philippines and the United States. Secretary of State Clinton has had a key role in formulating that policy, and we also give credit to the assistant secretary of state [for East Asian and Pacific affairs], Kurt Campbell. He’s the one pushing for a greater role for ASEAN in the U.S.,” Cuisia said, referring to the Association of Southeast Asian Nations.
The administration has increasingly turned to the 10-member bloc to settle the various territorial disputes in the South China Sea among the Philippines, Vietnam, Malaysia, Brunei, Taiwan and China. Beijing prefers to handle the disagreements through direct negotiations, where it will wield more power. But the United States — declaring that freedom of navigation in the economically vital waters is in its “national interest,” much to China’s ire — has pushed for the standoff to be addressed peacefully in a multilateral setting.
The focus of all the competing claims are hundreds of rocky outcroppings that make up the Spratly Islands, which didn’t attract much international attention until the late 1990s, when surveys indicated the possibility of large oil and gas reserves underneath the seabed.
Four of the six claimants to the Spratlys — Brunei, Malaysia, Vietnam and the Philippines — are ASEAN member states; the other two are China and Taiwan.
“But it’s only Vietnam and the Philippines which have experienced incursions by Chinese fishing vessels and marine surveillance vessels,” said Cuisia, noting a 1988 confrontation between China and Vietnam that killed 64 Vietnamese soldiers. And in March 2011, Chinese patrol ships harassed a Philippine scientific vessel and fired across the bows of Philippine fishing boats in waters within the country’s 200-mile exclusive economic zone covering the Spratlys.
In April of this year, however, Philippine Navy personnel boarded Chinese fishing vessels at Scarborough Shoal, claiming they had found illegally harvested coral and marine life. The move quickly drew Chinese surveillance ships and eventually gunboats from both sides to the tiny band of coral rocks and reef in a dangerous escalation that lasted two months.
Asked about such skirmishes, the ambassador said: “Our claim is with reference to our 200-mile exclusive economic zone as specified in the United Nations Convention on the Law of the Sea. If it is within our 200-mile EEZ, we will defend that.”
But experts say that kind of thinking could spark a major conflict that entangles many players. “The United States could be drawn into a China-Philippines conflict because of its 1951 Mutual Defense Treaty with the Philippines,” Bonnie S. Glaser of the Center for Strategic and International Studies points out in the report “Armed Clash in the South China Sea.”
One potential flashpoint, for example, could be natural gas drilling in the area of Reed Bank. “Oil survey ships operating in Reed Bank under contract have increasingly been harassed by Chinese vessels,” Glaser wrote, noting that Manila intends to award 15 exploration contracts over the next few years for offshore exploration near Palawan Island. “Reed Bank is a red line for the Philippines, so this contingency could quickly escalate to violence if China intervened to halt the drilling.”
In the report “Stirring up the South China Sea: Regional Responses” released over the summer, the International Crisis Group argues that there’s plenty of blame to go around for stoking tensions.
“Increasingly assertive positions among claimants have pushed regional tensions to new heights. Driven by potential hydrocarbon reserves and declining fish stocks, Vietnam and the Philippines in particular are taking a more confrontational posture with China,” the International Crisis Group said.
“All claimants are expanding their military and law enforcement capabilities, while growing nationalism at home is empowering hardliners pushing for a tougher stance on territorial claims. In addition, claimants are pursuing divergent resolution mechanisms; Beijing insists on resolving the disputes bilaterally, while Vietnam and the Philippines are actively engaging the U.S. and the Association of Southeast Asian Nations (ASEAN).”
The Chinese have balked at America’s involvement (or meddling, as they view it) in the matter, and at a July gathering of ASEAN foreign ministers in Cambodia, the bloc failed to agree on a joint communiqué for the first time in its 45-year history because of the South China Sea impasse.
Ernest Z. Bower of the Center for Strategic and International Studies dissected the breakdown in a July 20 commentary.
“The Philippines’s view was that the communiqué should reflect that the ministers had discussed the confrontation between the Philippines and China at Scarborough Shoal and Vietnam’s desire to address exclusive economic zones (EEZs). Language reflecting that fact was included in the draft submitted to the chair,” he wrote.
But Cambodia, which chaired the meeting, seemed to bow to Chinese pressure to shelve that draft, saying the island disputes were bilateral issues and therefore did not belong in the communiqué.
“This was a spectacular failure for the regional grouping and an outcome that, on the surface, seemed not to be in any nation’s interests,” Bower wrote.
“Fundamentally, the chaos at the [meeting] appears to be an outcome manipulated by a China that has decided that a weak and divided ASEAN is in its national interests. Understanding that fact, and the fact that ASEAN has the capacity and commitment to overcome China’s shortsighted campaign to break its ranks, is a necessary condition for advising the policies of countries that want to advance regional structures that will promote peace, security and prosperity in the Asia Pacific.”
That’s precisely why Cuisia says ASEAN needs to adopt a code of conduct to minimize the short-term risks of a flare-up and ultimately resolve the various sovereignty claims. But whether any kind of multilateral legal framework can be established when member states meet up again (at the East Asia Summit on Nov. 15) is highly doubtful.
“We have had diplomatic protests but we’ve not been able to resolve the issue. We’re hoping that a code of conduct will be discussed with China and agreed upon, which would then guide all the countries of the region,” Cuisia said. “We believe it is important that we have a rules-based system anchored in international law, and that this issue should be settled peacefully and diplomatically if possible. We want to ensure freedom of navigation and unimpeded, lawful commerce. Those are the same objectives of the U.S. government.”
Indeed, both Washington and Manila see eye to eye when it comes to the foreign policy dilemma in the South China Sea (which Manila unilaterally renamed the West Philippine Sea this September, one of many names competing countries have given the waterway).
When Aquino visited the White House in June after the Scarborough Shoal faceoff, President Obama said the Philippines and United States would “consult closely together” as part of the pivot back to Asia,” which he said should serve as a reminder that “the United States considers itself, and is, a Pacific power.”
And in October, U.S. Marines joined their Philippine counterparts for 10 days of joint exercises in the South China Sea. As the amphibious assault ship Bonhomme Richard — which once docked in Subic Bay — cruised through the disputed waters, the show of military might annoyed Chinese officials but reassured Southeast Asian allies such as the Philippines and Vietnam of American support.
But in a speech at the D.C.-based Heritage Foundation, Philippine Foreign Minister Albert del Rosario said that the United States could lend even more support. He lamented that the overall share of U.S. military funding to his strategic nation has actually dropped, with Manila’s portion of funding accounting for 35 percent of the total given to East Asia this year, compared to more than 70 percent in 2006.
Del Rosario, who served as Manila’s envoy in Washington from 2001 to 2006 (and was profiled in the September 2003 issue of The Washington Diplomat), also urged the United States to lift conditions on military financing because of concerns over human rights violations and extrajudicial killings, saying his government has been addressing those concerns.
Overall, however, bilateral military ties are stronger than ever, with Washington sharing data with Manila, which in turn has given U.S. forces greater access to its airfields and ports.
In fact, these days, both the Clark and Subic Bay bases, once the source of strife between the two nations, are thriving economic zones.
“When the U.S. bases were there, they had 40,000 military and civilian personnel working there. Now they have 160,000,” Cuisia pointed out. “We are the fourth-largest shipbuilding industry in the world, and a lot of Taiwanese companies are located at Subic. At Clark, we have Samsung, and Yokohama will build the world’s largest tire factory there.”
Just as the Philippines has patched up its once rocky alliance with the United States, paving the way for greater economic cooperation, the government is hoping that peace on its southern front will usher in newfound prosperity.
The roots of the Muslim uprising on the southern island of Mindanao reach back to the U.S. colonization of the Philippines in the late 19th century and escalated following Philippine independence in 1946. For decades, Muslims living in the area had complained of official discrimination against the native Moro population in housing and education, as well as an official government policy of settling Catholic Filipino emigrants in Mindanao.
The early 1970s saw the rise of the Moro National Liberation Front (MNLF), and soon after, the more conservative Moro Islamic Liberation Front (MILF), which broke away from the MNLF in 1978. The MILF dreamed of establishing an independent homeland governed by Islamic Sharia law — and received help from both Malaysia and Libyan strongman Muammar al-Qaddafi — though by the early 1990s, that support had pretty much dried up.
In 1997, months after the MNLF signed a peace accord with the government, talks began with the MILF aimed at resolving the conflict. But peace remained elusive until Aug. 4, 2011, when the newly elected Aquino met secretly with MILF chairman Murad Ebrahim in Tokyo, marking the first face-to-face meeting between the two sides since the beginning of peace talks in 1997. Exploratory negotiations were held in Kuala Lumpur, leading to formal talks and finally the “framework agreement” reached in October.
“This conflict has been going on through the second half of the 20th century, said Hank Hendrickson, executive director of the recently formed U.S.-Philippines Society (see sidebar). “The issue hasn’t really been a question of a separate state but degrees of autonomy. This Kuala Lumpur agreement is a new and hopeful effort to establish autonomy in the region.”
The society’s president, John F. Maisto, said the credibility of the Aquino government is what’s really changed.
“When you’re dealing with a government that makes under-the-table deals based on politics — as you had in the Philippines throughout the 20th century — it gets very messy. So this is a welcome turn of events,” he told The Diplomat. “It’s certainly a step in the right direction, and it’s going to depend upon evidence of good faith on both sides as they move this process along.”
Joshua Kurlantzick, a fellow at the Council on Foreign Relations, cites four specific reasons to believe that this time, the peace is for real.
“For one, the Philippine armed forces increasingly realize that they have other threats to focus on, namely China — a threat for which they are woefully unprepared, as reflected by the horrendous state of the Philippine Navy, which has been exposed in the current crisis over the South China Sea,” said Kurlantzick, writing Oct. 9 on the deal.
“Secondly, the agreement offers people in the south more than previous negotiations, promising them a potential Muslim autonomous region in the south that would be better governed, and less likely to descend into a mafia state than previous efforts at autonomy,” he said.
“Third, President Aquino seems to enjoy more genuine trust from rebel leaders, and people in the south, than previous presidents dating back to Joseph Estrada,” added Kurlantzick. “Finally, this proposed peace deal, by creating the possibility for real economic development, offers the chance to reduce inequality in the south, and reduce the anger among poorer Muslim groups in the south against the generally wealthier Christian minority in Mindanao.”
The ambassador agrees that Aquino’s popularity was crucial to getting the job done.
“The United States has, of course, been pushing for a peace agreement, but it was really the leadership of our president, who met with the vice chairman of the MILF in Tokyo to discuss principles, which has resulted in this agreement,” he said.
“They saw that the president is sincere and enjoys unprecedented trust. His popularity ratings are at 77 percent, and he’s been in office just over two years,” Cuisia added. “He realizes that unless we have peace in that area, we cannot have sustainable economic development.”
To that end, said Cuisia, “Mindanao has tremendous economic potential — it has lots of mineral deposits and very fertile land, and they don’t get typhoons.”
Roughly the size of Indiana, 37,660-square-mile Mindanao is the easternmost of the 7,107 islands that comprise the Philippines. With 21.5 million people, it’s home to nearly a fourth of the country’s population. Yet the island’s agriculture-based economy — dominated by bananas, pineapples, palm oil and other plantation crops — has left the vast majority of Mindanao’s people impoverished for the benefit of a relative few.
The peace agreement, assuming it holds, is one of several bright spots in an economic outlook that until just a few years ago seemed rather grim.
“When we look back at the [Ferdinand] Marcos years, martial law was imposed in 1972 and lasted until 1985,” Cuisia recalled. “Our economy did very badly during those years, especially after the assassination of Sen. Benigno Aquino, father of our current president. Inflation shot up over 18 percent, and interest rates were as high as 43 percent. Our international reserves had been practically depleted by the Marcos government. When the new government took over in 1983, it had less than $1 billion in reserves.”
However, it did possess an estimated 1,220 pairs of shoes left behind by the former first lady, Imelda Marcos — who along with her husband made world headlines for indulging in a lavish lifestyle while millions of Filipinos went to bed hungry every night. (The shoe collection, sitting in a section of Manila’s National Museum, is now worthless, having fallen victim years ago to termites, typhoons and government neglect.)
These days, things are very different. Poverty and graft are still endemic, but the Philippines is a democracy, and the economy is strong. During the first half of 2012, the country’s GDP expanded by 6.1 percent. That’s down from last year’s 7.6 percent growth rate, but Cuisia says the 2011 figure was partially fueled by election-year spending.
One of the most promising industries is the business process outsourcing (BPO) sector.
Cuisia said the Philippines is now the world’s leading call-center employer, surpassing even India, where rents in Bangalore and other major cities have become excessively high.
At the moment, the BPO industry employs about 640,000 Filipinos — working mainly in customer service, tech support and legal/medical transcription. The largest single employer is Cincinnati-based Convergys, with 26,000 employees in 18 call centers throughout the Philippines, followed by Accenture, with 24,000, and IBM with just over 20,000. Other large players in this industry are J.P. Morgan, American Express, United Airlines, Citibank, Dell and Hewlett-Packard.
In addition to lower overhead, the Philippines has another advantage over India: the English spoken there is much closer to American English.
“We’re more familiar with American jargon, TV programs and NFL sports,” Cuisia said. “For example, if an American customer cracks a joke, it’s very likely someone working at an Indian call center won’t get it, whereas the Filipino would understand. Also, the Filipino call centers tend to be warmer and more accommodating, where the Indian call centers tend to be argumentative.”
Cuisia predicted that by 2016, about 1.2 million Filipinos will be working in the BPO sector, generating $25 billion a year. That’s even more than the current top earner, electronics, which now accounts for 40 percent of foreign exchange. Meanwhile, remittances from the 9 million Filipinos working abroad, mostly in Saudi Arabia and other Gulf states, will bring in around $21 billion this year.
Cuisia, 68, is a political appointee. Raised in Manila, he speaks Tagalog as well as English and Spanish. Like many Filipinos, he was educated in the United States — first at Philadelphia’s La Salle University, then at the Wharton School, where he earned an MBA in 1970. The aspiring executive then worked in New York for Arthur Young & Co. In later years, he headed the country’s social security system, then became governor of the Central Bank and chairman of the Monetary Board — finally becoming CEO of insurance giant AIG’s Philippine subsidiary, Philam.
Since coming to Washington in 2011, a big part of Cuisia’s job is promoting trade and investment in the Philippines. That’s why, in late October, he joined 42 other Washington-based foreign ambassadors on a State Department-sponsored “Experience America” trip to Arkansas. There, Cuisia met with former President Bill Clinton, Arkansas Gov. Mike Beebe, and top officials of Fortune 500 companies and educational institutions.
“We focus on our military and security cooperation, and I do a lot of lobbying with the Pentagon and the State Department, but I also meet with the [Office of the U.S. Trade Representative] and try to get the Commerce Department to organize trade missions to the Philippines,” he said.
To that end, he’s pushing hard for passage of the Save Our Industries Act. Introduced in the Senate by Daniel Inouye (D-Hawaii) and in the House by Jim McDermott (D-Wash.), the SAVE Act now has eight bipartisan Senate sponsors and 21 bipartisan House sponsors. If passed, it would allow Philippine apparel made of U.S. fabric to enter the United States duty-free. The Philippines is particularly known for its needlework skills, as well as the ability to assemble more tailored, embellished products at the mid- to high-end market tier.
Cuisia said that over time, it’s becoming more difficult for Philippine apparel manufacturers — whose workers now earn $300 to $400 a month — to compete against their much lower-wage Chinese rivals. At present, the Philippine share of the U.S. garment market stands at 2 percent, compared to 38 percent for China.
“We’re trying to push this SAVE bill to enable us to be more competitive. I’ve spent a lot of time trying to explain this to legislators,” the ambassador said, noting that he’s also attempting to get the word out to the 2.5 million Filipino-Americans in the United States.
Maria Alvero, commercial counselor at the Philippine Embassy, said the SAVE Act “is a stepping stone to the Trans-Pacific Partnership,” which the Philippines has expressed interest in joining.
But that can’t happen, Cuisia warned, until his country relaxes its rules on foreign investment in critical sectors of the Philippine economy. Under current law, foreigners are limited to between 20 and 60 percent of equity in specific ventures depending on the type of business in question.
“We’d have to amend our constitution. There are certain economic provisions that restrict foreign ownership in retail trade, education, advertising and shipping,” he said. “That’s why for us to qualify under TPP, we have to remove all those restrictions. Generally the business sector is in favor, but it’ll take time.”