Booty Capitalism: The Politics of Banking in the Philippines

By Paul D. Hutchcroft | Go to book overview

bank examiners." But the top bank examiner at the time, Carlota P. Valenzuela, reports that there was no positive impact. Central Bank legal officials required them to request Monetary Board authorization to examine specific bank accounts, and by the time they got to the account the funds had commonly already been transferred. "You can't go fishing," they were told, and the result was little practical relaxation in the law.56 Unfortunately, greater attention to the deficiencies of supervision had to wait until after the next round of bank instability in the mid-1980s.


Conclusion: The Crisis Intensifies

Broadly speaking, the 1980-1981 reform package was scuttled both by inattention to questions of political power and by imbalances in the distribution of political power between regulators and regulated. The unibanking reforms ignored the reality of familial power within the Philippine political economy, the interest rate reforms were gutted by the oligopolistic power of the banking sector, and the selective credit reforms were overwhelmed by the power of cronyism. None of the three major elements of the original reform package paid sufficient attention to longstanding problems of bank instability--a problem which was, in itself, largely traceable to the weak degree of political power enjoyed by the regulatory authorities.

The belated bank supervision reforms of early 1981 were arguably more attuned to questions of political power (by seeking to strengthen the power of regulators vis-à-vis the social forces concentrated in the banking sector) but in the end the Central Bank--seemingly fearful of lawsuits against it--balked. Ten years later, an IMF study strongly criticized the failure of the reforms to "tighten bank supervision" and concluded that resulting "weaknesses of the regulatory framework and loose banking practices triggered and exacerbated the crisis." In short, "factors within the financial system" are to blame.57

Just as important, the reformers--most notably Virata and his multilateral allies--displayed little conception of the limitations of their own power in the crony-infested environment in which they operated. By at least 1983, observers became increasingly aware that--promotion of technocrats and their high-minded reform agendas notwithstanding--the resilience of "crony capitalism" was not to be underestimated. Just as he used

____________________
56
World Bank-IMF, 78; Interviews, Laya, May 21, 1990, and Carlota Valenzuela, May 9, 1990.
57
Nascimento, 227 and 177; see also 204-5. As Montes and Ravalo point out, one cannot blame the liberalization program itself for the crises that followed (p. 154). One can, however, fault the reforms for ignoring longstanding problems that were revealed--once again--in the midst of crisis.

-166-

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