12 December 1988

Her Excellency
CORAZON C. AQUINO
President
Republic of the Philippines
Malacañang, Manila

Dear Mrs. President:

We in the business sector view with grave concern the recent proposals to take unilateral action on our external debt. We agree that the Philippines needs substantial relief from its external debt. We also grant the good faith of everyone attempting to solve this national problem.

Our disagreement with S.B. 535 and H.B. 16289 lies in the means sought to be employed, and not in the end which we all seek to achieve. In brief our difference of opinion with the approach adopted by the Senate as follows:

( 1 ) S.B. 535 if implemented will result in our being considered in cross default across the board. This could very well lead to a cut off of trade credits ,a call on all our debts and a severe shortage of new money.

( 2 ) It handcuffs your negotiators so that they lose all flexibility, an indispensable ingredient in any negotiation.

( 3 ) The Senate approach has been tried by Peru, Argentina, Brazil and Mexico with disastrous results. Suffice it to quote the Brazilians: “It was a costly and serious mistake.”

( 4 ) Our own experience in 1983/1984 bears out the Brazilian statement. Prior to restructuring, our imports were financed on a cash basis, industry reduced their output by as much as 40%, unemployment worsened and our GNP was negative for 1984 (-5%) and 1985 (-4%).

The better alternative, we feel, is to maintain flexibility in order to work out the best possible terms with our creditors. Alternative examples are the Mexican debt reduction program, sinking fund concept, commodity-related payments and such other flexible and more creative approaches.

Mrs. President, we need to sustain the economic growth that has been so successfully started under your administration but which is still fragile. To do so, we need new funds and an early settlement of our loans with the Paris Club. Any uncertainty introduced at this time will erode investors’ confidence and create a climate of hesitation once again.

In our understandable anxiety to lighten the debt burden, we must not think that rigidity provides leverage nor that confrontation leads to a better deal. Mrs. President, the external debt issue must be resolved so that we speak with a single voice when negotiating with our creditors.

Very truly yours,

RICARDO J. ROMULO
Chairman
Makati Business Club (MBC)

JESUS P. TAMBUNTING
President
Management Association of the Philippines (MBC)

VICTOR A. LIM
President
Philippine Chamber of Commerce and Industry (PCCI)

RAUL T. CONCEPCION
Chairman
Buy Philippine-Made Movement (BPMM)

RENATO C. VALENCIA
President
Financial Executives Institute of the Philippines (FINEX)

MANUEL L. MORALES
President
Bankers Association of the Philippines (BAP)