Unequal Alliance


In this seminal work, U.S. development specialist Robin Broad chronicles the Philippine experiment with the structural adjustment model of development espoused by the World Bank and the International Monetary Fund.

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In this seminal work, U.S. development specialist Robin Broad chronicles the Philippine experiment with the structural adjustment model of development espoused by the World Bank and the International Monetary Fund.

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Meet the Author

Robin Broad is a resident associate at the Carnegie Endowment for
International Peace and an international affairs fellow of the Council on Foreign Relations.

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Unequal Alliance

The World Bank, the International Monetary Fund and the Philippines
By Robin Broad

University of California Press

Copyright © 1990 Robin Broad
All right reserved.

ISBN: 9780520069534

Introduction The Philippine Setting

Manila, 1981 . A chauffeur-driven white Mercedes weaves in and out of the traffic backed up along what could well be a street in downtown Manhattan. This is Makati, its modern skyscrapers housing the business and financial elite of the Philippines. In the back seat sits a well-dressed Filipino businessman whose fortune has been amassed over the decades through production of goods for the domestic market. This man has earned the epithet of economic "nationalist" by keeping his hands fairly clean of involvement with foreign corporations and foreign markets. But times are changing. "Export or perish," he repeats several times. First stop: the investment house of the Philippines' largest commercial bank, to converse with influential friends in the hope Of obtaining a sizable loan to convert his production processes to suit the export market. Second stop: a government office to register for tax exemptions bestowed upon exporters. "A tragedy," he explains on his way back to the limousine. "The Philippines is importing a perfect substitute for what I will be producing .... Butwith all the loans andtax exemptions reserved solely for exporters, how can I afford not to export, instead of producing for the local market?"

Manila, 1981 . Marikina, Manila's shoe district. On the door of an old, nondescript building that had housed his small footwear factory, a man, less well dressed than the exporter above, nails a hastily painted sign: "Out of business." A group of uniformed, giggling schoolgirls skip by. He stares at their shiny yellow, blue, and pink plastic shoes, the kind from Japan, South Korea, or Taiwan that have been flooding the domestic market this year, ever since the drastic reduction in shoe import tariffs. Then he looks at his own leather shoes, the type his small business had produced until its bankruptcy a day or so before. He continues hammering.

Manila, 1981 . Magallanes Village, one of the favorite and poshest residential areas for foreign business executives, as well as for the lucky Filipinos who are allotted high positions in foreign corporations. Inside one of the securely fenced houses (a modern rendition of an old Spanish villa), a smartly dressed Filipina, whose husband is involved in various joint ventures with American and Japanese corporations, sends her maid for an assortment of snacks. Swiss chocolates: "So much nicer than our own candies," the wife gushes to her guests. Sausages from the United States: "We really don't have anything that can compare with these," she continues. Apples from Taiwan: "As cheap as our own mangoes ... they're all so reasonably priced now"—now that taxes on imported goods have been slashed and bans on the import of certain luxury goods have been lifted.

Manila, 1981 . North Forbes Park. Crème de la crème of Manila's residential subdivisions. Exquisitely sculptured gardens. Tightly guarded mansions hidden behind forbidding walls topped with a layer of jagged glass. Diosdado Macapagal, Philippine president from 1962 to 1965, stands in his extravagant stone entryway, surrounded by priceless wood carvings depicting his administration's greatest moments. Waving a copy of a recent statement he wrote as a spokesperson for today's elite urban opposition, Macapagal remains a politician to the core. The loser in the 1965 election that ushered in Ferdinand Marcos's extended reign, he finds few kind words for the role played of late by the World Bank and the International Monetary Fund, or their corporate allies. "A pack of wolves has jumped onthe carcass of the Philippine economy," he says. There is bitterness in his voice.

Manila's disenfranchised national entrepreneurs did not start lobbing bombs in 1972 when two-time presidential winner Marcos declared martial law and sealed his rule for another decade and a half. They waited until nearly eight years later, when President Ferdinand Marcos and his elite corps of technocratic aides had implemented policy changes transforming the economy into an export enclave for garments, electronic components, and other light-manufactured goods destined for developed-country markets. And then—for a few months some heaved bombs in earnest.

Elsewhere in the Philippine capital city, there was further evidence of change, further portents that the early 1980s marked a turning point for the Philippine political economy. Boards, sometimes lettered, sometimes not, sealed the doorways and windows of small businesses—shoe, dressmaking, and tailoring shops—that had produced for the domestic market. Nailed there to proclaim a phenomenon that was becoming ever more common—closed; bankrupt; out of business; cannot compete.

Across the bay from Manila, in Bataan near the famous Second World War battle site, the unbroken din of sewing machines could be heard from newly built factories; other buildings in the Bataan industrial export complex were quieter, filled with rows of microscopes and chemical baths for electronics assembly modern factories, busy or not so busy, depending on the vicissitudes of the world market, to which all production was geared. The underpaid labor force, predominantly under twenty and female, hurried to piece together their quota of shirts, brassieres, micro-electronic circuitry, and the like.

Hurried as ordered, until June 1982, when ten thousand of these workers did exactly what their government had promised transnational corporations they would never do. They walked off their jobs not simply in a single strike action (which itself was illegal, but not unknown), but in a mass walkout, a general strike.1

The disintegration of the social fabric visible in these actions by businessmen and workers alike was not only the result of internal squabbling among Philippine classes. It was also the outcome of a development path chosen and molded by Philippine technocrats together with officials from the World Bank and the International Monetary Fund (IMF). That exportoriented industrialization path, conceived and implemented over the course of the 1970s and early 1980s, carried with it the seeds of this disintegration. For although it benefited some (most notably the transnational corporations and banks with alliances to a small class of Filipinos dominating the industrial and financial sectors), it hurt many. For workers and peasants, this economic model proved a convincing recruiter for a rapidly growing insurgency. For much of the middle class and portions of the upper classes, it was an important factor in their decision to participate in the overthrow of Marcos.

As the restructuring of the economy took root, a series of events and developments shook the Philippines. In the boardrooms of Makati. In the small industries of Marikina. In luxury villages like Magallanes. In the streets among the occasional overflowing of demonstrators. In the fetid slums that surround Philippine cities. Events that, in one way or another, hark back to the economic restructuring; events that broke open wide chasms in Philippine society.

The Newest International Division of Labor

The international division of labor is in a state of rapid flux. A once simple division of labor between industrialized, developed countries and raw-materials-exporting, developing countries emerged in the middle of the last century and lasted through the middle of this century. Such a basic international division of labor—between former colonizers and colonies, North and South, industrialized and nonindustrialized—has been replaced. In the place of the former colonies stands a highly differentiated developing world order that defies easy categorization.

Two identifiable groups of less developed countries (LDCs) began to shatter the primary-commodities-exporting mold in the 1960s and early 1970s. During the 1960s, seven LDCs began to penetrate the world market as exporters of manufactures. These were the so-called newly industrializing countries—the NICs of Taiwan, South Korea, Hong Kong, Singapore, Brazil, India, and Mexico2 —and the disruptions they wrought on the older world order were enough to spawn an entire literature on the "new international division of labor." These seven were followed by a second stratification in 1973-1974, when the thirteen nations of the Organization of Petroleum Exporting Countries (OPEC) harnessed their powerover oil and attempted to translate their financial success into development grounded in construction and heavy industries.

Beginning in earnest in the late 1970s, another grouping attempted to break out of dependence on primary commodity exports, a set of countries that has sometimes mistakenly been analyzed as a new generation of NICs. Indeed, as this third group of twenty to thirty LDCs began to complement their raw material exports with labor-intensive manufacturing, they often took up the rhetoric of successful NIC industrialization and declared themselves future NICs.

But there were important distinctions that relegated the "would-be NICs" to a different plateau of development from the original NICs. Primary among these distinctions was the historical moment: the decade-plus that separated the NICs' debut from that of the would-be NICs witnessed technological advances in several industrial sectors that changed the industrial offerings for Third World countries looking to world markets. By the late 1970s, technological changes (including a communications revolution) made the fragmentation of production across several countries or even continents profitable and desirable. Whereas the NICs had received complete industrial processes, such as shipbuilding and machinery, the would-be NICs received fairly marginal segments of worldwide assembly lines for semiconductors, consumer electronics, textiles, and apparel.

By the mid-1980s, the developing world could be categorized into these three divisions plus two others:

• Thirteen OPEC countries, each with rapidly constructed industrial shells that are suffering from the post-1983 oil glut

• Seven NICs, several now foundering under the weight of immense debt burdens

• Twenty to thirty would-be NICs

• Sixty-odd LDCs whose economics are still predominantly grounded in the export of raw materials and minerals, although some of these sixty have set up small assembly-type industries

• The final thirty to thirty-five so-called least developed countries, with only meager natural resource bases and little export capability.

Each of these five divisions begs individual analysis. But it is the most dynamic of the divisions today, the would-be NICs, that is the least understood and the most rapidly changing.

General Analytical Framework

As the international division of labor is far from an immobile configuration, so too it is hardly a natural setup. The simple colonial division of labor of the nineteenth century was imposed by direct force as well as by subtler means such as taxation. Part of the purpose of this book is to delineate the forces, both domestic and international, that explain the appearance of the would-be NICs. From Asia to Africa, Latin America to the Middle East, would-be NICs span the globe. One of these countries is the Philippines, moving out of its agricultural-export mold to be pulled into the light-manufactures pattern as rapidly as any other of the twenty to thirty would-be NICs.

Since the bulk of the developing world won political independence, several sets of international institutions have played major roles in molding and shifting these countries' domestic economic policies. Very little has been written on the process of policy formulation in LDCs, however, and even less on the interplay of national and international forces that affect the process. This book examines the influence of one set—multilateral institutions—on macroeconomic policy-making in LDCs, with special emphasis on the Philippines as an example of a would-be NIC. Among multilateral institutions, the dominant two, the World Bank and the International Monetary Fund, stand as the central concern of this work.3

In general terms, three sets of international institutions influencing LDC macroeconomic policy-making can be differentiated:

1. Private institutions, consisting primarily of transnational corporations (TNCs) and transnational banks (TNBs).

2. "Core" states (to use Immanuel Wallerstein's terminology), which comprise principally the former colonial powers and which exert influence through their departments of treasury, state, and overseas aid.4

3. Multilateral institutions, which, in addition to the IMF and the World Bank, include the General Agreement on Tariffs and Trade (GATT), regional development banks, and United Nations agencies.

The dynamics of interaction between these three sets of international actors and LDC states in policy-making arc schematized in Figure 1. In influencing economic policy-making in LDCs (an effect denoted in solid rays), each of the three sets interacts with and nurtures a corps of technocratic bureaucrats who share a conviction of the importance of maximizing economic linkages with the world economy. Opposing these technocrats stands a group of LDC bureaucrats committed to developing the national market first. In the simplified schematization of Figure 1, the LDC state is therefore split into two factions: a transnationalist component, and an economic nationalist one.

The other major set of national institutions influencing policy formulation domestic private corporations, financial institutions, and capitalists can also be divided into two factions. Each tends to reflect a mindset grounded in economic interests. The overwhelming majority of entrepreneurs in any developing country are engaged in economic activities that serve national markets. Most of these entrepreneurs are small businesses; a few grow to be giant conglomerates. But whether big or small, their own interests and preservation tend to lead them to favor economic policies that protect themselves and their country's resources from the whims of the world market. Thus, they can be called economic nationalists.

Since the Second World War, a numerically small but, in some cases, economically powerful group of businessmen and -women have linked up with transnational banks and corporations in joint ventures, licensing agreements, marketing arrangements, and connections that tend to wed them ideologically to policies furthering free international flows of goods and capital. This faction can be called transnationalists.

Quite often, representatives from each of these private-sector factions are shuffled in and out of government positions. Hence the existence of nationalist and transnationalist factions within the state is often grounded in part in the economic interests of the bureaucrats. Indeed, in a Philippine government advertisement placed in an international business magazine to attract foreign investment, the transnationalist technocrats were billed as "transplanted businessmen" with an "international outlook."5

None of this is static. The absolute and relative size of each faction in both the private sector and the state sector varies widely from LDC to LDC and across time. The broad masses, who influence certain policies in more democratic LDCs, are excluded from any appreciable impact on macroeconomic policy-making in the bulk of LDCs. Formal and informal collaboration, based on shared interests, exists among a number of the major sets of actors, however, and is denoted by connecting lines of squares in Figure 1. Just as the three international sets of institutions and the local elites

Image not available.

Figure 1.
External Influences on LDC Policy Formulationinfluence LDC policy-making, economic policy decisions of LDC states have repercussions on each set of institutions and on factions thereof (indicated by the broken rays in Figure 1).

In this mix of influence and control, it is the multilateral institutions' influence on LDC policy-making—the shaded ray at the center of Figure 1—that constitutes the major force in the emergence of the would-be NICs. It is here that answers lie to how the World Bank and the IMF contribute to shifts in an LDC's dominant paradigm of development: in particular, why would-be NICs were emerging; why it was that a country like the Philippines was shifting its overall economic direction from primary-commodity-export—led growth to export-oriented industrialization in the late 1970s and early 1980s; and how it was that, by this period, the Bank's and the Fund's positions in Philippine policy-making were sufficiently well entrenched to enable them to play a major role in the transformation of industry and finance in that country.

Whereas development literature has heavily critiqued development paradigms and policies, scant attention has been devoted to the mechanisms of interaction between international and national actors in policy formulation. Consequently, there is only shallow understanding of the crucial arena of how and why such shifts in an LDC's overall development path occur. This book attempts to help fill this void.

The Philippine Transformation

How can one step behind the closed doors and into the largely "confidential" process by which World Bank and IMF prescriptions are translated into policies that touch the lives of millions? That process and the interaction among Bank, Fund, and LDC state officials it entails are closed to the public. Moreover, each of the relevant actors has a vested interest in keeping it so.

In the case of the Philippines, a two-pronged approach succeeded in lifting the veil. First, a series of high-level leaks of Bank and Fund documents during the late 1970s and early 1980s provided access to thousands of pages intended for insiders' eyes only.6 Encompassing practically all categories of confidential and restricted documents,7 this continuous flow provided invaluable insights. Yet, rich as the documents were, they were only one part of the story; much of Bank and Fund influence is channeledthrough "policy dialogues" with LDC government officials, dialogues that are translated into the printed word only in generalizations, if at all.

Thus, a second tack involving interviews with key actors was taken. These were the very people who normally would not be expected to talk freely and certainly not about policy-making, an acutely sensitive arena in a country like the Philippines during a period when democratic processes were noticeable only by their absence. Yet over a hundred interviews— many with policymakers, some with Bank and Fund officials—were conducted in the Philippines from November 1980 to June 1981 and from July to August 1982.8

Surprisingly, there was little reticence. One- or two-hour slots stretched into long sessions (at times, a full working day) and several extended to more than one encounter per interviewee. People talked who had never talked publicly before. Partly they did so because of the greater ease a Western academician has with LDC bureaucrats. But some also spoke because the far-reaching policies of export-oriented industrialization were pitting nationalist bureaucrats against transnationalist colleagues in what seemed to many to be the final offensive. Divisions and loyalties could no longer be obscured. Nor could the identity of short-term winners. While some were eager to brag of successes, others felt the need to share their despair.

Most of the story can be understood through events surrounding two World Bank loans—a "structural adjustment loan" for the industrial sector, and an "apex loan" for the financial sector—which together were resounding successes in stimulating policy change in the early 1980s. Yet, just prior to these Bank loans, from 1976 to 1978, the IMF had tried to no avail to initiate a series of similar policy shifts. What changed? Why did the Bank succeed when the IMF had not? And how did that success affect different groups?

The gist of the story, culled from months of interviews, can be outlined in brief. The September 1980 signing of a $200 million structural adjustment loan for the Philippine industrial sector, after two years of intense dialogue between the World Bank and government officials, represented an excellent example of learning from history. The IMF had failed in its attempt to sell a similar package, attached to a loan of approximately $250 million, in part because it could not shake its image as purveyor of austerity and social upheaval. Beyond that, the Fund failed to neutralize nationalist factions in the government, especially in the Central Bank. Determined not to suffer the same fate, the World Bank shifted roles and steered policies skillfully around the Central bank. It was aided by its more benevolent image as a lender of funds for long-term development projects. Clothed in this benevolence, the Bank was able to carry out the short-term stabilization role of the IMF. It put together a $200 million structural adjustment loan package (the Bank's fourth, the Philippines' first) as broad balance-of-payments support, attached not to a specific project but to a set of policy stipulations consolidating an export-oriented course for the Philippine industrial sector.

To implement the policy conditions for the loan, the Bank turned to allies in the ministries of Industry and Finance. Quietly bypassing the import-control office within the Central Bank, the World Bank hammered out import liberalization and tariff reduction policies with the Ministry of Industry. Exchange-rate policies were expected to pass through the Central Bank; yet here the World Bank finalized de facto devaluation measures with the finance minister.

While the IMF was privy to the Banks maneuvers (indeed, it was the Banks behind-the-scenes coach), the Central Bank was struggling to retain its rightful policy domain. It was the World Banks conscious strategizing to link forces with sympathetic Philippine transnationalists and thereby surmount the once powerful economic nationalists within the Central Bank that enabled the ministries of Finance and Industry to play their new parts so well. As the World Bank (and the IMF behind it) discreetly circumvented the Central Bank by amassing a potent group of transnationalist allies elsewhere, it tilted the domestic power struggle in favor of transnationalist over nationalist factions.

Philippine officials of all persuasions agree that the period of the negotiations marked a critical juncture in the Philippine development path. Tariffs were slashed. Import restrictions that had protected domestic industry were lifted. The exchange rate began a steady and steep devaluation. Strengthened export- and investment-promotion policies diverted resources away from domestically oriented output. New free-trade tax havens, with generous incentives for transnational corporations to exploit low-cost Filipino labor, were set up. Individual light-manufacturing industries (textile; cement, food processing, furniture, and footwear) were slatedfor restructuring according to World Bank specifications to render them internationally competitive. In sum, the policies spelled one thing: export-oriented industrialization.

The story of the Philippines' transformation into a would-be NIC does not end with the industrial sector. Industrial restructuring was to find a reinforcing counterpart in financial-sector restructuring. This time the vehicle used by the World Bank was a $150 million "apex" loan to the Central Bank, negotiated over the same time period as the industrial sector loan but not signed until nearly a year later.

As the Bank and the Fund well understood, a full-fledged commitment to export-oriented industrialization demanded finance capital. IMF and World Bank officials together fashioned a new vision for the Philippine financial sector, wherein enlarged banks ("universal banks") would be encouraged, if not forced, to undertake major equity investments in industrial enterprises.

Once again, the path to actual policy implementation was not a smooth one. Undisputed reign over the financial sector rested with the Central Bank; there was no feasible way of turning to technocratic allies in other ministries this time. On the surface, the Bank acquiesced in this reality: it opened negotiations over the apex loan with the intransigent and nationalist Central Bank governor who had stymied IMF policy influence in the mid-1970s.

In time, however, it became painfully clear to the powerful at the Central Bank that their authority was in no way immutable. By the middle of the negotiations, the Central Bank hierarchy was no longer an active, informed participant. Instead, Bank missions were spending much of their time coordinating with a new unit that had been created within the Central Bank to oversee the World Bank apex loan. Antagonism from the rest of the Central Bank toward the fledgling "apex" unit was not surprising. In all aspects, it was a World Bank operation: Bank-conceived, Bank-staffed, Bank-trained, Bank-supervised. The Central Bank had been seeded with a potent transnationalist core.

By the time the nationalists caught on to the essence of the Bank's maneuvers, it was too late. By the end of the negotiations, the World Bank had set the stage for the apex institution's expansion. Not only would the first financial-sector loan be channeled through the apex institution intouniversal banks and, finally, into export-oriented industries, but so too would a growing number of future World Bank loans, future regional development bank loans, and future transnational bank loans.

When the industrial- and financial-sector loans are reexamined together, the role of the Bank and the Fund as policy-making institutions begins to take shape. In particular, three mechanisms of policy influence can be distinguished:

1. Strengthening the role, power, and ranks of technocrats within LDC bureaucracies in policy-making and implementation.

2. Building new institutions within the LDC bureaucracy.

3. Reshaping old institutions to fit with and further the new aims.

The export-oriented industrialization policies that ensued under multilateral institutions' collaboration with segments of the Philippine state had significant ramifications for various sets of international and national actors (see Figure 1). Under the weight of the Banks and the Fund's successful policy influence from 1979 to 1982, nationalist and transnationalist factions in Philippine state and private institutions experienced their most dramatic transformation to date, in both absolute and relative terms. Within the state, nationalists lost every key foothold of influence on policy formulation, as transnationalists assumed hegemonic control of all major ministries. Within the private sector, economic nationalist factions whose enterprises depended on domestic markets were decimated as a class. As the industrial-sector policy changes left an ever more concentrated industrial sector in their wake, so, too, universal banking undermined all but a small circle Of large banks,

These ramifications for state, industry, and finance fed on each other until by the carly 1980s the texture of the Philippine political economy had been altered in a pronounced manners. A domestic triple alliance linking the victors in each sector—transnationalist factions of the state to transnationalist bankers to transnationalist industrialists—dominated the landscape.9 But that domestic alliance rested on a broader one; export-oriented industrialization policies also tightened the bonds of collaboration between TNCs, TNBs, and their respective partners.

New Departures

This examination of external influences on Philippine policy-making was not guided by the rich experience of other researchers, for few have ventured into this policy process. The institutional means by which the Bank and the Fund (either singly or collectively) have assumed key influence in LDC policy-making and implementation have been largely ignored, both in academic and nonacademic literature. But certain traditions within two bodies of literature have laid the foundation on which this work is built: literature on the World Bank or the IMF; and literature on interactions between and within certain of the five sets of institutions presented in Figure 1.

Within the broad-ranging literature dealing explicitly with the World Bank and the IMF, one school consists of traditional or neoclassical analyses. These have brought forward the salient technical features of how multilateral institutions perform their narrowly defined role of fostering longer-run growth and development (for the Bank) or short-run stabilization (for the Fund). Centering their analyses on economic variables, these economists have largely divorced the Bank and the Fund from the realm of political economy in which they function.10

Since the 1950s, it has been common parlance within the Bank and the Fund to discuss the institutions' exercise of "leverage" or "conditionality" at a given moment in a given country.11 In more recent years, a major debate emerged in Fund and academic economic circles concerning what degree of conditionality (none, low, high) should be attached to the various species of loans for different countries.12 The debate developed in response both to critics from the left and from developing countries attacking the principle of conditionality13 and to the question of why relatively few LDCs were using Fund facilities. In the context of the Funds stated objectives, economists John Williamson (of the Institute for International Economics), Sidney Dell (of the United Nations), Bahram Nowzad (of the Fund), and others presented economic rationales behind various interpretations of conditionality. However, although Williamson noted the Fund's role as "giver of policy advice" and Nowzad mentioned its role "of persuading governments of the need for adjustment,"14 their debate did not touch on the dynamics of policy-making, that is, how the IMF interacts with LDC policymakers to translate conditions into policy. Thus, while the debate offered valuable historical interpretations of the IMF'sevolution toward conditionality,15 it maintained the charade that international economic institutions are somehow divorced from the world of politics and policy-making.

More relevant is a second group of more radical critics of foreign aid. Path-breaking works include books by Teresa Hayter and Cheryl Payer.16 Piecing together how "multinational corporations and capitalist governments" have historically been the beneficiaries of Bank and Fund advice to LDC governments,17 Hayter and Payer analyzed the political and economic context in which multilateral institutions operated.

Yet, by concentrating on "the fate of the external economic relations of countries which provide . . . case studies,"18 these authors bypassed another facet of the larger picture. As Payer acknowledged, what was lost was "a comprehensive picture of a [developing] nation's politics. In such a brief survey the internal factors have to be ignored or slighted."19 Instead, Payer and Hayter brought the collaborative linkages among the three international sets of institutions to centerstage.

This focus led these radical critics, as a group, to project a black-box analysis of Bank and Fund dealings with LDCs. In a global system structured inequitably, they argued, the Bank and the Fund had the power to influence LDC development paths and did so to the detriment of the LDC populace at large. But exactly what transpired in that black box of interactions could not be revealed by researchers based in developed countries and working predominantly from written materials (published or unpublished), or even by LDC-based researchers who did not have access to top policymakers.20 Although the omission was therefore understandable and their work nonetheless an important milestone, it tended to reduce policy-making influence to the level of dictates, leaving readers with a somewhat simplistic vision of LDC states uniformly marching to Bank or Fund orders.

Ever since Lenin put forward his thesis of "solid bonds, existing between global capital and LDC bourgeoisies,21 a vast literature has been built on the relationships between international and national institutions, of which the dependency school is best known within the tradition of looking at the international or external influence on LDC development paths.22 For the most part situating their analyses in Latin America, dependentistas attempted to uncover the historical roots of the region's continuing "underdevelopment." For them, the critical analytical framework became the distinction between center and periphery. In general terms, dependentistas amalgamated the three rays of influence radiating from the international to the national (Figure 1) into one all-powerful, deterministic ray of influence. Thus dependency was presented as lack of autonomy for the periphery.

A major analytical weakness of this school of thought was the derivative position in which it placed the LDC state. In the early work of André Gunder Frank, the fundamental characteristics of Underdevelopment induced by external control included the concept of a weak state with no power over the rate or shape of accumulation.23 In this framework, Frank and other dependentistas tended to reduce the relationships between international institutions and the LDC nation as a whole to a mechanistic level, ignoring the growing sophistication of, and divisions within, LDC states and private capital as certain LDCs turned to export-oriented industrialization.

As Patti Baran first tried to turn Marxists' attention from developed countries' class relations to those within LDCs,24 so too a small group of writers sought to refocus dependentistas toward distinctions in the political economy of LDCs that "would condition different responses to the world capitalist system."25 Often incorrectly grouped within the relatively mechanistic dependency tradition, these theorists have been more accurately labeled the "new dependency" school by one Brazilian economist.26 Key works here are few: the studies on Brazil by Peter Evans and by Fernando Henrique Cardoso and Enzo Faletto, and on South Korea by Hyan-Chin Lim.27

While not pursuing the world-systems level of analysis pioneered by Immanuel Wallerstein,28 this school built on his distinctions among the different states of LDC dependence or underdevelopment. In particular, they focused on Wallerstein's theoretical construct of the semi-periphery,29 which could be defined conceptually as those LDCs that have undergone more than minimal industrialization and have in the process gained some control over the surplus created. In this view, the "semi-periphery" would consist of the NICs. Evans, Cardoso, Faletto, and Lim took two of these, Brazil and South Korea, and demonstrated how an LDC within the semi-periphery could achieve levels of industrialization precluded by dependentistas and still be termed dependent on core institutions.30 Cardoso termedthis "associated dependent development"; Evans simply called it "dependent development."31

In this framework; alliances were central to dependency. Cardoso and Faletto explained:

Some local classes or groups sustain dependency ties, enforcing foreign economic and political interests. Others are opposed to the maintenance of a given pattern of dependency. Dependence thus finds not only internal "expression," but also its true character as implying a situation that structurally entails a link with the outside in such a way that what happens "internally" in a dependent country cannot be fully explained without taking into consideration the links that internal social groups have with external ones.32

Cardoso and Faletto's associated dependent development involved the structuring of a "system of alliances," or links, among "a new kind of oligarchy" of elite representatives from three sectors: local capital, the LDC state, and foreign capital.33 This represented a significant step forward from earlier dependency theorists' presentation of the LDC state and its dependency. As Cardoso and Faletto stressed: "There is no such thing as a metaphysical relation of dependency between one nation and another, one state and another. Such relations are made concrete possibilities through the existence of a network of interests and interactions."34

Peter Evans took Cardoso and Faletto's structure and built on it a ground-breaking work that analyzed in detail "the bases for conflict and cooperation among representatives of international capital, owners of local capital, and the top echelons of the state apparatus" in Brazil.35 These three interacted to form a "triple alliance,"36 cemented through overlapping self-interests. Each of the trio was presented as strong enough to strive constantly for a dominant position within the alliance. Evans's work added dynamics to the interactions and brought it far from the dependentistas ' static world.

Hyan-Chin Lim's work is noteworthy for its attempt to extend the relevance and validity of Evans's "triple alliance" to Asia. One of Lim's main purposes was "to examine the mechanisms of dependent development [in South Korea], with emphasis on the close interplay of the state, foreign capital, and local capitalists under the U.S. security umbrella."37 Although Lim could be criticized as overreacting to dependentistas ' weak states by characterizing the South Korean state as enormously powerful,38 his worknonetheless indicated that concepts developed by Evans and Cardoso had relevance for NICs besides Brazil.

Evans's and Lim's concern for alliances between sets of institutions, however, did not lead to deep analysis of how factions within each set of LDC institutions interact. Both did understand the analytical usefulness and validity of splitting institutions into "class segments" or factions.39 Indeed, a steady undercurrent in each work traces the existence of what Oswaldo Sunkel has dubbed the elite's "transnational kernel." By that Sunkel meant "a complex of activities, social groups and regions in different countries which conform to the developed part of the global system and which are closely linked transnationally through many concrete interests as well as by similar styles, ways and levels of living and cultural affinities."40

With regard to LDC private institutions, the new dependentistas built on Baran's concept of a "comprador element of the native bourgeoisie,"41 or what was later called the collaborating elite. Cardoso and Faletto clearly saw the distinctions between the "national and internationalized bourgeoisie."42 Evans understood that "local capital cannot be analyzed as a single homogeneous entity.... The split between the incorporated elite and the rest of the local bourgeoisie facilitates the functioning of the triple alliance."43 Yet, overall, the institutional perspective overshadowed the dynamics of conflict as these different factions strove for a hegemonic role.44

The present work builds on the work of Cardoso, Faletto, Evans, and Lim, and in particular on their analyses of the alliances that form the basis of LDC policy-making. Had not the new dependentistas carefully diagnosed the structural alliances that came with dependent development in the semi-periphery, the analysis of the political economy of policy-making suggested by Figure 1 would not be possible.

Thus, this work attempts to delineate the mechanisms by which the alliance of transnationalist factions in LDC states and bourgeoisies with multilateral institutions helped propel those factions into positions of authority. At the same time, in pushing beyond the dependent development engendered during NIC industrialization, this book seeks to extend the study of dependent development and the alliances it entails for policy-making to the would-be NICs, the group of twenty to thirty LDCs entering stages of export-led light industrialization, and particularly to the Philippines. What emerges is more than a black box of exploitation andcoercion. Rather, policy formulation is viewed as emanating from the interaction of interests of local transnationalist classes and international institutions, challenged, with varying degrees of success, by nationalist factions.

The chapters that follow contain three dynamics of action. On one level, this book is a study of the World Bank and the IMF: individually, their mechanisms for influencing LDC policy-making; Collectively, their collaboration that enhances the influence. A second dynamic lies in understanding the emergence and direction of the key component of the newest international division of labor, the would-be NICs. On the third and most specific level, the book is a case study of the Philippines, tracing both how it was restructured into a would-be NIC and what maldevelopment has resulted. As this introductory chapter illustrates, these three concerns are linked.

Although most of the events central to the Philippine story. fall within the last two decades, the roots of Bank and Fund influence on developing-country policy-making extend from the middle of this century. The next chapter traces that history, from the institutions' founding in the waning years of the Second World War through the present international crisis.


Excerpted from Unequal Alliance by Robin Broad Copyright © 1990 by Robin Broad. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

List of Tables xi
List of Figures xiii
List of Abbreviations xv
Preface xvii
Acknowledgments xxv
1. Introduction 1
The Philippine Setting 1
The Newest International Division of Labor 4
General Analytical Framework 6
The Philippine Transformation 9
New Departures 14
2. Searching for a Role: The Early Years 20
Origins 21
The Formative Fifties 23
The IMF Takes the Lead 28
3. Maturation: Bank and Fund Centerstage 36
International Political Configuration 37
Shifting International Division of Labor 41
New Bank and Fund Roles 46
The State Role 55
4. Negotiating Adjustment: The Industrial Sector 57
A Faltering Facility 59
An Escalating World Bank Presence 63
SAL: The Consensus 70
The Technocrats: Transnationalist Allies 72
5. Adjustment in Action 81
Tariff Reform 81
Lifting the Import Restrictions 87
De Facto Devaluation 90
Export Promotion 94
The IMF's Hidden Role 98
6. Slicing the Economic Pie 103
National Entrepreneurs 105
Industrial Wage-Earners 116
7. Industrialization and the Financial Sector 128
Fathering Domestic Legislation 129
Opening the Floodgates 137
"What It Means to Be a Guinea Pig" 144
Seeding the Central Bank 148
Beyond the Apex Loan 155
8. Reshaping the Philippines' Political Economy 162
"Separating the Men from the Boys" 163
"Bring in a Foreign Partner" 168
The Triple Alliance 172
9. Export-Oriented Industrialization: An Assessment 178
Stagnation on Global Markets 179
A Modern Enclave 190
Overall Performance 197
10. Things Fall Apart: The Rise of Debt, the Fall of Marcos, and the Opportunity for Change 202
The Slide Continues 203
Glory Days? 210
From Bad to Worse: The Philippines, 1983-1986 215
Industry and Finance: The SAL Record 222
Triple Alliance Revisited 228
Rethinking Development 231
Notes 239
List of Persons Interviewed 331
Index 339
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