Payback Time for Lucio Tan

Philippine Daily Inquirer

Monday, December 21, 1998

Analysis

Amando Doronila

The Estrada administration has embarked on an unprecedented mobilization of resources of the state in a campaign to whitewash the tax evasion case against his friend, Lucio Tan.

In unequivocable terms, President Estrada has decided unilaterally that the case "does not have enough evidence," thereby inhibiting the justice department from prosecuting the case further.

At the same time, the President has chastised his justice secretary Serafin Cuevas saying, "maybe he has committed a blunder by filing a case which does not have enough evi­dence,” precipitating what could be an early Cabinet shakeup.

Political mobilization on behalf of government policy initiatives is a legitimate exercise of political power, but in the case of Tan's tax evasion case, mobilization of state resources is earned out on behalf of a private individual who happens to be a heavy campaign contributor, raising questions of presidential priority in paying political debts over initiatives to implement pro-poor programs or agricultural modernization, a centerpiece program of the administration.

Besides, the administration has not launched any major initiative yet behind which political mobili­zation could be launched.

No President in the history of this republic had ever prejudged a government case ex cathedra and Mr. Estrada's pronouncement ensures that the case is dead. He did not give his justice secretary a chance to fight it in the courts and in his decision, he played judge.

After his judgment, Cuevas could not now press ahead with the case without clashing with presi­dential preferences. The President has set the policy on the case, the equivalent of reading the riot act.

Retreat Order

The presidential intervention is like a retreat order from a field mar­shal in the face of an enemy. No general could contradict the order and the order is an act of surrender to Lucio Tan.

The President's statement in Bangkok that the case has no evi­dence is, in effect, an executive clemency before the conviction.

While it is true that the Ramos administration initiated the tax eva­sion case, the Estrada administra­tion never gave it a chance to suc­ceed. It scuttled the Ramos initia­tive and also demoralized the gov­ernment ranks.

On the surface, the Estrada ad­ministration has made a break with the Ramos policy of cracking down on Lucio Tan by filing tax evasion cases against him.

But what's more important is that the weight of presidential authority was put behind Tan while the jus­tice department was making another effort to strengthen the govern­ment’s case and while the case was on its way to protracted litigation in the Quezon City Regional Trial Court.

The President's pronouncement that the case "does not have evi­dence" followed another unprec­edented development — the withdrawal by the Bureau of Internal Revenue of the case without informing the justice department.

Before the Estrada intervention, no president had intervened to drop a tax evasion in favor of a person or company which faced tax eva­sion charges.

By taking the cudgels for Tan, the President has reinforced per­ceptions that he is paying political debts at the expense of public in­terest.

PAL Rehab

The government’s whitewash of Tan's tax evasion case came in the midst of disclosure by Finance Sec­retary Edgardo Espiritu of a new scheme to rehabilitate Philippine Airlines, which is controlled and managed by Tan.

The plan is to tap Japan's $30-billion Miyazawa fund as a source of loans to raise $150 million in fresh equity for the rehabilitation of PAL.

The Philippines eyed the fund after the collapse of negotiations with Cathay Pacific for a merger with PAL and after resistance ap­peared against the plan to tap the Philippine National Bank, Govern­ment Service Insurance System and the Land Bank for funds to reha­bilitate PAL.

This “bridge financing plan" was to be a step toward seeking a strate­gic partner for PAL.

But the quest for a strategic partner never went far as foreign air­lines shied away from PAL after the collapse of the talks with Cathay Pacific.

Latching on to the Miyazawa fund faces problems. The first problem is that while the fund is in­tended to bail out Asian economies battered by the economic crisis, Ja­pan is leery of projects that could squander loans on non-viable projects.

The Philippines has submitted to the fund a shopping list of projects, but a senior Japanese for­eign ministry official who visited Manila a week ago said Japan bounced back the Philippines’ list because it did not define priorities and the projects were ambiguous. There was no serious study that accompanied the list.

Shooting in the Dark

The official did not disclose de­tails of the projects, but he left the impression that the Philippines was shooting in the dark and did not do its homework.

The Philippines was asked to be more definite about its requests. Nothing was mentioned about PAL and it is understood that tapping the fund for PAL’s rehabilitation is a new request.

Whether the PAL request is a "pahabol," there are signs that it was an ad hoc scheme following the resistance to other refinancing schemes.

With its record of mismanage­ment under Tan and the collapse of the negotiations with Cathay Pa­cific, PAL has an image problem. Until the question of Lucio Tan's control of management under a bailout plan is resolved, the Japanese will be as leery about putting money into PAL as were others who have identified Tan as the key problem in PAL's revival.

This is why we cannot be optimistic about the Miyazawa fund option as source of bailout for PAL.

Japan is quite receptive to con­sider projects associated with agricultural modernization and food se­curity, but the Estrada administra­tion has not been clear about giv­ing priority to these projects in its shopping list.

Political debts

The clear impression in the for­eign business community and the diplomatic corps about the priori­ties of the Estrada administration as it approaches its six months in office is that its priority appears to be to pay back political debts.

The impression of an emerging cronyism — highlighted by the undis­guised efforts of the administration to protect the interests of Lucio Tan and to keep him in PAL while seeking external resources to bail out PAL — is very strong in the foreign and local business communities.

Businessmen and diplomats talk about it and ask questions about it, and there's much reservation about a level playing field under the Estrada administration.