Cesar Virata: Life and Times Through Four Decades of Philippine Economic History
(Quezon City: University of the Philippines Press, 2014)
By Gerardo P. Sicat


The book provides a broad sweep of post-war economic history, yet it instructively details important aspects of how economic policy evolved. It offers a valuable macroeconomic perspective on our country while discoursing on the varied roles played by the subject in the economy.

I first met Cesar Enrique Aguinaldo Virata in 1991 when I represented ADB in a United Nations economic mission, of which he was a senior member, to Cote d’Ivoire in West Africa. Aware of his lofty positions in government during the Marcos regime, I approached Cesar gingerly, expecting him to be aloof and magisterial. Much to my surprise, I found him to be a regular, unassuming, and gentle human being. Over the years since, I have felt more at ease with him not only in social gatherings but also in more formal occasions.

To know the true character of Cesar Virata, it behooves one to learn of his parental provenance in Chapter 1. Cesar took after his parents his simple and self-effacing nature but, even more importantly, his deep love for, and abiding willingness to serve, his country. His intellectual acumen and administrative skills he inherited from his father, Enrique, while from his mother, Leonor Aguinaldo, he got his sense of discipline and order. These values and traits must have driven Cesar to work tirelessly toward what’s only good for the country against all odds particularly during the widely unpopular martial law years.

It seemed natural that the country’s early post-war atmosphere was suffused with a strong sense of nationalism. Having gone through the long drawn-out struggle for independence, political nationalism of the leaders was deep, and in no time extended to economic nationalism. This was the circumstance in which the young Philippine economy was to evolve. An economy of Filipinos, by Filipinos, and for Filipinos! A steadfast advocate was Claro M. Recto whose economic philosophy was carried on by Jose W. Diokno, among others.

The seeds of economic protectionism were sown circa 1949 when Elpidio Quirino’s  advisers – seeing the country’s dollar reserves rapidly dwindling due to excessive import and consumption spending – urged the president to impose import and foreign exchange controls. Import-substitution industrialization that began as the dominant strategy in the 1950s persisted through 1960s-80s with the controls replaced by protective tariffs, and continues to linger since.

Most economists regard inward-looking protectionism as misguided and counterproductive – a root cause of our country’s prolonged economic weakness. Protectionist  policies inherently militate against exports, limit the size of the market, and render the economy uncompetitive and bereft of dynamism. Unlike its Asian neighbors, protectionism has been embedded in our country’s Constitution. Hence, our neighbors have been able to more easily shift policy from import substitution to export promotion, making their economies more dynamic.

Ironically, to this day, not a few businessmen, politicians and political activists want to fortify protectionist policies. For instance, they’d like to see the power and oil industries nationalized or re-regulated.

Economic nationalism via the preferential treatment of domestic industries shaped the milieu in which Cesar Virata had to promote domestic and foreign investments. Shortly after his appointment in March 1967 by President Marcos as deputy director-general in the Presidential Economic Staff, Virata was tapped to chair the Board of Investments (BOI). The BOI was designed to oversee the implementation of the Investment Incentives Law, authored by Senator Diokno. Under this law incentives were to be accorded Filipino citizens to set up businesses in preferred and pioneer industries, besides such other provisions as the “measured capacity” rule.

These actually bolstered the constitutional restrictions on foreign direct investments, e.g., the 60%-Filipino to 40%-foreign ownership rule of businesses.

Cesar Virata initially thought that ‘nationalistic’, if restrictive, policies made sense. He basically agreed with the mainstream view that national progress should be pursued by Filipinos and primarily for the benefit of Filipinos. Virata did push for an export incentives law but in its enactment Diokno managed to water it down, in effect deterring foreign investors from joining in export-oriented industries.

Virata tried to work within the restrictive policy framework by looking for imaginative ways to bring in foreign investments and technologies. For instance, through a presidential decree, service contracts with production sharing upon the discovery of oil and gas sites became the basis for energy exploration during the 1970s. Though earlier efforts proved largely fruitless, a later breakthrough was the substantial natural gas finds in Malampaya, which have become a major source of energy for the country since 2000. Similar arrangements were extended to geothermal energy, hydroelectric power, and coal.

More formidable challenges were awaiting Virata when he was made secretary of finance in 1970-1981, and subsequently prime minister in addition till 1986. An economic crisis was brewing, necessitating the floating of the peso to alleviate the balance of payments strained by the heavy demand for dollars with Marcos’ emphasis on public investments in roads, irrigation and school buildings, besides private spending.

There was an urgent need to put the fiscal house in order while seeking as well international assistance for the country’s development efforts, leading to the Consultative Group coordinated by the World Bank. Virata saw in the Consultative Group a vehicle for breaking the policy gridlock and moving institutional reforms forward to streamline the agencies and minimize corruption.

Realizing the pitfalls in the Investment Incentives Law, he wanted to accelerate the liberalization of industry and trade. To help in this pursuit he recommended to President Marcos the appointment in 1970 of Gerardo Sicat, a UP professor of economics with a PhD from MIT (Cambridge, Massachusetts), to head the National Economic Council that was later to become the NEDA.

Virata was also responsible for the reform of commercial banking which was no less challenging than the industrial and trade policy reforms. The martial law setting would help accelerate the reforms in the domestic banking sector, leading to the merger of banks, increased capitalization, foreign participation, and stronger competition in the sector. Reforms extended to the Land Bank, which is now the largest formal credit institution in rural areas.

Needless to say, the above review hardly does justice to the extensive treatment of the subject and the rich narrative of Philippine economic history. It merely provides vignettes of Cesar E. A. Virata and snippets of the historical context.

The book makes one better appreciate the real Cesar Virata and the reforms he initiated which laid the groundwork for later reforms that have largely benefited the economy. It also makes one understand why he stuck it out in public service during the much disdained martial law regime. He is a hard-wired optimist, it seems, doggedly hoping that his work on national policy and international economic diplomacy under those difficult circumstances will make a long-run difference.

The book is highly recommended reading for academics and students in economics and social sciences and even in less allied fields, regardless of socio-political persuasion. I’ve made it a major reference in my macroeconomics class, with certain chapters mandatory reading.

Given the tome’s weight (seriousness in 842 pages) and ponderousness to some extent, the typical reader is likely to be selective of chapters or portions thereof. To citizens with youthful and retentive memory, the tome may be somewhat repetitive in a number of places. But to senior citizens with perhaps less tenacious recollection ability, repetition could in fact be helpful! Still and all, the book should be edifying to people of practically all ages curious about their country’s post-war economic evolution.