November 23, 1994, Seattle Times / Chicago Tribune, Plucky Entrepreneurs, Investors Help Revive Former U.S. Navy Base, by Uli Schmetzer,

November 23, 1994, Seattle Times / Chicago Tribune, Plucky Entrepreneurs, Investors Help Revive Former U.S. Navy Base, by Uli Schmetzer, 

SUBIC BAY, Philippines - When the Philippines booted out U.S. military bases in a spasm of nationalism two years ago, this 40,000-acre Navy base suddenly became an emptied-out expanse of warehouses, mess halls, repair shops, dry docks and 1,876 empty villas.

But the ghost town is coming back to life as a plucky little free port that is luring Americans - not in uniform but as investors.

Now a new, 114-megawatt power station built by Houston-based Enron Corp. operates in Subic and supplies energy-sapped Manila 78 miles to the south. A Taiwanese subsidiary of U.S. shoe giant Reebok turns out 7,000 pairs of soccer boots a day in what was the U.S. Navy's main warehouse.

A British-Philippine joint venture assembles armored personnel carriers in the former riggers' shop. An Asian conglomerate has built a casino in the officer's mess. Federal Express will make the base its Asian headquarters as soon as the airport runway is mended. So far, promised investments by 39 companies total $600 million.

The Philippines is no longer "the sick man of Asia." Special economic zones such as Subic Bay, a new round of deregulation and a common language could bring U.S. business back to this tropical archipelago.

"The parting (with the U.S. Navy) was not as it should have been. It would be nice if we could bury the past," said the Subic Bay free port's chairman, Richard Gordon.

Gordon runs the base from the admiral's residence. Earlier, as mayor of Olongapo, the honky-tonk town next door, he wore cowboy boots and a 10-gallon hat and rode his horse through town. Today he wears a business suit and addresses fans with a bullhorn from the turret of an armored car - one assembled here.

Slick and fast-talking, Gordon is part of the metamorphosis of the Philippines.

But the key to the country's economic revival was the solution of the power problem.

Since 1991, the Philippines had regularly suffered crippling blackouts that lasted up to 10 hours, leaving office workers sweltering before blank computer screens and a third of the labor force laid off or working short hours.

Using a "fast-track system," the administration handed the problem over to private enterprise - and the economy rebounded almost the moment the lights came back.

Today, investment consultants such as Leo Alejandrino of Peregrine Securities say that 10 percent of the $600 million American Growth Fund invested in Asia is now in the Philippine stock market, which has shown a 132 percent rise in dollar terms - the best in Asia - and reflects growing investor confidence.

Faced with the prospect of foreign competition, major Filipino corporations plowed money into expansion and renovation. The Board of Investments registered nearly $16 billion in proposed projects this year. The major companies floated bonds worth $1 billion to finance expansion. Exports are up 17 percent over 1993.

That, in turn brought other surprises. With nine new telecommunications companies - most backed by foreign concerns - breathing down its neck, the Philippine Long Distance Telephone Co. (PLDT) suddenly managed to accommodate most of the 800,000 requests for telephones that had been piling up for years.

Private companies such as Honeywell and Enron added 1,800 badly needed megawatts to the 6,817-megawatt national grid. (Their stopgap measures made electricity in the Philippines the most expensive in Asia.)

Minor setbacks occurred. Shell and Occidental Petroleum discovered that their finds off the northwest coast of Palawan contained mainly a vast reservoir of natural gas rather than badly needed petroleum.

"The oil discovery turned out to be the deepest gas field in the world at 3,000 feet below the ocean. It's not going to be cheap," said Rufino Bomasang, director of the Department of Energy.

Still, in Manila, the new light - mainly generated by stopgap diesel turbines plugged into power grids - brought new hope.

In August, the International Monetary Fund approved a $650 million loan that Manila had been seeking since 1992, mainly to service foreign debt. Capital markets, encouraged by the merger of two competing stock exchanges and growing portfolio investments from abroad, grew bullish.

International banking reports agreed, almost unanimously, that the Philippines were on the road to recovery. They warned, though, that similarly positive results in the past hadn't lasted long.

"We now have the privilege of 27 international banks queuing up for permission to open an office in the Philippines," said Celito Habito, secretary of the National Economic Development Authority.

He predicted that gross domestic product would hit a 4.5 percent to 5 percent growth rate this year (the IMF predicted 3.5 percent) and in time will increase to an annual rate of 7 percent or 8 percent, the average Asian growth rate.

Inflation, which was at 20 percent at the end of 1991, now hovers between 7 percent and 8 percent, less than the 10 percent the IMF predicted. Interest rates are down to between 8 percent and 10 percent (the IMF had predicted 12 percent), and the nation's central bank had to intervene this year with a $2.7 billion package to stop the appreciation of the peso against the dollar.

"On the whole, the cost of doing business in the Philippines has gone down," said Julius Caesar Parrenas, director of the Institute of International and Strategic Studies, "and our indicators say the sale of beer and batteries has gone up. That's a sure sign the economy is doing well."

One reason for the upswing is the estimated $4 billion to $8 billion that 2 million Filipinos working overseas have remitted to their relatives this year. Their jobs abroad are the country's most lucrative export.

Next year, deregulation will open the market to major retail stores from abroad and to electronics and electric-appliance manufacturers as well. A new law gives foreign investors the right to a 100 percent stake in enterprises, although not in all economic areas.

President Fidel Ramos was already foiled this year when he tried to increase revenue in accordance with an IMF-advocated program, the 23rd in 30 years. He had to withdraw a gasoline price increase after demonstrators took to the streets, and his value-added-tax package, designed to bring in an extra $333 million, remains in limbo in the legislature and the courts.

But Ramos has come up with a political plan that may finally give him enough clout in both houses of the national legislature to push through his economic reforms. This month, his party and the main opposition formed a coalition for next May's general elections.

"The Philippines need to put their house in order. Many investors have gone elsewhere," said Brian Liu, the Taiwanese manager of the company making Reebok shoes here.

"Customs hold up your imports and exports and the authorities hold up contracts and permits," he said. "If you have the money to invest this year, you don't want to wait three years before you get the permits. Worse, it costs me three times as much in wages here as in China."

Perhaps so, but as the Habito of the development authority put it, "One has to start from a dream to get somewhere."