[Senate Hearing 107-20]
[From the U.S. Government Printing Office]




                                                         S. Hrg. 107-20

 THE PHILIPPINES: PRESENT POLITICAL STATUS AND ITS ROLE IN THE NEW ASIA

=======================================================================

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MARCH 6, 2001

                               __________

       Printed for the use of the Committee on Foreign Relations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
71-542                     WASHINGTON : 2001



                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
CRAIG THOMAS, Wyoming                JOHN F. KERRY, Massachusetts
BILL FRIST, Tennessee                RUSSELL D. FEINGOLD, Wisconsin
LINCOLN D. CHAFEE, Rhode Island      PAUL D. WELLSTONE, Minnesota
GEORGE ALLEN, Virginia               BARBARA BOXER, California
SAM BROWNBACK, Kansas                ROBERT G. TORRICELLI, New Jersey
                                     BILL NELSON, Florida
                   Stephen E. Biegun, Staff Director
                Edwin K. Hall, Democratic Staff Director

                                 ------                                

             SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS

                    CRAIG THOMAS, Wyoming, Chairman
JESSE HELMS, North Carolina          JOHN F. KERRY, Massachusetts
RICHARD D. LUGAR, Indiana            ROBERT G. TORRICELLI, New Jersey
CHUCK HAGEL, Nebraska                RUSSELL D. FEINGOLD, Wisconsin
                                     JOSEPH R. BIDEN, Jr., Delaware

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Clad, Dr. James C., professor, Southeast Asian Studies, School of 
  Foreign Service, Georgetown University, Washington, DC.........    15
    Prepared statement...........................................    18
Fisher, Richard D., Jr., senior fellow, Jamestown Foundation, 
  Washington, DC.................................................    22
    Prepared statement...........................................    24
Hubbard, Hon. Thomas, Acting Assistant Secretary of State for 
  East Asian and Pacific Affairs, Department of State, 
  Washington, DC.................................................     2
    Prepared statement...........................................     5

                                 (iii)

  

 
 THE PHILIPPINES: PRESENT POLITICAL STATUS AND ITS ROLE IN THE NEW ASIA

                              ----------                              


                         TUESDAY, MARCH 6, 2001

                           U.S. Senate,    
                 Subcommittee on East Asian
                               and Pacific Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m. in room 
SD-419, Dirksen Senate Office Building, Hon. Craig Thomas 
(chairman of the subcommittee) presiding.
    Present: Senators Thomas, Lugar, and Kerry.
    Senator Thomas. The committee will come to order. Good 
afternoon. Today, the East Asian and Pacific Affairs 
Subcommittee meets for the first time in the 107th Congress, 
and it is a pleasure for me to be serving as chairman once 
again. I look forward to working with the Senator from 
Massachusetts, who may be here a little later, as the ranking 
member. Today, we are going to examine the current status of 
the Philippines. I will keep this brief so we can get on with 
the folks who know something about that.
    This is the subcommittee's first hearing, as a matter of 
fact, on the Philippines for a good long time. It is clearly 
overdue, it seems to me. It is an important part of Asia, an 
important country, and many changes have taken place there 
recently, and so we want to see if we cannot bring ourselves up 
to date on that.
    First, the Philippines is a working democracy in an area 
not known for democratic traditions. We have seen evidence of 
that in the recent and peaceful, for the most part, transition 
in Manila. Second, the country plays a role in regional 
security issues, in U.S. military planning for the region.
    Third, the Philippines is poised to play a more high 
profile position with ASEAN in the economics of the area. Those 
efforts, however, seem to be slowed, if not stalled, so these 
are three areas I would like to focus on today. First, the 
status of the current government and its prospects for the 
future, second, the status of U.S.-Philippines relations, 
especially on the security front, where we are about to rebuild 
our military relationship, and third, the current and future 
role the Philippines may play in regional affairs, especially 
ASEAN.
    So that is sort of the purpose of our hearing today, and I 
hope that our witnesses can focus somewhat on those issues.
    We have three witnesses today. Our first panel is Hon. 
Thomas Hubbard, Acting Assistant Secretary of State for East 
Asian and Pacific Affairs. On panel 2 will be Mr. Richard 
Fisher, Jr., senior fellow of the Jamestown Foundation, 
Washington, DC, Dr. James Clads, professor, Southeast Asian 
Studies, School of Foreign Service, Georgetown University, in 
Washington, DC, so Assistant Secretary Hubbard, please. Welcome 
to the committee.

STATEMENT OF HON. THOMAS HUBBARD, ACTING ASSISTANT SECRETARY OF 
STATE FOR EAST ASIAN AND PACIFIC AFFAIRS, DEPARTMENT OF STATE, 
                         WASHINGTON, DC

    Ambassador Hubbard. Thank you very much, Mr. Chairman. I am 
delighted to be here today. I am, of course, here in my current 
capacity as the Acting Assistant Secretary of State for East 
Asian and Pacific Affairs, but I might add that, until about 6 
months ago, I was the U.S. Ambassador to the Philippines for 4 
years, and that makes me particularly pleased to have the 
opportunity to talk with you today about the important 
developments that have taken place in the Philippines since I 
left.
    Mr. Chairman, we have a lot in common with the Philippines, 
and one of them is that in both countries new administrations 
took office on January 20, so this is a particularly good time 
on both sides to talk about the Philippines.
    I recall the statement that you made on January 26, 
together with Senators Helms, Biden, and Kerry, in which you 
applauded the people of the Philippines for addressing the 
events of the last few months in a peaceful manner, and welcome 
the opportunity to work with the new Philippine President, 
Gloria Macapagal-Arroyo. I very gladly second those remarks.
    President Macapagal-Arroyo has underscored her intention to 
work to bolster U.S.-Philippine relations on all fronts, and we 
intend to support her efforts in whatever way possible to 
achieve her goal of bringing long-lasting peace and prosperity 
to the Philippines. Even by Philippine standards these last 6 
months have been remarkably eventful. I was last here at the 
Senate with President Estrada when he paid an official visit to 
Washington last July. That visit I think underscored his 
important contribution to the U.S.-Philippine relationship, 
that is, his active support for the 1999 U.S.-Philippines 
Visiting Forces Agreement.
    His domestic political difficulties, of course, deepened 
only a few months later. Allegations of corruption led to his 
impeachment by the Philippine House of Representatives, which 
set the stage for an impeachment trial in the Senate, patterned 
after U.S. Senate impeachment trial proceedings. This 
unprecedented trial presented a parade of high profile 
witnesses who testified to a range of corrupt activities that 
the prosecution sought to link to former President Estrada. 
However, the trial was abruptly suspended when the prosecution 
team walked out in the aftermath of a controversial 11 to 10 
Senate procedural vote which prevented the introduction of 
certain banking records.
    I think impeachment trials are difficult even in 
established democracies, and I think in the case of the 
Philippines this impeachment process simply broke down. This 
led to and contributed to widespread anti-Estrada 
demonstrations in Manila and elsewhere.
    Now, throughout this turbulent period, the United States 
made clear that it would not take sides. Unlike President 
Marcos, who showed little respect for democratic processes in 
the latter stages of his regime, to say the least, Mr. Estrada 
had a democratic mandate, having obtained a larger plurality in 
the field of six candidates in the May 1998 Presidential 
election.
    As you pointed out in your January 26 statement, Mr. 
Chairman, the United States and the Philippines share a common 
commitment to democratic values. Therefore, our primary 
interest at the time was for the Philippines to work through 
this crisis with full adherence to a peaceful democratic 
process and in accordance with its constitutional framework.
    Both Mrs. Macapagal-Arroyo and Mr. Estrada assured us they 
were fully committed to doing just that, but as public 
demonstrations crested and key government defections 
multiplied, the Philippine Supreme Court on January 20 
unanimously decided, ``to take judicial notice of the vacancy 
in the position of the Philippine president.''
    The Supreme Court a few hours later swore in Mrs. 
Macapagal-Arroyo as President, and shortly thereafter the 
United States, followed by a number of other countries, 
recognized Mrs. Macapagal-Arroyo's peaceful assumption of the 
Presidency, and we promised to work with the new President to 
strengthen U.S.-Philippine ties.
    Now, as we know, Mr. Estrada did not sign a formal letter 
of resignation, although he did vacate the Presidential palace, 
and it was clear that the defection of much of his 
administration political support, the military establishment, 
and the police, had effectively removed his ability to govern. 
I would add here that while the military and police leadership 
withdrew their support from President Estrada, at no time was 
overt force employed to cause his ouster.
    Mr. Estrada did appeal his removal to the Supreme Court, 
but a few days ago, on March 2, the court ruled unanimously 
that Mr. Estrada had, ``effectively resigned by his acts and 
statement,'' and a clear majority of justices ruled separately 
that Mr. Estrada had lost his Presidential immunity from suits.
    Now, although Mr. Estrada apparently has a right to appeal 
the Supreme Court ruling, it is now immutably clear that Mrs. 
Macapagal-Arroyo is the President of the Philippines, and even 
before the March 2 Supreme Court ruling, Philippine polls 
indicated that an overwhelming majority of the Philippine 
public in all socioeconomic classes had fully accepted the fact 
of the new President.
    President Macapagal-Arroyo has already assembled a capable 
administration prepared to move on her top priorities. Her 
agenda is an impressive one but a challenging one. That is, to 
alleviate poverty, accelerate economic reform, combat 
corruption, enhance transparency and good governance, and 
promote peaceful national reconciliation. She has promised 
leadership by example, vowing to work seriously and diligently 
to develop a resilient nation capable of adapting to the 
demands of an increasingly globalized world.
    One immediate priority for the new Philippine President is 
achieving a peaceful resolution of the ongoing conflict in 
Mindanao, and at the same time her administration has announced 
its intention to accelerate economic development efforts in 
Mindanao, whose Muslim majority provinces are the poorest in 
the Philippines. The United States applauds this comprehensive, 
peaceful approach to resolving the Mindanao insurgency, 
particularly the emphasis on addressing the root economic and 
social causes of this long-running conflict.
    Since the early 1990's, Mindanao has been a key focus of 
U.S. development aid to the Philippines, and I am pleased to 
note that State and USAID are working together to ensure 
continued funding for these programs this year and in future 
years.
    I should note here, Mr. Chairman, that another group of 
insurgents, those affiliated with Abu Sayyaf Group, which the 
State Department has designated as a terrorist group, continues 
to operate in the southern and western areas of Mindanao, and 
still holds a handful of hostages, including a U.S. citizen.
    We are cooperating closely with the Philippine Government 
as the lead on this matter, and we continue to call for the 
safe and unconditional release of the hostages. Separately, we 
are providing the Philippines long-term counterterrorism 
training to upgrade Philippine capabilities to handle hostage-
taking and other terrorist incidents such as those generated by 
the Abu Sayyaf Group in Mindanao.
    Mr. Chairman, President Macapagal-Arroyo has underscored 
her interest in enhancing United States-Philippine ties, which 
we warmly welcome. Economic trade and investment issues, as you 
suggested, are increasingly central to our relations. The 
United States is the Philippines' largest trading partner and 
top export market, and we are the Philippines' largest foreign 
investor, with an estimated 25 percent share of the 
Philippines' foreign direct investment stock, so the United 
States is following with great interest the new 
administration's economic reform efforts.
    As a Senator, Mrs. Macapagal-Arroyo offered some 55 laws on 
social and economic reform, many of which helped the 
Philippines qualify for WTO membership and meet its 
multilateral trade commitments. Further steps to liberalize the 
Philippine economy will spur more investment, including from 
U.S. businesses, which highly value the Philippines' educated 
and English-speaking work force.
    President Macapagal-Arroyo's experienced economic team has 
been moving quickly to address economic problems that the last 
several months of political turmoil had exacerbated, and 
alongside these moves is her effort to fight corruption, an 
issue which the impeachment trial of President Estrada 
certainly brought to the public forefront.
    The Department of State and USAID are working together to 
provide assistance to the Philippines in this area, pooling 
resources to support a USAID program that encourages reforms 
that reduce corruption and increase transparency and probity in 
economic governance.
    Mr. Chairman, one clear fact has undergirded and sustained 
the vibrant economic relationship. That is, the United States 
and the Philippines are treaty allies. Following the 1992 
withdrawal of U.S. military bases in the Philippines, our 
security relations rebounded with the 1999 ratification of the 
Visiting Forces Agreement, which has allowed us to resume 
normal military-to-military contacts, including regular ship 
visits and periodic joint exercises.
    I should mention that neither side seeks a return to past 
levels of military interaction, including permanent bases, but 
the Visiting Forces Agreement does give us a framework to 
develop an effective program of activities that best meet the 
requirements in the Philippines and, more broadly, in the 
region.
    The Philippines provided 750 troops to the international 
force in East Timor, and supplied the first military commander 
to the multinational peacekeeping force of the United Nations 
transitional administration in East Timor. In this context, 
accelerating Philippine military modernization is a key.
    Philippine funding shortages have hampered past 
modernization efforts, and this problem is certain to continue 
in the Philippines' current constrained environment. President 
Macapagal-Arroyo has nonetheless highlighted her 
administration's strong desire to rationalize defense spending 
and implement effective modernization.
    During the Estrada administration, we established a defense 
experts exchange and undertook a joint defense assessment to 
catalog Philippine Armed Forces' capabilities and requirements. 
We should continue to build on this. We are particularly 
interested in enhancing Philippine Armed Forces operation and 
maintenance capabilities, and the best way to build the right 
capabilities is through continued funding of the Philippines' 
FMF and IMET programs. The Philippines' FMF program level 
funding for 2001 is $2 million.
    Now, Mr. Chairman, in a broader sense, our interest in the 
Philippines and the prospects for the new administration is 
based not only on these extensive political and economic 
security ties, but on the presence of over 2 million Americans 
of Filipino descent in the United States and over 100,000 
American citizens in the Philippines.
    In addition to that, Filipinos and Americans continue to 
mix freely, thanks to a constant flow of tourists, relatives, 
scholars, veterans, artists, performers, and business people. 
It is in this vibrant constituency that we owe our best efforts 
to ensure that the ties between our nations remain strong and 
mutually supportive.
    Thank you very much for having me today.
    [The prepared statement of Ambassador Hubbard follows:]

               Prepared Statement of Hon. Thomas Hubbard

   UNITED STATES-PHILIPPINE RELATIONS: OPPORTUNITIES TO ENHANCE OUR 
                          ENDURING PARTNERSHIP

    Mr. Chairman, thank you for the opportunity to testify before you 
this afternoon. As both the United States and the Philippines ushered 
in new governments on January 20, you have chosen an excellent time to 
review the state of our relations and discuss opportunities to enhance 
our historic and enduring partnership.
    I recall the statement you made on January 26, together with 
Senators Helms, Biden and Kerry, in which you applauded the people of 
the Philippines for addressing the events of the last few months in a 
peaceful manner and welcomed the opportunity to work with the new 
Philippine President, Gloria Macapagal-Arroyo. I gladly second those 
remarks. President Macapagal-Arroyo has underscored her intention to 
bolster U.S.-Philippine relations on all fronts, and we intend to 
support her efforts in whatever way possible to achieve her goal of 
bringing long-lasting peace and prosperity to the Philippines.
Turbulent Times
    Even by Philippine standards, the last six months have been 
remarkably eventful. Only last July, then-President Joseph Estrada was 
here in Washington, conducting a successful official working visit that 
brought him to the White House as well as to Capitol Hill. As 
President, Mr. Estrada was a proponent of strong U.S.-Philippine ties, 
illustrated by his active support for the 1999 U.S.-Philippines 
Visiting Forces Agreement.
    His domestic political difficulties deepened only a few months 
later. Allegations of corruption led to his impeachment by the 
Philippine House of Representatives, which set the stage for an 
impeachment trial in the Senate. Patterned after U.S. Senate 
impeachment trial proceedings, this unprecedented trial attracted 
extensive public and media attention in the Philippines and presented a 
parade of high-profile witnesses who testified to a range of corrupt 
activities that the prosecution sought to link to Mr. Estrada.
    However, the trial was abruptly suspended when the prosecution 
team, walked out in the aftermath of a controversial 11-10 Senate 
procedural vote which prevented the introduction of certain banking 
records. Widespread anti-Estrada demonstrations in Manila and elsewhere 
in the Philippines ensued, with the nearly instant exchange of hundreds 
of thousands of anti-Estrada cell phone text messages helping to fuel 
public indignation--a uniquely Philippine twist. Soon to follow were 
the dramatic events that culminated in Mrs. Macapagal-Arroyo's 
installation and Mr. Estrada's departure, which are now popularly known 
as ``EDSA II,'' drawing from the legacy of the 1986 popular uprising 
that brought an end to the Marcos dictatorship.
    Throughout this turbulent period, the United States made clear that 
it would not take sides. Unlike Marcos, who showed little respect for 
democratic processes in the latter years of his regime, Mr. Estrada had 
a democratic mandate, having obtained a large plurality in a field of 
six candidates in the May 1998 presidential election. As you pointed 
out in your January 26 statement, Mr. Chairman, the United States and 
the Philippines share a common commitment to democratic values. 
Therefore, our primary interest at the time was for the Philippines to 
work through this crisis with full adherence to a peaceful, democratic 
process and in accordance with its constitutional framework. Both Mrs. 
Macapagal-Arroyo and Mr. Estrada assured us that they were fully 
committed to doing just that.
Transition of Power
    As public demonstrations crested and key government defections 
multiplied, the Philippine Supreme Court unanimously decided en banc on 
January 20 ``to take judicial notice of the vacancy in the position of 
the Philippine President.'' The Supreme Court Chief Justice swore in 
Mrs. Macapagal-Arroyo as President a few hours later. Shortly 
thereafter, the United States recognized Mrs. Macapagal-Arroyo's 
peaceful assumption of the Presidency and promised to work with the new 
President to strengthen U.S.-Philippine ties.
    As we now know, Mr. Estrada did not sign a formal letter of 
resignation, although he did vacate the presidential palace and it was 
clear that the defection of much of his administration, political 
support, the military establishment, and the police had effectively 
removed his ability to govern. I would add here that while the military 
and police leadership withdrew their support from President Estrada, at 
no time was overt force employed to cause his ouster. Mr. Estrada did 
appeal his removal to the Supreme Court. On March 2, the Court ruled 
unanimously that Mr. Estrada had ``effectively resigned by his acts and 
statement,'' and a clear majority of justices ruled separately that Mr. 
Estrada had lost his Presidential immunity from suits. I would note 
that the Chief Justice, as well as another Justice closely identified 
with the Macapagal-Arroyo camp recused themselves from the case to 
underscore the impartiality of the Court's decision.
The New Administration
    Mr. Chairman, your interest in the legal and constitutional issues 
surrounding the transfer of power is shared in another quarter--among 
Filipinos themselves. I notice that the Philippine media and public 
have been openly discussing these issues, with the vigor and zeal that 
befit that nation's free press. As in our country, this debate will 
help shine the spotlight on the democratic process, and we hope that, 
in the long run, it will strengthen democracy in the Philippines.
    In any event, it is now immutably clear that Mrs. Macapagal-Arroyo 
is the President of the Philippines. Even before the March 2 Supreme 
Court ruling, Philippine polls indicated that an overwhelming majority 
of the Philippine public in all socio-economic classes had fully 
accepted the fact of the new President. The Philippine body politic had 
as well. The international community, including the United States, 
recognized the transfer of power, and most countries did so within a 
short period following Mrs. Macapagal-Arroyo's January 20 swearing in.
    Therefore, it is in our interest to look to the future with 
President Macapagal-Arroyo, not to the past, as she addresses the 
multitude of tasks facing her nation. She has already assembled a 
capable administration prepared to move forward on her top priorities. 
At her January 20 oath-taking, she launched an ambitious agenda to put 
the Philippines securely on the reform track. That agenda is impressive 
but challenging: alleviating poverty, accelerating economic reform, 
combating corruption, enhancing transparency and good governance and 
promoting peaceful national reconciliation. She has promised leadership 
by example, vowing to work seriously and diligently to develop a 
resilient nation capable of adapting to the demands of an increasingly 
globalized world.
Reconciliation in Mindanao
    An immediate priority for President Macapagal-Arroyo is achieving a 
peaceful resolution of the ongoing conflict in Mindanao. She has taken 
steps to reestablish the framework that led to the Philippine 
government's 1996 peace agreement with the Moro National Liberation 
Front (MNLF). She has declared a suspension of military operations 
against an MNLF offshoot, the Moro Islamic Liberation Front (MILF), and 
proposed a resumption of peace talks. Concurrently, her administration 
announced its intention to accelerate economic development efforts in 
Mindanao, whose Muslim-majority provinces are the poorest in the 
Philippines.
    The United States applauds this comprehensive, peaceful approach to 
resolving the Mindanao insurgency, particularly the emphasis on 
addressing the root economic and social causes of this long-running 
conflict. Since the early 1990s, Mindanao has been a key focus of U.S. 
development aid to the Philippines. In support of the 1996 peace 
agreement, USAID has been implementing several highly effective 
programs that encourage former combatants to take up peaceful pursuits, 
such as farming and small business. With the MILF still fighting and 
the flow of displaced persons continuing, these programs remain equally 
vital today to safeguard and strengthen hard-won areas of stability. I 
am pleased to note that State and USAID are working together to ensure 
continued funding for these programs this year and in future years.
    I would note, Mr. Chairman, that insurgents with the Abu Sayyaf 
Group (ASG), which the State Department has designated as a terrorist 
group, continue to operate in southern and western areas of Mindanao 
and still hold a handful of hostages, including a U.S. citizen. We are 
cooperating closely with the Philippine government, which has the lead 
on this matter, and we continue to call for the safe and unconditional 
release of the hostages. Separately, we are providing the Philippines 
long-term counter-terrorism training to upgrade Philippine capabilities 
to handle hostage-taking and other terrorist incidents such as those 
generated by the ASG in Mindanao.
United States-Philippine Ties
    Mr. Chairman, President Macapagal-Arroyo has underscored her 
interest in enhancing U.S.-Philippine ties, which we warmly welcome. 
The character of our relationship has become considerably more 
multifaceted since the United States withdrew from its military bases 
in the Philippines in 1992. Economic, trade, and investment issues are 
increasingly central to our relations. The United States is the 
Philippines' largest trading partner and top export market. We take in 
approximately one-third of all Philippine exports, and some 20% of all 
Philippine imports--valued at over $8 billion--are from the United 
States. The United States is the Philippines' largest foreign investor, 
with an estimated 25% share of the Philippines' foreign direct 
investment stock, worth over $3 billion.
    Because of our burgeoning economic links, the United States is 
following with great interest the Macapagal-Arroyo administration's 
economic reform efforts. For more than a decade, the Philippines has 
been moving forward on this front. As a Senator, Mrs. Macapagal-Arroyo 
authored some 55 laws on social and economic reform, many of which 
helped the Philippines qualify for WTO membership and meet its 
multilateral trade commitments.
    We hope that the Philippines will continue to pursue this reform 
trend. Further steps to liberalize the Philippine economy will spur 
more investment, including from U.S. businesses, which highly value the 
Philippines' educated and English-speaking workforce. A more open 
economy will generate significant new employment and sharpen Philippine 
competitiveness. Other steps, such as accelerating reform in the power 
sector, improving intellectual property rights enforcement, 
implementing trade obligations in full and on time, strengthening the 
banking sector, and combating money laundering, would also have far-
reaching positive benefits.
    President Macapagal-Arroyo's experienced economic team has been 
moving quickly to address economic problems that the last several 
months of political turmoil had exacerbated. Her well-respected Finance 
Minister, Alberto Romulo, has announced plans to curb spending and 
improve tax collection to help lower a large budget deficit. Alongside 
these moves is her effort to fight corruption. The Department of State 
and USAID are working together to provide assistance to the Philippines 
in this area, pooling resources to support a USAID program that 
encourages reforms which reduce corruption and increase transparency 
and probity in economic governance.
Security Ties
    Mr. Chairman, one clear fact has undergirded and sustained the 
vibrant economic relationship I have just been describing--the United 
States and the Philippines are treaty allies, and we have been so for 
over five decades. Following the 1992 withdrawal of U.S. military bases 
in the Philippines, our security relations rebounded with the 1999 
ratification of the Visiting Forces Agreement (VFA), which allows us to 
resume normal military-to-military contacts, including regular ship 
visits and periodic joint exercises. For example, in February 2000, the 
Philippines hosted the ``Balikatan'' exercise, which involved over 
4,000 U.S. and Philippine troops. The next ``Balikatan'' exercise takes 
place this spring.
    I would mention that, while neither side seeks a return to past 
levels of military interaction, the VFA gives us the framework to 
develop an effective program of activities that best meets the 
requirements of current tasks in the Philippines and in the region. The 
Philippines provided 750 troops to the International Force in East 
Timor (INTERFET) and supplied the first military commander to the 
multinational peacekeeping force of the United Nations Transitional 
Administration in East Timor (UNTAET). Philippine interest in 
participating in such peacekeeping operations is likely to continue, 
and our cooperation under the VFA will help to build Philippine 
capabilities to contribute more actively to regional security.
    In this context, accelerating Philippine military modernization is 
key. Philippine funding shortages have hampered past modernization 
efforts, and this problem is certain to continue in the Philippines' 
current constrained budget environment. Nevertheless, President 
Macapaga-Arroyo has highlighted her administration's strong desire to 
rationalize defense spending and implement effective modernization. 
During the Estrada administration, we established a Defense Experts 
Exchange and undertook a Joint Defense Assessment to catalogue 
Philippine Armed Forces' capabilities and requirements. We should 
continue to build on this. We are particularly interested in enhancing 
the Philippine Armed Forces' operations and maintenance (O&M) 
capabilities. While we have supplied Excess Defense Articles to the 
Philippines in the past, the best way to address these vital O&M needs 
and build the right capabilities is through continued funding of the 
Philippines' FMF and IMET programs. The Philippines' FMF level for FY 
2001 is $2 million.
    Mr. Chairman, in a broader sense, our interest in the Philippines 
and the prospects for the Macapagal-Arroyo administration is based not 
only on these extensive political and economic ties. There are over two 
million Americans of Philippine descent in the United States and over 
100,000 American citizens living in the Philippines, forming a 
comprehensive network of informal, people-to-people ties that further 
enhances our long-standing partnership. Filipinos and Americans 
continue to mix freely, thanks to a constant flow of tourists, 
relatives, scholars, veterans, artists, performers, and 
businesspersons. It is to this vibrant constituency that we owe our 
best efforts to ensure that the bonds between our nations remain strong 
and that both of our new administrations work together closely to help 
our people meet the challenges of the new millennium.

    Senator Thomas. Well, thank you, Ambassador Hubbard. 
Interesting changes taking place. Just generally, what is your 
impression of the stability of the Philippine Government at 
this stage?
    Ambassador Hubbard: Well, I think, Mr. Chairman, we had a 
dramatic political change in the context of ongoing political 
stability.
    I think we should take some heart from the fact that a 
President of the Philippines or a President of any country in 
the developing world has been removed from office, basically 
because of corruption. It is an issue that has been endemic in 
the Philippines and a lot of other countries in Asia and 
elsewhere, and I think it was very important that the public 
has taken note of that.
    I think it is important in the Philippines that the 
designated successor, the Vice President, took over when the 
President fell. I think it is important that the military, 
while they played a role, were in no way involved in a military 
sense. There were no tanks in the streets. There were no shots 
fired. I think the will of the Philippine people has spoken, 
and has brought about probably the best possible outcome in a 
bad situation. I think this result will, in the long run, 
strengthen the Philippine democracy.
    Senator Thomas. This is not the first instability, however, 
in the Philippine Government over the last 10 or 15 years, is 
it?
    Ambassador Hubbard. No, it is not. I guess I would call 
what happened in the Philippines, it is more volatility than 
instability. I think the Philippine constitution remains in 
place. It has been fulfilled in the sense that the Supreme 
Court has made the final decisions as to who is the duly chosen 
leader. Again, I think the Filipinos are committed to a course 
of democracy, committed to a course of constitutionalism. I 
think they will continue to develop along that course.
    Senator Thomas. What was the vote in the House on 
impeachment?
    Ambassador Hubbard. Mr. Chairman, I think I have forgotten 
the exact numbers.
    Senator Thomas. I do not think there was a vote, was there?
    Ambassador Hubbard. It was done by acclamation, that is 
correct. I think there is no question that the votes were 
there. It was simply a decision by the Speaker to do it that 
way. I think there is some question whether the votes were 
there in the Senate. Again, I believe impeachment is a very 
difficult task for a democracy, and proved particularly 
difficult for the Philippines in this case.
    Senator Thomas. What is the capability of the Philippines 
to handle this insurrection in Mindanao, do you support, or 
uneasiness, whatever it is.
    Ambassador Hubbard. It is a terrible drain on their 
military, on their national resources, and on their national 
ingenuity. This is a conflict that is based first and foremost 
on territorial considerations, second, on religion. It is a 
conflict that has been there for more than a century, and it is 
not going to be easy to put an end to it, but we are very 
pleased, as I said earlier, that the new government has reduced 
military activity.
    They have reaffirmed the peace with the largest Muslim 
group, the Moro National Liberation Front. They have called for 
a cease-fire with the other group, the Moro Islamic Liberation 
Front, which was not part of that original agreement. They are 
putting an emphasis on economic development, on livelihood 
improvements. These are all courses of action we are very happy 
to support.
    Senator Thomas. The status of the military security 
agreements, I presume that those were set back some in terms of 
U.S. involvement.
    Ambassador Hubbard. Mr. Chairman, it has not really been 
set back very much. What I said earlier is, what this Visiting 
Forces Agreement allows first and foremost is joint exercises, 
and interaction between our military officials, and naval ship 
visits, and while, during the time of the height of the 
political turmoil I think we probably had fewer ship visits to 
the Philippines than we might otherwise have had, some of the 
small-scale exercises continued, and we plan a full schedule in 
the coming year.
    Senator Thomas. Any activity in the Spratly Islands, 
particularly?
    Ambassador Hubbard. The Spratly situation has been quieter 
over the past year or so than it had been earlier. There have 
been some problems, some encounters between Philippine maritime 
forces and Chinese fishermen in the area to the north around 
Scarborough Shoal, but the situation around Mischief Reef and 
others in the Spratlys have been largely quiet.
    The Philippines have pushed within ASEAN and within the 
ASEAN regional forum for a code of conduct for activities in 
the Spratlys. Those talks are ongoing, and in the meantime both 
the Chinese and the others seem to have shown more restraint.
    Senator Thomas. Some years past, the later shift in ASEAN, 
much of it came from the Philippines, I believe, which is not 
now the case. Do you expect that to strengthen again? What is 
going to be their involvement in the process there?
    Ambassador Hubbard. Well, I think the Philippines remains 
very committed to ASEAN as a group. ASEAN has experienced a 
great deal of change in recent years. The character of the 
organization has been changed by the admission of some less-
developed members, beginning with Vietnam, but including Laos, 
Cambodia, and Burma, which is meant that the group is less 
like-minded than it used to be, and that the stages of 
development are less similar.
    ASEAN has been changed by the political turmoil and 
weakness that has occurred in Indonesia. Indonesia has long 
been the quiet and by far the largest member nation in ASEAN, 
and a quiet leader, and its capacity has been diminished a bit, 
so there have been personnel changes.
    I do not think the Philippine approach to ASEAN has fully 
shaken itself out, but our charge just had a meeting with the 
new Vice President, who is also secretary for foreign affairs. 
He indicated he is going off to an important ASEAN meeting next 
week, and indicated an expectation that the Philippines will 
continue to play an active role.
    Senator Thomas. It sounds like ASEAN is a little 
discombobulated.
    Ambassador Hubbard. ASEAN has been shaken by a lot of the 
events in recent years, not the least of which was the general 
Asian financial crisis, some of the problems of pollution that 
have occurred in the region, but I think the Philippines and, 
as nearly as I can tell, most other countries in the world 
attach great importance to ASEAN cohesion, and we in the U.S. 
Government do, too. We would like to see a strong ASEAN.
    Senator Thomas. Welcome, Senator Kerry. We are glad you 
could join us, sir. If you have any comments or questions, 
please.
    Senator Kerry. Mr. Chairman, thank you very much. I am 
delighted that our subcommittee is looking at the issue of the 
Philippines as our first sort of official look-see during the 
course of this Congress. After years of overlooking the Marcos 
regime's abuses during the course of the cold war, we finally 
came to the point of supporting the efforts of the Philippine 
people to instill and improve their democracy, and set them on 
a sort of real democratic path.
    I can remember sitting way down at that end of this dais, 
and the first amendment that I offered as a United States 
Senator on this committee was relative to the Philippines, and 
that amendment changed our policy with respect to aid and the 
Marcos regime, linking our policy to a set of expectations from 
that regime.
    I subsequently traveled to the Philippines a number of 
times, many times, as a matter of fact, and met several times 
with President Marcos and with Mrs. Marcos, and with Cory 
Aquino, and Cardinal Sin, and many of the other players who 
have had such an impact over the years, and I was the only 
Democrat then appointed by President Reagan to serve as a 
member of the observer group that went there, spending some of 
my time in Mindanao and some in Manila.
    I must say one of my most memorable moments in the Senate--
well, not in the Senate, as a Senator, was being called down to 
the cathedral in Manila by a group of women who were deeply 
upset by what they were perceiving in the computer count that 
night, and meeting with them in the sacristy of the cathedral, 
and learning from them what was happening, and then calling a 
press conference to make known the information that they were 
telling me, and summoning people like Bob Livingston, who was a 
member of the group, and Mort Zuckerman and others, to come and 
listen.
    There we learned of the corruption at the center of the 
election itself, and that was really the moment that everything 
turned, and it sort of sounded the death knell for President 
Marcos, if you will.
    I have watched with some dismay the turn of events that saw 
a change, a transition. We have had years of sort of a growing 
sense of the democracy in the Philippines, but I think there 
was a distinction between the people power movement that 
created an election and brought Cory Aquino to power, and the 
people power movement that met as a sort of mob in the 
Philippines recently and removed the President from power, 
notwithstanding his egregious abuse of power. I regret that.
    I know the Supreme Court of the Philippines has ratified 
this transition, and we move on, much as our own Supreme Court 
ratified our transition, and we perhaps do not at this moment 
in time have the cleanest of hands to be talking about some of 
those issues, but nevertheless, I do think it is absolutely 
critical that the new government, the Arroyo Government, move 
in a way that does not embrace some of those who were a part of 
the problem that brought this about in the first place, and I 
have some questions about that. I have some concerns about 
that.
    Mr. Secretary, I would ask you, the Far Eastern Economic 
Review reported that Luis Singson, who was the provincial 
Governor who collected the illegal gambling pay-offs for 
President Estrada, and he eventually triggered the impeachment 
trial, I understand he had been offered a position of gambling 
consultant to the government, and apparently turned the offer 
down.
    There is some concern that a number of ex-Estrada cronies 
who caused mischief in the past are being embraced by the 
current administration, and I wonder if you would address that 
question, and perhaps any concerns you might have about the 
manner of this transition itself.
    Ambassador Hubbard. Thank you, Senator. As one who was 
following Philippine affairs very closely during that time--as 
a matter of fact, I was Philippine desk officer toward the end 
of the Marcos administration. I must say how much I admire the 
work that you and others did at that time to ensure that Marcos 
got his due and that democratic government came in.
    Perhaps I could go to your second question first and give 
you a little of my own sense of what happened and what that 
means for Philippine democracy. Estrada is quite different from 
Marcos in my view. Marcos in his latter years was a dictator 
who trampled on democratic rights, stole elections, took 
political prisoners, and he was extremely corrupt. From the 
allegations that have been made thus far about President 
Estrada, whom I knew quite well as Ambassador there, President 
Estrada was simply--has been accused of being very corrupt, and 
therefore the manner and implications of his ouster I think are 
quite different from what happened in the Marcos case.
    To my mind, what happened, we had taken a position as the 
U.S. Government that the changeover in power should be 
peaceful, democratic, and constitutional, and I think there is 
no question it was both peaceful and democratic. I think the 
people wanted Estrada out, as manifested in demonstrations and 
in almost every means that it could be manifest, except in a 
vote by the Senate in the impeachment process.
    I mentioned earlier that impeachment is difficult in any 
democracy, and I think it is particularly difficult in a 
developing democracy. The Philippine Senate is a very unusual 
body. We speak of it as if it is like our Senate, but in fact 
it consists of, in full quorum, 24 members, each of whom is 
elected nation-wide. At the time of Estrada's impeachment 
trial, I think they were down to 21 Senators, and the system 
simply broke down, creating a situation in which Estrada had 
lost his mandate to govern, but the impeachment process was no 
longer available to make it happen, and so at that point the 
Supreme Court stepped in.
    I know when I saw those events developing on January 19, it 
reminded me a bit of Florida, also where the U.S. Supreme Court 
stepped in in a difficult situation in our democracy. Whether 
they were right or not, I cannot say, but I do believe the 
people's will has been carried out, and I particularly take 
heart in the fact that the constitutional successor took 
office, a successor as Vice President was elected by the 
Congress in accordance with the constitution, that the military 
is not in any positions, they are back in the barracks, and in 
fact during the whole process there was not a shot fired or 
tanks in the street.
    Estrada may not have exactly resigned that evening, 
although many of us thought he had, but he did voluntarily--or 
at least, without overt force he left the Presidential palace 
and indicated that he was no longer acting as President, and 
finally the court judged. So I wish the constitutional part of 
this had been neater, and I think all Filipinos would prefer 
that the impeachment process had worked and brought about a 
clear-cut conclusion, but unfortunately it broke down, and I 
think the best outcome in a bad situation was achieved.
    I think Philippine democracy will continue. The 
constitution remains in place. They are about to have fully 
free elections in May for all of their House of Representatives 
and for half the Senate. I think that election will help 
clarify the new President's mandate, and I do feel comfortable 
with Philippine democracy.
    As to the presence of certain cronies, I do not want to say 
much about Mr. Singson. He played an unusual role in this 
particular practice, but it looks as if he will not be the 
government's consultant on gambling, and there are others who 
were involved in the Estrada administration involved in this 
government, but they were also involved in the Aquino 
administration and all of that. I believe the result of all of 
this will be a more honest government, able to carry out the 
interest and desires of the Filipino people more than the 
previous government did.
    A final note, I think it is not at all a negative thing. I 
think it is very positive that the Philippine people were not 
willing to tolerate the levels of corruption that President 
Estrada was allegedly involved in. I think this is a sign of 
democracy, of a free press, of people being able to stand up 
when they think they are being abused.
    Senator Kerry. Well, that is a fair answer, and I 
appreciate, obviously, the distinctions and the route here. No 
doubt--I mean, this is one of those situations that obviously 
brings exigent circumstances to the table, and it may not be as 
you would like it to be, but in the sense I do not disagree 
with you. Certainly the democratic intent was expressed here, 
and that is a distinction.
    With respect to the Moro Islamic struggle that has been 
going on now for ages, and the unilateral cease-fire, what is 
your sense of the potential for President Arroyo to bring a 
different mix to that conflict, No. 1, and No. 2, how have we 
attempted, if we have at all, to help us resolve that?
    Ambassador Hubbard. First, I think President Macapagal-
Arroyo's approach is nearer to the approach adopted by 
President Ramos when he was President. That is, he was able to 
bring the larger Moro National Liberation Front, or MNLF, into 
an agreement with government through peaceful negotiations and 
a promise of some autonomy and a bigger voice in national 
affairs. I think President Macapagal-Arroyo would like to do 
the same thing with the remaining large group outside the 
government framework, the Moro Islamic Liberation Front.
    President Estrada had followed a more military approach. We 
advised against that at the time. We had urged them to work 
harder on reconciliation, on economic development, and we are 
pleased to see the new President returning to that approach.
    We have helped out in a modest way. Well, I had better say 
we helped out in a major way in Mindanao generally. Since the 
Aquino administration, we have concentrated much of our aid 
effort in Mindanao through a variety of programs. After the 
Ramos administration concluded the agreement with the MNLF and 
brought them into the government framework, we were able to go 
in through our regular aid programs and through the USAID 
Office of Transition initiatives to go in with some livelihood 
programs, putting some of the former combatants and their 
families to work growing corn, raising seaweed, et cetera, 
rather than fighting, and it has been very, very successful.
    As Ambassador, I visited a number of those villages. They 
were actually getting about, with USAID seeds were getting 
about three times the normal yield of corn in Mindanao. It was 
a moving thing to see these combatants out there working the 
fields, and we have been widely praised for that.
    We had indicated for some years that we would be prepared 
to consider similar programs for the MILF at that time when 
they reach an agreement with the government and have laid down 
their arms, and we remain prepared to do that, but in general, 
a big thrust of our aid program is in Mindanao. It supports 
part of the Philippines. It is the part where there is the most 
violence, and we hope to continue generous levels there.
    Senator Kerry. Overall, a last question, if I may, Mr. 
Chairman. The government faces some pretty tough choices with 
respect to the budget deficit, the large unemployment, the 
sluggish growth of the economy, and so forth, and in effect to 
try to get control of that the President is going to have to 
make some unpopular and difficult choices, given the base of 
her support and some of the, just inherent intrinsic 
difficulties within the structure of Philippine society.
    Share with us, would you, your outlook for the economy, for 
the economic stability for the long term here, for the country. 
What are the prospects?
    Ambassador Hubbard. Philippine growth overall has been 
disappointing over the last 3 years or so. The Philippines was 
not hit as hard by the Asian financial crisis, whereas 
Thailand, I believe, declined by a substantial percentage, I 
think as much as 15 percent. The Philippines stayed at zero. 
They never went under zero, but since then the recovery has 
been much less dramatic.
    In fact, I think they grew by about 3.3 percent in 1999 and 
maybe 3.8 percent in the past year, in 2000, and they were 
deeply affected by the political turmoil, so it is going to 
take a while to get back on track, so they need more economic 
growth, they need foreign investment to get that, they need 
economic reform.
    I think probably the most difficult task ahead of the new 
government is the one that has plagued all Philippine 
Governments is, they need to collect taxes. They need to build 
a revenue base that will enable them to spend the money on 
infrastructure and other public needs that is required.
    We have been generous through the years with the 
Philippines. I think we perhaps have done too little for the 
Philippine in recent years, partly because Indonesia seemed to 
be much more threatened by political and economic decline and 
instability. Our aid programs are important. Our aid programs 
are important not only for the money that they provide, but for 
the role they give us in advocating good policies, advocating 
opening the economy, improving their financial management and, 
very importantly, promoting good governance.
    Senator Kerry. Well, I think, Mr. Chairman, I can recall 
back a few years ago there was a lot more focus on the 
Philippines, and it has been something that sort of slid from 
attention to some degree. That may be a reflection, also, of 
the loss of bases, and I think there has been some discussion 
in the Philippines retrospectively about whether that was a 
good thing for the Philippines, but we are where we are today.
    I certainly think it bears this committee's continuing 
involvement, and I look forward to examining that and sharing 
that with you, Mr. Chairman.
    Senator Thomas. Thank you very much, Senator. We have been 
joined by Senator Lugar. Do you have any questions or comments, 
sir?
    Senator Lugar. No. I will listen some more.
    Senator Thomas. Well, Ambassador Hubbard, I thank you so 
much for your contribution, certainly your time in the 
Philippines. Your knowledge there certainly is impressive, so 
thank you very much.
    Ambassador Hubbard. Thank you very much, Mr. Chairman.
    Senator Thomas. Dr. Clad and Mr. Fisher, please would you 
join us. Your statements will be placed in the record in full, 
and if you care to summarize them for us, why, we would be 
grateful.

  STATEMENT OF DR. JAMES C. CLAD, PROFESSOR, SOUTHEAST ASIAN 
  STUDIES, SCHOOL OF FOREIGN SERVICE, GEORGETOWN UNIVERSITY, 
                         WASHINGTON, DC

    Dr. Clad. First of all, Mr. Chairman, thank you for the 
initiative of having these hearings. You are joined by two 
gentlemen who have consistently displayed a deep and effective 
knowledge of the region.
    Senator Kerry is involved with the Council on Foreign 
Relations Working Group on Southesst Asia. I had the pleasure, 
with Senator Lugar 15 years ago, of flying around in a rather 
nifty little CODEL jet going down to Negros, and at the time I 
was with the Far Eastern Economic Review in Manila, and have 
stayed involved with that country.
    We are currently in a more sedate life now, which includes 
being on the Georgetown faculty and working with Cambridge 
Energy Research Associates and, indeed Senator, one of the 
things I would like to talk about today is reform prospects, 
focus a bit on energy, in addition the prospects for Mrs. 
Macapagal-Arroyo, and then also a little bit of thinking about 
where the Philippines fits in Southeast Asia, and I will try to 
condense that and make it short and useful for you gentlemen.
    I think it is useful to look at the prospects for the new 
President, first of all, if we can, and it is useful to also 
remember that this is a country that has had no less than, by 
one count, eight constitutions in the past century. It is a 
country where, despite the most recent constitution, that of 
1987, has a lot of important safeguards, I think the recent 
events show that the institutional strength of the Philippines 
remains rather weak.
    It is reflective of a lack of State capacity, and I think 
that the circumstances--I entirely agree with Senator Kerry--of 
the change in power in this most recent time, in January, are 
really markedly very different from that of 15 years ago, and 
it is important to see how narrow the base was that prompted 
this change, so we are looking at a country which is affirming 
the habit, and let us hope it is not a compulsive one, of 
looking to extraconstitutional means to change the leadership.
    It is important to remember also that the people this time 
who were involved were a comparatively narrow segment of the 
Manila middle classes, professional and business classes, a 
portion of the Roman Catholic church, and a military leadership 
that decided at a crucial moment not to side with its 
constitutional leader.
    Now, that said, Mrs. Macapagal-Arroyo--by the way, a 
distinguished Georgetown alumnus--begins power with a number of 
advantages. She is a very respected economist. She was the 
highest-drawing candidate in her country's senatorial elections 
back in 1992, and most of all, she gives every indication of 
wishing to do what she said she wanted to do in her inaugural 
address, which was to transcend the politics of patronage, 
personality, and patrimony, and move the country toward a 
politics that is programmatically focused.
    Her early announcements show promise, and I think when I 
had the chance to see her 2 weeks ago, and also visited the 
Vice President, they did show a degree of focus that was very 
encouraging, prioritizing the Country's problems, looking at a 
few important things that could be done, taking a strategic 
view about what needs doing immediately and what could be put 
aside.
    But let us not be too encouraged. There are a number of 
important impediments to her rule, and I would like to go 
through those now, if I could. Initially, she confronts, albeit 
on a much smaller scale, many of the same problems that 
confronted Mrs. Aquino, Senator Lugar, you will remember, 15 
years ago, wide, disparate coalition, united really by little 
more than, frankly, at the end, opportunism, and at the 
beginning a desire to have the country rid of a particularly 
poorly performing President.
    Moreover, they are focused intently on the coming May 
congressional elections in the country, which does not really 
auger well for the kind of programmatic politics that she would 
like to display. After all, she has got to ensure that a 
coalition favorable to her agenda comes in, so she is 
necessarily constrained from taking too many positions which, 
inevitably in politics, invite a countervailing response.
    Luckily, she does not face some of the problems of 1986, 
Senator Kerry. She does not face the problem of completely 
restaffing the bureaucracy and then starting the firestorm of 
indignation that that caused among people who were facing the 
loss of their jobs. Moreover, I think that the quest for spoils 
is therefore much more narrow, and she already shows, I think, 
a pretty good hand at placating people who came aboard rather 
early and then at a very, very late stage, and that includes 
the Senate president, Mr. Pimental, who I think already may be 
making life a little bit difficult for her.
    Second, though, she faces a number of external 
circumstances which may be difficult. The U.S. economic 
downturn has already resulted in a drop in trade receipts right 
across the region. If the U.S. economy's appetite for imports 
declines further, I think we have got to expect, not only in 
the Philippines, but also in the rest of Southeast Asia, the 
reliance on two things, an export-led recovery, and public 
sector spending does not have that much more energy left in 
that recovery option, and I think there is a chance that she 
could stare at right across the board decline in trade 
receipts, which would make any politician's task, no matter how 
skilled, difficult.
    Let us not forget also that the government, just before Mr. 
Estrada left, had had to go to Chase Bank to borrow at 7 points 
above LIBOR money to meet the recurrent obligations to the 
Philippine State public sector obligations, primarily those of 
salaries, and many of those remain unpaid. She has an immediate 
problem with revenue.
    Third, she faces tough security problems--I am sure my 
colleague, Mr. Fisher, will speak about these in a moment--that 
are both external, with the attitude in the People's Republic 
of China, which, despite their convenient--and we are fortunate 
in the fact that they are internally distracted at the moment 
with their own domestic agenda, has shown a willingness to 
divide and rule, to mark the Philippines off for special 
attention, and to seek divisions with ASEAN, which also has a 
number of claims to these separate countries in the South China 
Sea, as does China.
    Internally, of course, as has been mentioned by Acting 
Secretary Hubbard, the Moro Islamic Liberation Front issue. Too 
often, we forget these are ethnically defined insurgencies 
which have an Islamic gloss to them, but they remain serious, 
and they have shown the ineptitude of the Philippine military 
in the past, and some resolution needs to be required. I will 
return to that shortly, but in my meetings with both the 
President and Vice President I found them very focused on the 
need for economic reform and on dealing with the southern 
question, as they call it.
    And sir, if I can suggest to you, the economic reform 
agenda remains just as long and formidably intractable as it 
did 16 years ago. The country's weaknesses have changed but 
little, Senator Kerry and Senator Lugar, the issues now 
highlighted in the recent World Bank report, which shows that 
control of the largest businesses by the country's most 
prominent families has actually increased in the last 15 years, 
and we have a country of remarkably talented people in which 
market entry and access internally remains just as closed as 
always.
    The country and we and all people in Southeast Asia should 
be very grateful for the energies of the emigre Filipino 
community, 4 to 5 million, Filipinos working abroad, keeping 
the country's balance of payments in shape through their 
remittances, but the problems, agricultural productivity, the 
very lamentable state of infrastructure, and the decline and 
spending in social capital and education is very poor.
    That said, looking at economics quickly, the Philippines 
particularly under the administration of President Ramos did 
manage to capture the full export manufacturing direct foreign 
investment bus, if I can say that. They did see rates of growth 
increase but, as I suggested a moment ago, those remain 
vulnerable to an across-the-board decline in our country's 
appetite for imports, and elsewhere we see, of course, Japan 
failing to ignite on the other side of the airplane. It is a 
one-engine world economy, and it has been for a number of 
years.
    Closing off on energy, I want to just mention to you the 
key issue in front of the Philippines now is the state of the 
reform bill. Senator Thomas, I know you have a particular 
interest in these issues, and my written testimony go into 
these at greater length, but essentially, if there is one thing 
that this administration did do, it would be to close on the 
energy reform bill, but not attempt to do so many things, 
liberalizing wholesale-retail generation of power, that they 
run into the California problem, and that is plain it is a very 
big issue, and as you can imagine, in Manila right now, so some 
prospect for that bill before the end of June remains highly 
likely.
    Closing, on what the U.S. role can be, sir, I would suggest 
as follows. Our role and our relationship with the Philippines 
is now probably healthier than it was 10 or 15 years ago. I 
think we have an opportunity to approach the Philippines in a 
mature way, which anchors it in its own region. Philippine 
diplomats have been doing a good job spreading their country's 
interests and making those problems known in the region.
    If we were to focus on two things, sir, I would suggest as 
follows, that we consider helping the Philippine military 
maintain its equipment. It is a small item. Second, helping 
them with their Coast Guard and building up the possibility for 
interdiction of foreign vessels, which does not always involve 
a naval response to any incursion in the South Chine Sea.
    In closing, I think we can help them through our vote and 
weight in the multilateral lending institutions by assisting 
them when it comes time to look for special resources in 
dealing with the aid requirements of a comprehensive solution 
in Mindanao.
    I will stop there, gentlemen. Thank you very much for your 
attention.
    [The prepared statement of Dr. Clad follows:]

                PREPARED STATEMENT OF DR. JAMES C. CLAD

    I have been working in the Philippines and on Philippine affairs 
since the mid-1980s. My first assignment in that country was as a 
foreign correspondent covering the collapse of the Marcos dictatorship 
in early 1986. I remained there for another two and a half years and 
visit periodically. In my work on the Georgetown faculty and also with 
Cambridge Energy Research Associates, I follow Philippine foreign 
policy, domestic political development and the progress of economic 
reform--particularly energy reform.
    My comments today rest on three issues:

   The prospects for the presidency of Mrs. Macapagal-Arroyo;

   The prospects for Philippine reform--especially in energy 
        issues, and

   The prospects for Philippine security within a Southeast 
        Asia that has become far weaker and less cohesive in recent 
        years.

                           THE NEW PRESIDENT

    First, let us examine the prospects for President Macapagal-Arroyo.
    While the departure of President Joseph Estrada should cause 
nothing except relief--for both the Filipinos themselves and for their 
ASEAN neighbors--the circumstances of this sorry leader's departure do 
not reflect well on that country's institutional strengths. Nor do they 
bode well for managing another crisis of governance in the future.
    By one count, the Philippines has had no fewer than eight 
constitutions since the then-Spanish colony's declaration of 
independence against Madrid in 1898. The impact of the Second World 
War, the irresponsibility of the ruling elite, and habits of dependency 
on the U.S. built up over most of the post-independence period--all 
these left the country with weak state capacity.
    The most recent constitution, that of 1987, spells out many noble 
procedural safeguards. But when President Estrada's impeachment finally 
reached that country's Senate, the process showed itself as extremely 
flawed. In the end, this grossly incompetent leader left office only 
after exasperated and largely middle class sentiment took to the 
streets, aided by the tacit connivance from the country's military--
sworn (lest we forget) to uphold the constitutional leader, which 
Estrada remained. Since Estrada's late January departure, the country's 
Supreme Court has approved the legitimacy of his ouster in a 13-0 
decision; it also, by a margin of 9-4, removed his presidential 
immunity.
    But this is post facto rationalization, the circumstances of his 
departure augur another display of impatience on Manila's broad 
boulevards at some future time. The event has now happened twice in 15 
years. And unlike President Marcos' ouster, the stage in the most 
recent drama has held many fewer players--this time only the business 
and professional middle classes, a portion of the Roman Catholic Church 
hierarchy, and a military leadership took a stance. The rest of the 
country watched passively.
    These important caveats aside, President Macapagal-Arroyo begins 
office with many advantages. This distinguished Georgetown alumnus is a 
respected economist in her own right. She was the candidate drawing the 
highest number of votes in the Philippines' 1992 Senate elections. Her 
admirably brief inaugural address spoke--correctly--of persistent and 
gross poverty being the country's most severe problem. She noted the 
country's desperate need to transcend the politics of patronage, 
personality and patrimony and attain instead a programmatic politics 
focusing on issues. She counts governance, not stirring rhetoric, as 
the record for which she hopes to be remembered.
    The new president's early announcements--though placating the wide 
but fragile coalition of interests combining to evict Estrada--still 
show promise. In my talks to her two weeks ago she seemed determined to 
take an approach that prioritizes the country's problems, and to take 
strategic decisions do something concrete about a few pressing matters 
while leaving longer term struggles for later.
    There is a word in Pilipino--garapal. It connotes a sense of 
behavior that is really out of bounds, even in a society far too 
tolerant of malfeasance in government. In Estrada's case, his 
involvement in various gambling operations, together with ethnic 
Chinese business associates, fell into the garapal category. Though far 
less efficient as a money-grabber than the Marcos period, Estrada and 
his cronies pocketed a slice of the poor man's gambling habit known 
asjueteng. His personal behavior dismayed the middle classes and 
besmirched the country's reputation in ASEAN.
    By contrast, the country has in its new president an exemplar in 
both a personal and political sense. Early signs of ``normal'' 
behaviour by her family--even in such mundane matters as reports of her 
husband and daughter queuing up with other departing passengers at 
Manila's airport in their recent trips abroad--are positive and 
encouraging.
    But we should not overlook the impediments to her rule.
    For starters, she confronts, albeit on a smaller scale, many of the 
same problems confronting Mrs. Aquino when she took over the presidency 
from Marcos fifteen years ago. A loose and quarrelsome coalition of 
politicians brought her to power, just as the case for Mrs. Aquino 
fifteen years earlier.
    Fortunately, Mrs. Macapagal-Arroyo does not face the problem of 
completing re-staffing the government administration--a battle that 
promptly swung the Marcos-era bureaucracy against Mrs. Aquino and 
wasted much valuable time. In 2001, the quest for spoils in the new 
Administration is less consuming, and the venting of old grudges less 
obvious. Yet segments of the old establishment that jumped ship in time 
to be counted among the forces evicting Estrada are already playing a 
tough game, obstructing the new president's choices for cabinet 
positions before the ink on her presidential succession is barely dry.
    Secondly, external circumstances do not favor an easy period of 
settling into the presidential chair. The U.S. economic downturn has 
already resulted in a drop in trade receipts for all Southeast Asian 
countries whose post-1997 crisis upturn has rested on the U.S. 
economy's strength and appetite for imports, and on an increase in 
public spending. From Thailand to Malaysia to the Philippines, the 
public sector deficit as a percentage of GDP has jumped since 1998. It 
is already unsustainable in the Philippines, where a revenue crunch and 
capital flight during the last of the Estrada period have resulted in 
an inability to pay public sector salaries--an important problem in a 
country where government employment means so much.
    Thirdly, she faces tough security problems, both internal and 
external. Externally, only a set of reform-related issues preoccupying 
Beijing's leadership has prevented China from looming even larger as a 
source of concern and territorial conflict to the Philippines. The two 
countries dispute areas of the South China Sea; China seeks through 
``sweet and sour'' diplomacy and latent use of force to divide Manila 
from reaching common cause with other ASEAN countries also claiming 
areas of the same sea along with China. Internally, the Estrada 
government foundered on the protracted problem of pacifying the Moro 
Islamic Liberation Front (MILF), which seeks an independent homeland 
for parts of Mindanao. The MILF's more radical offshoots, such as Abu 
Sayyaf (which has a penchant for kidnapping tourists in neighboring 
Malaysia), depress domestic and foreign business sentiment in a 
resource-rich island otherwise showing economic comeback since the late 
1980s.
    Despite these challenges, I found the new president as well as Vice 
President Teofisto Guingona well focused on two issues when I saw them 
in Manila two weeks ago. These are: (a) economic reform and (b) solving 
the complex insurgencies afflicting the country's second largest 
island, Mindanao.

           ECONOMIC REFORM AND THE KEY ISSUE OF ENERGY REFORM

    On economic reform, the country's weaknesses have changed but 
little since the forced departure of another, far more corrupt 
president just fifteen years ago. In some ways, they have intensified. 
A very recent World Bank report focusing on achieving better 
distribution of the gains of development makes the point that control 
of the country's largest businesses by the same small set of prominent 
families has actually increased since the so-called ``People's Power 
Revolution'' of 1986 against Marcos. This World Bank report also 
describes endemic problems afflicting governance--especially 
corruption, an abysmally slow implementation of government programs and 
a woeful lack of auditing of government spending--as all still 
prevalent today.
    To be sure, important improvements in national income have occurred 
during the 1990s. These resulted from dramatic gains in the country's 
for-export manufacturing sector, plants using local labor and largely 
capitalized by direct foreign investment. Important gains have occurred 
via ``backroom operation'' services in which the country's large 
English-speaking population (the Philippines is now the world's third 
largest English-speaking country) helps foreign corporations run 
payroll, collect debt, and standardize business practice manuals--all 
via the globalizing advantages that e-mail and the Web enable.
    But other sectors--including most lamentably the rural agricultural 
sector--remain starved of capital and show persistently poor 
productivity. Without an estimated 4-5 million Filipinos working 
abroad, the country's national receipts (and its social welfare 
indices) would be in dire shape. And in the increasingly tough 
competition for direct foreign investment, the Philippines had the bad 
luck, just as during the 1980s, to throw up bad political risk at a 
moment when better governance and better confidence would have netted 
important gains.
    By this I mean the experience of the mid-1980s, when a wash of 
Japanese and Korean direct investment in manufacturing flowed into 
Southeast Asia but almost entirely bypassed the Philippines--for 
reasons of chronic political instability. Similarly, many foreign-owned 
assembly firms began to relocate corporate headquarters to the 
Philippines and seek new manufacturing locales there after the 1997 
financial crisis. An IMF supervisory program left over from the Marcos 
era had instilled important discipline and minimal capitalization rules 
into the Philippine banking system. But, again, the moment was lost--
largely because of Mr. Estrada's baleful effect on confidence and the 
devaluing peso.
    In this environment, what should President Macapagal-Arroyo do? In 
my meetings with her last month, she showed a firm grasp of priorities, 
of which nothing matters more--to the country's infrastructural base 
and to foreign and domestic investor sentiment--than reforming the 
electricity sector.
    The current electricity restructuring legislation in the 
Philippines is called the ``Electric Power Industry Reform Act of 
2001.'' Though I am grossly simplifying the complexity of this bill, 
the reform legislation provides for the

   unbundling electricity generation and transmission, as well 
        as for de-linking power distribution and supply;

   dividing government-owned National Power Corporation, or 
        NPC, into generation and transmission operations.

   Privatizing the NPC-owned seven power generation companies 
        (known as ``gencos'' in the energy business). A ``National 
        Transmission Company'' will be created but will become 
        privately owned as well.

    In addition, the reform legislation contemplates a wholesale 
electricity spot market and the total unbundling of both wholesale and 
retail rates. Is this a realistic target? How can President Macapagal-
Arroyo preserve reform momentum and not blunder into repeating errors 
that led--in similar and much-followed legislation in California--to 
market-prompted power supply crises?
    In light of the problems currently being faced in California, the 
current Philippine legislation does raise significant concerns. The 
changes in the present bill offer a complex reorganization in which 
deregulation of both the wholesale and retail markets would occur 
simultaneously. As California's experience shows, quick but complicated 
reform and reorganization carries huge uncertainties. In the wrong 
circumstances, they can lead to disastrous consequences.
    That said, California's problems must not discourage the new 
Philippine administration from moving to a competition-based power 
market. The answer is to begin with deregulation of the wholesale 
market now, while leaving other elements to a later day. This answers 
the new president's need to show she is alert to the California 
consequences and to legitimate concerns raised by the many non-
governmental organizations now prominent in Philippine political life.
    Indeed, the new administration can point to experience in other 
U.S. states and to other foreign countries that chose to phase-in 
deregulation in a slower, more measured way. In Manila, the country's 
legislators and some hopeful investors, often tied to foreign firms, 
see reorganization of the electricity industry as yielding

   greater foreign investment,

   competition for various sectors of electricity customers, 
        and

   a decrease in rates.

    But various U.S. states and foreign countries have opted for 
electricity reform on the basis of incremental steps. In my view, 
privatization of the Philippine electricity sector should proceed with 
privatizing the country's generating assets and with creating a 
competitive, wholesale generation market. In this process, the 
utilities and newly-formed gencos will need time to recover their 
stranded costs and to complete transition to a competitive wholesale 
marketplace. Foreign investors will enter the market in this controlled 
way; outright deregulation across-the-board still poses too many risks, 
of which political risk (i.e., the danger of political forces setting 
aside or reversing government policy) remains high.
    One thing is for sure: the lack of reliable power has become a very 
serious bottleneck to the country's continued growth. Only after 
wholesale market stability has been established should the Philippines 
implement the next steps--transitioning to competitive retail sales of 
power and the unrestrained marketing of electricity. In this respect, 
but this respect only, the ``cause-oriented groups,'' as Philippine 
NGOs are known, have a valid worry about the electricity reform bill as 
it now stands.
    At present the power reform bill had emerged from a bicameral 
Philippine congressional committee before the legislators went into 
recess in February. President Macapaga/Arroyo has asked the two 
committees on energy in the Philippine Congress to meet 
environmentalists and consumer groups as well as business firms. She 
wants them to iron out problems in the current Power Industry 
Restructuring Bill which attempts--as I've noted, to try too much too 
soon and which could imperil all reform by colliding with the 
``California problem.''

   how much cross-ownership should be allowed between the 
        generation and distribution sectors? (Philippine experience 
        amply justifies concern lest existing local power industry 
        players simply broaden their monopoly positions.);

   whether private utilities should be barred from recovering 
        their stranded costs?

   The NPC's existing losses, which approach 200 billion pesos 
        (over $3.5 billion). Which prospective bidders for the 
        privatized NPC are going to want to absorb these losses?

    The cross ownership issue may be addressed in new the anti-trust 
safeguards, such as the imposition of market caps if certain genco 
capacity reaches certain limits within a five-year period. With regard 
to the NPC's losses, the most likely outcome is for the taxpayers, 
rather than the consumers, to absorb the losses--a politically 
expedient result, given the looming May congressional elections--which 
President Macapagal-Arroyo's administration does not want to become a 
campaign issue.
    Once the elections are past, the administration hopes the bill will 
pass in a special congressional session convened before the writ of the 
existing (11th) Congress expires on June 30, 2001. Everyone in the 
investing and financial community is looking at the new president's 
resolve on this issue: This includes the multilateral lending banks, 
primarily the World Bank and the Asian Development Bank. The president 
told me she has also promised a June passage of the reform bill to the 
IMF. One clear incentive for passage of reform legislation lies in the 
NPC's desperate need for nearly $1 billion, primarily from the ADB, to 
finance the NPC's transmission and preparatory projects for its 
privatization.
    Can she keep her promise? She probably has the numbers to ensure 
passage of the existing, overly ambitious bill, in the country's House 
of Representatives. In the Senate, the outlook is far less benign.
  the philippines in southeast asia and the role of the united states
    Since the departure of U.S. forces ten years ago after the 
Philippine Senate rejected an extension of the treaty enabling American 
bases on Luzon, the country has sought a more assertive place in 
Southeast Asia. This period of effective regional diplomacy coincided 
with the administration of former president Fidel Ramos. Since then, 
the region-wide economic crisis and president Estrada's problems have 
distracted Manila from this important task.
    The United States now has a much healthier relationship with the 
Philippines than before. As part of the ASEAN region, the U.S. has new 
opportunities to engage its former colony in a forward looking and 
regionally focused way, developing relationships that ``fit'' into 
broader American interests in East Asia.
    In this regard, American support for the Philippines' efforts to 
solve the Mindanao insurgencies should count for a lot. U.S. support in 
multilateral lending institutions for specially targeted programs in 
the south of the country will strengthen the hands of the new president 
and vice president (Mr. Guingona also serves as foreign secretary).
    The same approach should inform our efforts in re-engaging the 
Philippine military. Important and low-cost solutions for the country's 
maintenance of its existing military equipment exist--and should not be 
obstructed. Similarly, American help in building up the country's coast 
guard would also be a boon--interdiction of foreign fishing vessels by 
coast guard ships makes confrontational possibilities with China less 
likely; at present the encounters in the South China Sea involves 
elements of the regular Philippine military, army and navy.

                               CONCLUSION

    The priorities of the new Philippine administration are clear: 
peace and poverty alleviation at home, security in the regional 
environment, and victory in some important reform efforts, most notably 
in electricity generation and delivery. In a newly mature relationship 
with the Philippines, the United States can help--from a distance but 
with understanding that this former colony's success is an important 
element in shoring up Southeast Asia's coherence in the face of great 
change and challenge. Thank you.

    STATEMENT OF MR. RICHARD D. FISHER, JR., SENIOR FELLOW, 
              JAMESTOWN FOUNDATION, WASHINGTON, DC

    Mr. Fisher. Mr. Chairman, I would also commend your 
decision today to hold this hearing on a country that is dear 
to many of us, most of us here, and I thank you for your 
opportunity to offer testimony today. As anyone in the 
Philippine policy business knows well, the Senate Foreign 
Relations Committee has a stellar record of leadership 
regarding our policy toward the Philippines. I can remember 
well being in the Philippines in 1986, when you were there, 
Senator Lugar, and Senator Kerry. We actually shared a day on 
election day in that very dramatic month.
    Mr. Chairman, Philippine democracy I believe has surmounted 
another great test, having seen through a peaceful, though 
democratic transition that saw President Joseph Estrada leave 
his office on January 20 to be succeeded by President Gloria 
Macapagal-Arroyo. As in 1986, I believe that the most recent 
transition occurred and was based in a quest for justice and 
truth, a contest between those wanting, hungering for rule of 
law and those preferring rule of men.
    As I would also note, in contrast in 1986 this most recent 
transition did not require any active American role or support. 
Filipinos did this by themselves, and whether one views this as 
a fully constitutional process, I do agree with Ambassador 
Hubbard that the transition does reflect the popular will, and 
that it is a good thing for the Philippines. It speaks well to 
their democratic progress.
    Former President Estrada really has only himself to blame 
for his political downfall. He was elected in 1998 by the 
largest margin ever for a Philippine President. He was widely 
admired. However, the seeds of his self-destruction were sowed 
early, when it was clear that he was intent on favoring chosen 
friends and cronies with special economic privileges that would 
lead to their enrichment.
    By his second anniversary in office, Estrada was surrounded 
with rumors of corruption. His political ship began to sink 
last October, when the Governor of Iloco-Sur, fearing he was 
being cut of illegal proceeds from gambling, turned over actual 
records of pay-offs to the President from his profits. This 
began a cascade of further revelations which led to Senate 
investigation and then impeachment proceedings in the House. 
The final straw came in mid-January, when the Philippine 
Senate, by a margin of one vote, refused to reveal further 
damning evidence against the President.
    Amid massive demonstrations in response, the military 
simply withdrew its support for Estrada, leading to the 
transition on January 20.
    Further, President Estrada has tried to escape, tried to 
leave the country, and he now faces charges of plunder, graft, 
and malversation.
    President Macapagal-Arroyo is a study in contrasts to her 
predecessor, sober, efficient, principled. She garnered 3 
million more votes than Estrada in 1998. Educated at Georgetown 
University, she earned her doctorate in economics from the 
University of the Philippines. The fact that she was the 
daughter of a former President leads one to conclude easily 
that she was born to lead her country, and she is a strong 
leader for this right time in Philippine history.
    Mr. Chairman, President Macapagal-Arroyo and her nation 
face enormous challenges. The Philippine economy, having 
weathered the recent Asian financial crisis better than others, 
still requires reform in many sectors to guarantee adequate 
transparency and greater opportunity for Filipinos, and in 
addition, as others have pointed out today, the Philippines 
remains burdened by a revival of old insurgent conflicts.
    In the last year, the Estrada Government waged a not-so-
small war against the Moro Islamic Liberation Front, which many 
Filipinos fear, right or wrong, that the MILF is seeking to 
create a separate State in Mindanao. To this is added the 
challenge of terrorism that continues from a very old Communist 
Party that fell to pieces in relative inaction by the early 
1990's, but in the last few years has unfortunately shown some 
signs of revival and is attacking the government again, and to 
this is added the Islamic group, the Abu Sayyaf, which is 
thought by many Filipinos to be influenced by far more radical 
Islamic elements than in the Middle East and Afghanistan.
    In addition to all these problems, Mr. Chairman, the 
Philippines is trying to contend with Chinese military 
encroachment on Philippine economic zones. In late 1994 and 
early 1995, Chinese naval forces occupied Mischief Reef, which 
is only 150 miles from the Philippine island of Palawan, but 
over 800 miles from the Chinese mainland. China's oft-stated 
territorial claims to most of the South China Sea would be 
comparable to the United States claiming most of the Caribbean 
Basin as its own. Manila feels threatened by this, and by 
China's ongoing military buildup that is extending its reach 
into the South China Sea.
    The Philippines and other Southeast Asian states have long 
tried to find a diplomatic solution to the conflicting claims 
to the region, but it has to be said that to date Beijing is 
more interested in asserting its claims than in finding a real 
political solution.
    Mr. Chairman, it is with this background that I think it is 
time for us to consider the past and the future of the 
Philippine-American alliance. This alliance has seen enormous 
shared sacrifice and, while a military bases relationship ended 
in 1991 and 1992 that left anger and bitterness on both sides, 
I think now that a decade has passed there is very encouraging 
new willingness on the part of Manila to reach out and try to 
build a sustainable long-term military relationship.
    The passage of the Visiting Forces Agreement, the ongoing 
dialog between the Pentagon and the Philippine military, the 
revival of exercises to include a second ``Balikatan'' multi-
service exercise to take place in April are all encouraging 
signs, to which I would add the Philippines' willingness to 
participate in peacekeeping operations in Cambodia, Haiti and, 
most recently, East Timor.
    I agree entirely with Dr. Clad that it is time for us to 
focus on this alliance and to do what is financially possible 
to help our Philippine ally in terms of offering excess 
equipment that would help their ability to maintain systems 
that they have. Helicopter spare parts is a particular need, 
but the need of the Philippine Armed Forces is enormous. They 
do not have an air force or a navy that can offer a deterrent 
effect to China, and if there is some way in the future that we 
can help them with this, it would be deeply appreciated.
    In conclusion, Mr. Chairman, I would simply note that the 
Philippines is our ally. It is one of the few countries that we 
can include in the family of democracies. Our history of shared 
sacrifice is enormous. Today, the Philippines needs our help 
and, as family, I think we should respond.
    Thank you.
    [The prepared statement of Mr. Fisher follows:]

              PREPARED STATEMENT OF RICHARD D. FISHER, JR.

                THE FUTURE OF U.S.-PHILIPPINE RELATIONS

Summary of Full Statement
    The January 19-20 transition that saw the resignation of President 
Joseph Estrada, and the succession of President Gloria Macapagal-
Arroyo, the many challenges she now faces, growing internal and 
external threats to the Philippines, and the chance for improving 
Philippine-American relations all provide ample issues for review by 
this Subcommittee.
    President Macapagal-Arroyo's rise is similar to the Philippine 
military backed uprising in 1986 that saw the exit of former President 
Ferdinand Marcos in that both transitions were propelled by a quest for 
justice and truth. Gloria Macapagal-Arroyo comes to the office of the 
President with very impressive credentials and political record of 
proven devotion to her nation. Her record of sober leadership stands in 
contrast to that of Estrada, who treated politics as a stage, 
reflecting his long acting career. In the end Estrada can blame only 
himself for his political downfall, which was caused primarily by his 
determination to enrich his friends, his family and himself.
    Macapagal-Arroyo now faces the daunting challenges of promoting 
economic growth while quelling Muslim and Communist rebel groups, and 
trying to modernize the Armed Forces of the Philippines to face a 
growing threat from China. The Moro Islamic Liberation Front (MILF) may 
be trying to create an independent state in Mindanao which led to 
substantial fighting last year. The Communist Party of the Philippines 
(CPP) has regained strength and has resumed violent attacks on the 
government, while the radical Islamic Abu Sayyaf group undertakes 
kidnapping and terrorist attacks. At the same time, China presses its 
territorial claims to most of the South China Sea and continues to 
occupy Philippine claimed areas close to the Philippine island of 
Palawan.
    It is now time for Washington and Manila to fashion a new strategic 
partnership that obtains the full benefits of our 1951 Mutual Defense 
Treaty. It is time to put aside the hurt of the failed military bases 
relationship and recognize our shared interest in defending our 
democratic way of life. In the context of renewed U.S.-Philippine 
strategic cooperation, the U.S. should offer to help the Philippines 
meet some limited defensive needs. Both Filipinos and Americans have a 
record of a century of shared sacrifice in defense of freedom. It is 
now time to invest anew in this friendship.

Full Statement
    Mr. Chairman, distinguished Members of this Subcommittee:
    I welcome this opportunity to offer testimony for this hearing on 
America's relationship with our longstanding allies and friends in 
Asia, the people and the government of the Republic of the Philippines. 
This Committee has a distinguished record in both highlighting and 
deepening America's friendship with the Philippines, and its renewed 
attention today is both timely and necessary.
    On January 19 to 20 of this year, Philippine People Power propelled 
a governmental transition that began as a quest for justice and truth. 
On January 20, President Joseph Estrada resigned in disgrace and was 
succeeded by Vice President Gloria Macapagal-Arroyo. The reasons for 
this dramatic though democratic transition, the many challenges facing 
President Macapagal-Arroyo, and the opportunity to help our ally, all 
provide background for this hearing. But it is also necessary to 
consider the transcendent aspects of the long Philippine-American 
friendship.
    Mr. Chairman, there are few countries that America can truly regard 
as ``family.'' The Philippines is one of them. As members of a greater 
democratic family, the United States and the Philippines have in the 
last century shared almost the entire range of national experiences, 
from colonialism, to nation building, struggle for independence, to 
being allies in wars of aggression, and to meeting successive threats 
to Philippine democracy. Filipinos have striven for the last century to 
build a democratic and prosperous society. They have been leaders in 
developing Asian democracy, with a tradition of elections and a 
freewheeling press. While their economic and political divisions have 
prevented the realization of prosperity comparable to many of their 
neighbors, Filipinos are leaders in democratic development.
    American friendship has been constant over this last century. Our 
history of shared sacrifice is humbling, from World War II, and through 
the Cold War. Our countries have sustained a Mutual Defense Treaty 
since 1951. American economic aid, and at times, military assistance, 
consistently strong commercial ties, plus generations of personal 
family ties, have all contributed to one of the strongest bi-lateral 
relationships the United States has in Asia. This relationship has seen 
both Filipinos and Americans make mistakes, painful mistakes, but both 
countries have demonstrated the capacity to learn and build anew.
    Manila and Washington are now in the midst of another important 
turn in their relationship. The new administrations in Manila and 
Washington now have the opportunity to depart from the past decade, 
characterized largely by mutual indifference in the wake of the failed 
military bases relationship, and to construct a sustainable defense 
relationship based on mutual benefit and respect. The Philippines could 
dearly use America's help, and as we look at a troubling security 
environment in Asia, America could surely use the Philippines' help. As 
we seek to rebuild this relationship, Mr. Chairman, I believe that we 
will have steadfast partner in President Macapagal-Arroyo.

                 A BORN LEADER: GLORIA MACAPAGAL-ARROYO

    Gloria Macapagal-Arroyo did not need the benefit of last January's 
People Power inspired transition to become President of the 
Philippines. In 1998 she was elected Vice President--a separate ticket 
in the Philippines--by 13 million votes, the largest ever mandate for a 
Philippine Vice President, and three million more than President Joseph 
Estrada. While born into high politics, her father was former President 
Diosdados Macapagal, in her political career Macapagal-Arroyo has 
earned a reputation for principled leadership and devotion to her 
nation. Educated at Georgetown University, she went on to earn a Ph.D. 
in Economics from the University of the Philippines. Her career has 
spanned academia, the Philippine Department of Trade and Industry, and 
the Philippine Senate from 1992 to 1998.
    The January 19-20 transition deserves comparison to the dramatic 
``EDSA'' rebellion early 1986, when a military-assisted popular revolt 
chased former President Ferdinand Marcos into exile, and installed 
Corazon Aquino as President. One key difference with ``EDSA II'' in 
2001 is that Filipinos did not wait 20 years to demand better 
leadership. Since the fear and excesses of the Marcos reign, and the 
chaos of the Aquino years, Filipinos have learned to demand good 
government. Good governance under former President Fidel Ramos enabled 
the Philippines to weather the recent Asian economic crisis. Another 
key difference is that EDSA II occurred with no help from the United 
States, which played an active behind-the-scenes role in helping 
democrats prevail over Marcos.
    It is a simple and sad truth that Joseph Estrada has only himself 
to blame for his downfall. In 1998 Estrada was elected by a margin 10 
million votes--the largest for any Philippine president. He benefited 
from deep public admiration, due in no small part to his long movie 
acting career in which he reigned as the everyman hero. He campaigned 
for president championing the cause of the poor, but left office as one 
who sought to use government to enrich himself, his family and his 
friends on a massive scale. Two years into his six-year term, Estrada 
was already beset by a swirl of scandals. Most notably, Estrada 
protected a crony with connections to Chinese criminal networks, 
accused of illegal stock manipulations.
    Last summer saw a growing din focus on Estrada's personal behavior, 
which stressed night carousing with cronies over performing his day 
job. The beginning of the end came in early October, when former Iloco-
Sur Governor Luis Singson revealed his role in giving Estrada $2.6 
million from his state's illegal gambling proceeds. By mid-October 
Catholic Church leader Cardinal Jaime Sin was calling for Estrada's 
resignation and Vice President Macapagal-Arroyo had resigned her 
Cabinet position. Estrada's political ship was then sinking fast as 
Senators and Congressmen fled his ruling coalition and formal 
impeachment proceedings began in the House of Representatives on 
November 13. The late November disappearance of public relations maven 
``Bubby'' Dacer after a meeting with Estrada raised fears that he would 
use the military crack down on his opponents.
    By the fourth quarter of 2000 a fairly clear broad-based movement 
of Filipinos that united classes, political persuasions and religions, 
was coalescing to demand the ouster of Estrada. The Philippine 
military, while subject to the same rising emotions remained at the 
sidelines until the end. It took the combination of an act of political 
cowardice by a slight majority of Senators on January 16, in not voting 
to reveal damning evidence against Estrada, plus resulting mass 
demonstrations in Manila, and then the January 19 public withdrawal of 
support by both civilian and uniformed military leaders, to force 
Estrada to resign the next day.
    New President Macapagal-Arroyo now faces daunting challenges. She 
must seek to restore public trust in government. She must also 
invigorate confidence in the economy by avoiding the kind of 
intervention as the behest of favored ``cronies'' that increasingly 
characterized the policies of her predecessor. There are early 
indications that she will avoid such intervention. She will have to 
reinvigorate an economic reform process started by President Ramos, but 
which fell by the wayside under Estrada. Thanks to Ramos-led reforms of 
the Philippine financial sector, the Philippines was able to avoid most 
of the effects of the Asian financial crisis of the mid-1990s. However, 
projected economic growth for this year of 3-4 percent GDP is not 
sufficient to meet national development demands. And while facing new 
security challenges from the People's Republic of China, the new 
President must seek to convince powerful insurgent forces, both Muslim 
and Communist, that greater economic and social justice is possible, 
while war against democracy will not be acceptable.

                       CONTINUED INTERNAL THREATS

    New President Macapagal-Arroyo is currently experiencing a 
``honeymoon'' of sorts with a lull in the violence as she gathers her 
administration and determines initial policy directions. But 1999 and 
2000 saw a sharp rise in violence, mainly in Mindanao, and terrorist 
attacks in Manila. The main challengers to the government have been the 
large Muslim Moro Islamic Liberation Front (MILF) faction in Mindanao, 
which seeks independence from Manila, and the extreme Islamic 
fundamentalist Abu Sayyaf group, responsible for numerous kidnappings 
and acts of terror, and the Communist Party of the Philippines (CCP). 
While these groups do not pose a dire threat to Philippine democracy, 
they do threaten the Philippine economy by deterring potential 
investors.
    Muslim Groups. After nearly a decade of relative calm, the southern 
Philippine island of Mindanao again dominates Manila headlines, be it 
for the renewed fighting between the government and the MILF or the 
high-profile kidnappings by guerrillas of the Abu Sayyaf terrorist 
group. According to one Philippine military estimate, in the last year, 
about 300,000 Filipinos were affected by the violence in Mindanao. This 
is but the latest chapter in a history of tension and conflict between 
the government in Manila and Mindanao that extends back to the 1500s. 
More recently, in the late 1970s, President Marcos fought a costly war 
against the Moro National Liberation Front (MNLF) led by Nur Misuari. 
Battlefield victories and dividing the MNLF leadership allowed Marcos 
to quell their challenge. But in defeat the MNLF split to yield the 
MILF. Today Misuari has joined the government and is now the governor 
of an autonomous region in Mindanao. While it is organized, the MNLF 
does not pose a threat to the government.
    However, the desire for separatism remains strong with the Moro 
Islamic Liberation Front. Assessments of its objectives range from 
achieving self-governing autonomy, or a federal arrangement, which the 
government might accept, to that of creating an Islamic state separate 
from Manila. The MILF has spent the last twenty years building a 
political and military infrastructure that balances its two major 
ethnic groups, gathering weapons, and forging ties to the larger 
fundamentalist Islamic world. Many MILF leaders are said to have had 
experience either fighting in Afghanistan or have had training in 
Pakistan. Estimates of its strength range from 15,000 fighters to 
40,000, up to MILF claims of 120,000--the majority of which are 
reservists.
    The fighting that started in late 1999 is explained by some as the 
outcome of a contest for territorial advantage to give leverage in 
peace negotiations. A 1995 peace agreement with the MILF saw Manila 
acknowledge MILF ``camps'' or areas in which they are in control. Since 
1995 these negotiations have led to subnegotiations over specific 
political and economic issues. Assessments of the growing strength of 
the MILF provide impetus for those in the Estrada Administration who 
favored a military solution. But these same assessments also prompt 
many to advise the former government to place primary emphasis on 
seeking a negotiated settlement. President Macapagal-Arroyo has stated 
that she prefers end the war policies of her predecessor.
    Economic Impact of the Violence. The new government has plenty of 
economic incentives to seek a peaceful solution to the Mindanao 
violence. There is one estimate that the fighting in Mindanao was 
costing Filipinos over $20 million a month. Another report indicated 
the government would devote $.5 billion to military and economic 
projects in Mindanao in 2000. This expenditure forced the Estrada 
government to exceed its budget spending limits, leading to larger 
budget deficits. There is also a negative impact on economic growth and 
the investment climate. Mid-2000 saw economic growth estimates decline 
by a percentage point due to lower confidence.
    A long-term solution to Mindanao's political challenges lies 
predominantly in promoting successful economic development and social 
justice. Peace, of course, is necessary for development to succeed, but 
Mindanao has a long history of grievance that it has been ignored by a 
central government dominated by interests from Luzon and the central 
Visayas. That provinces are taxed by Manila but have little say in how 
taxes are spent has spurred long-standing interest in federalist style 
political reforms that would devolve more economic-political power to 
the provinces. The previous Ramos Administration had made great strides 
in helping Mindanao develop by allowing for freer trade, enabling its 
provinces to forge better economic ties with Malaysia and Indonesia. 
This ``Southern'' focus was in contrast to decades of ``Northern'' 
focus imposed by Manila.
    Abu Sayyaf. The terrorist group that received the most attention in 
early 2000 was the Abu Sayyaf, which has commanded headlines in the 
press over its taking of hostages from Malaysia, on April 23 last year. 
Said to have been inspired by the 1970s visits of Iranian missionaries 
loyal to the Ayatollah Kohmeini, the Abu Sayyaf emerged in 1991 as a 
radical fundamentalist sect violently opposed to Mindanao's Christian 
majority. It is responsible for many brutal attacks on Christians and 
against the government. Estimates of its strength range from 1,000 
followers to only 120 to 200 actual fighters. Their brutality has 
tended to alienate other Islamic groups in Mindanao and even foreign 
Muslim leaders. Last April 19, President Estrada's birthday, the Abu 
Sayyaf beheaded two of its hostages. They still hold two hostages, 
including an American.
    Bombings. For first five months of last year, there were 80 
bombings, with 69 deaths in the Philippines. About 66 or 82 percent 
were in Mindanao, and about 12 blasts in Manila. Nuisance bomb threats 
create even more confusion. The inability of the authorities to stop 
the bombings or capture the terrorists has created public exasperation. 
The police have captured and accused Muslim extremists from Mindanao 
that it links to the MILF. This has not yet been proven. While the 
Mindanao bombings are linked to the unrest there, the Manila attacks 
could come from a number of disaffected groups with an interest in 
destabilizing the Estrada government. Such ``pile-on'' attacks have 
happened in the past, such as in the late 1980s, when the CPP and 
military rebels played off each other to destabilize the Aquino 
government. There are some in the Philippine government who fear that a 
series of bombs in Manila set off last December 30, killing 18 people, 
may have been a cooperative effort on the part of Muslim extremists and 
the Communists.
    Communists. In the last three years the Communist Party of the 
Philippines (CPP) has started to increase its activities against the 
government. Since its founding in 1968 the CPP has been committed to 
the violent destruction of Philippine democracy. Over the last year 
they have been accused of leading many attacks against government and 
military targets. A 1999 AFP estimate noted the CPP may have 6,000 
members, and have a presence in 900 out of 40,000 barangays, or 
government districts--double their estimated 1995 presence. While 
capable of terrorism and banditry, the CPP does not approach the threat 
they posed to democratic society in the early to mid 1980s. At that 
time the CPP could count on 25,000 or more guerrilla fighters in its 
New People's Army or other activists in its large structure of 
political organization nominally led by the National Democratic Front 
(NDF), which also gathered support from a large network of foreign 
leftists. By the late 1980s, the weight of their own failings of 
strategy, brutal purges that was alienating the masses they were 
seeking to enlist, plus the combination of far more effective AFP 
counter-insurgency operations and a growing economy, all combined to 
cut their strength to the low thousands. Their recent growth and 
increased activity can be attributed to a remaining dogged leadership 
that refuses to abandon its Communist faith, the effects of the recent 
Asian economic crisis, and the persistence of inequities in Philippine 
society that can all be exploited by the CPP to attract new members.
    The Communists, for the first time since the mid-1980s, have 
decided to take advantage of the political opening caused by the broad 
public opposition to former President Estrada, and try to win elective 
office in general elections scheduled for this May. Under the Bayan 
Muna, or ``Nation First'' party, several veteran Communist activists 
are running for office. Unlike their last open political effort, this 
time the Communists are focusing their resources on races they may be 
able to win. Philippine politics is crowded with university-era 
radicals who are now accepted democratic leaders. It remains to be seen 
whether life-long radicals associated with the CPP can grow beyond 
their anti-democratic goals.

                       CHINA'S LOOMING CHALLENGE

    As she seeks to quell internal insurgencies, President Macapagal-
Arroyo must also contend with a growing threat to the Philippines from 
China. The Philippine government in early 1995 was shocked by its 
almost accidental discovery of four PRC buildings in an atoll called 
Mischief Reef. At the east-end of the Spratly Island group, Mischief 
Reef is about 150 miles away from the Philippine Island of Palawan, 
well within Manila's 200-mile Economic Exclusion Zone, but over 800 
miles away from the Chinese mainland. In 1999 the Philippine Navy on 
several occasions intercepted, and on occasion, by ``accident'' sunk 
PRC fishing boats operating in the Scarborough Shoal area off of the 
northern Philippine islands of Luzon. There were Philippine-Chinese 
confrontations in this area in 2000 and in early 2001, and Manila fears 
Beijing may build facilities in Scarborough Shoal. The PRC claims all 
of the Spratly Islands and the region of Scarborough Shoal as its 
territory.
    The vigorous Philippine reactions to PRC incursions in Scarborough 
Shoal are perhaps to compensate for its inability to do anything about 
the PRC presence in Mischief Reef. Despite repeated protests from the 
Philippines as well as most other Southeast Asian countries, China has 
refused to leave Mischief Reef. Instead, in November 1998, the PRC 
started a new round of construction in Mischief Reef, completing 
permanent concrete structures there in early 1999.
    Mischief Reef can give shelter to several People's Liberation Army 
(PLA) Navy ships and is located astride the Palawan Trench, a critical 
sea-lane for the commerce of Asia. The structures in Mischief Reef have 
evolved from four temporary shelters on metal stilts to two concrete 
buildings on concrete platforms that could serve as docks for ships. 
One of the structures could accommodate a helicopter, potentially 
giving the facilities an independent combat capability. It appears that 
these structures will be expanded, as the reef has been dredged to 
allow several warships to enter and remain. Chinese concrete 
``fortresses'' now exist on Johnston Reef, Chigua, Subi, and Fiery 
Cross. The latter is almost two acres in area, and has a space that 
could hold a helicopter. It is the headquarters for China's activities 
in the Spratlys.
    China's construction of these facilities in the disputed Spratly 
Island area serve to highlight a long-simmering conflict over the 
territory and resource rights to the South China Sea. Malaysia, the 
Philippines, and Vietnam claim pieces of the area, while China and 
Taiwan claim most of the South China Sea. All of these countries 
maintain one or more outposts in the disputed region. Underlying these 
claims is a competition for possible petroleum resources. Modest 
amounts of oil have been found near the Philippines and Vietnam, but 
expectations of large reserves have yet to be fulfilled as exploration 
continues. Anticipation of future expanding energy needs, particularly 
China's, serve to drive continued assertions of claims.
    Long-running diplomatic and legal attempts to settle conflicting 
claims so far have been unsuccessful. The United Nations Law of the Sea 
Treaty, ratified by all claimants, guarantees each a 200-hundred mile 
maritime economic exclusion zone. Within the Association of Southeast 
Asian Nations (ASEAN), Indonesia has long led unofficial and official 
diplomatic efforts to foster negotiations. Most recent efforts have 
focused on getting Beijing to agree to an informal ``Code of Conduct'' 
that would defuse potential conflicts over the disputed areas. After 
first refusing in November 1999, in March 2000 Beijing agreed to 
consider adhering to such a code. While this is a positive development, 
it should be viewed in the context of the PRC's past conduct.
    China's approach toward the disputed South China Sea region has 
long been described as ``grab and talk,'' referring to periods of 
territorial expansion followed by diplomatic activity. In 1974, China 
exploited U.S. and South Vietnamese preoccupation with the war against 
North Vietnam, to chase South Vietnamese troops off of a few islands in 
the Paracel Group. Then in March 1988, China established a foothold in 
the southern Spratly group by fighting pitched battles with Vietnamese 
troops and evicting them from several islets.\1\ Then followed a period 
of diplomatic conciliation. In 1991, Chinese Premier Li Peng proposed 
joint development for the area, setting aside the question of 
sovereignty, and China joined a declaration made in Indonesia that the 
claimants seek a peaceful settlement of their claims. But in 1992 China 
passed a law that formalized its claims to territorial and maritime 
jurisdiction of the Paracel and Spratly Islands and authorized the use 
of military force.
---------------------------------------------------------------------------
    \1\ In the battle for Johnston Reef over 70 Vietnamese were killed. 
These battles led to China's occupation of reefs at Chigua, Fiery 
Cross, and Subi.
---------------------------------------------------------------------------
    China's growing power. A critical element that will drive China's 
approach to the South China Sea is its ongoing military modernization, 
that is now improving China's ability to dominate potential military 
conflicts, and could spur China's leaders to increasingly assert their 
claims in the South China Sea. In the early 1990s, on Woody Island in 
the Paracel group, China built a 7,000-foot airstrip--long enough to 
accommodate jet fighters and bombers--and recently added fuel storage 
facilities to this base. This island is essentially a stationary 
aircraft carrier. It could serve as a base for modern strike fighters 
like the Chinese Xian JH-7 or the Russian Sukhoi Su-3OMKK attack 
fighter, that are now being delivered to China. These attack fighters 
could be guided by radar warning and control aircraft like the Chinese 
Y-8 transports now being outfitted with 200-mile-range British radar 
purchased in 1996, or the Russian Beriev A-50 AWACS that China is also 
slated to purchase.
    China has relative naval superiority over many of its neighbors and 
its ships are becoming increasing more capable. The South Seas Fleet, 
which has responsibility for the Paracel and Spratly areas, received 
the first Luhai class destroyer, the most modern naval ship built in 
the PRC. This 6,000-ton ship carries 16 modern C-802 cruise missiles, 
two helicopters and a range of modern electronic systems. China's East 
Sea Fleet now has two Russian-built Sovremenniy class missile 
destroyers armed with the supersonic Sunburn anti-ship missile. In the 
late 1990s the South Sea Fleet received six new and upgraded Ming-class 
conventional submarines. These are not the most modern submarines in 
the region, but in combination with the South Sea Fleet's many other 
missile-armed ships and attack aircraft, they give Beijing a clear 
superiority over the Philippine Navy and Air Force.
    In the future China's missile and space systems will further expand 
its superiority over the Armed Forces of the Philippines. China still 
maintains intermediate range nuclear missiles, DF-21s and possibly DF-
3s, at its Lianxiwang Launch Complex. Originally these were targeted at 
U.S. military forces in the Philippines, but China's missiles have 
remained pointed at Filipinos long after the departure of U.S. forces. 
China is also developing new long-range land attack cruise missiles 
that can be launched from sea and air platforms. Both ballistic and 
cruise missile will soon be targeted by a Chinese satellite network 
that will include new electro-optical and radar satellites, and new 
navigation satellites.
    Philippines Outclassed. The Philippines has no defense against 
Chinese missiles. Furthermore, the Philippine Air Force and Navy are 
outclassed by those of China. Current Philippine air defenses consists 
of only 8 to 12 F-5A fighters, a type that first entered Philippine 
service in 1965. These fighters lack sophisticated combat systems and 
are lacking ground-based radar coverage. The most modern ships in the 
Philippine Navy are three small British-made gunboats purchased from 
Hong Kong in 1997. No Philippine Navy ships are equipped with modern 
anti-ship missiles. A World War Il-vintage tank-landing ship that was 
used in mid-1995 to ferry journalists to Mischief Reef broke down and 
had to be towed back to Palawan. In late 1996, the Philippine Congress 
approved a $3.3 billion military re-equipment program. The 1997 Asian 
financial crisis, however, has made it difficult for the government to 
appropriate the funds needed to carry out this program. Nevertheless, 
the Armed Forces of the Philippines (AFP) have an urgent requirement 
for capable fighters, maritime patrol aircraft and combat ships. The 
failure to date of the Philippine government to implement its 
modernization program indicates a need to become much more serious 
about their external defense. However, the revival of old internal 
security threats may only further delay the AFP's modernization.

                   AN OLD ALLIANCE FADES AND REVIVES

    China very likely decided to build its Mischief Reef facilities in 
part to take advantage of the regional power vacuum created by the 
breakdown in U.S.-Philippine military cooperation and the parlous state 
of the Philippine Air Force and Navy. While the U.S.-Philippine 
alliance has begun to improve since 1998, this alliance has also 
weathered recent strains as it has seen supreme sacrifice. For most of 
this century, Filipinos and Americans have cooperated to defend freedom 
in Asia. Filipinos and Americans fought to resist Japan's 1941 invasion 
of the Philippines, and after defeat, cooperated in guerrilla 
resistance. Some 300,000 Americans returned to help liberate the 
islands in October 1944. All told, the war in the Philippines cost the 
lives of 1 million Filipinos, over 17,000 Americans and about 350,000 
Japanese.\2\ Philippine Army units fought with U.S., South Korean, and 
allied forces in the United Nations effort to repel North Korea's 1950 
invasion of South Korea. And from 1965 to 1968, Filipino civil action 
teams worked with U.S. forces in South Vietnam.
---------------------------------------------------------------------------
    \2\ The Manila American Cemetery contains the remains of 17,206 
American servicemen, the largest American military cemetery outside the 
United States.
---------------------------------------------------------------------------
    For nearly a century from 1898 to 1992, American military forces 
were based in the Philippines. From the beginning, when U.S. forces 
suppressed Filipino independence fighters in a bloody 10-year war and 
made the Philippines a U.S. colony, their presence was resented by many 
Filipinos. After the Philippines gained independence in 1946, a large 
U.S. military presence continued, generating great debate among 
Filipinos. On the positive side, American advice and military material 
aid was instrumental in helping Philippine President Ramon Magsaysay to 
defeat the Philippine communist ``Huk'' guerrilla movement in the 
1950s. In the 1980s, large-scale U.S. economic and military material 
assistance allowed the weak government of President Corazon Aquino to 
pursue economic development and combat a more powerful indigenous 
insurgency led by a new Communist Party of the Philippines. And while 
the Armed Forces of the Philippines (AFP) was occupied fighting 
communists, U.S. aircraft at Clark Air Base and navy ships in Subic 
Naval Base helped deter formidable Soviet forces in Northeast Asia and 
in Vietnam.
    Political estrangement. The new generation of leaders that came to 
power with President Corazon Aquino in 1986 did not fully support 
larger U.S. strategic goals, even though most Filipinos favored the 
U.S. military presence and close ties with America. The new leaders 
were more concerned with righting long-ago wrongs, such as U.S. support 
for the dictatorship of former President Ferdinand Marcos, while 
ensuring that generous U.S. economic and military aid continued. There 
was Philippine disappointment when promised aid was not delivered, and 
American disappointment when Manila was slow to support the U.S., as it 
was during the Persian Gulf War. Philippine Foreign Minister Raul 
Manglapus and U.S. Ambassador Richard Armitage completed a new Bases 
Treaty in August 1991 that provided for $200 million in aid for 10 
years. Only then did Aquino campaign to support the U.S. presence. But 
it was too late. On September 16, 1991, the treaty failed in Philippine 
Senate by one vote.
    During the 1980s the Philippine Armed Forces also grew increasingly 
estranged from their U.S. counterparts. In the late 1950s and early 
1960s, Philippine air and naval forces exercised with U.S. and other 
friendly Asian militaries under the old Southeast Asia Treaty 
Organization (SEATO). By the 1970s such cooperation became infrequent 
as the AFP air and naval forces fell into obsolescence and disrepair, 
and as funding priorities shifted to emphasize fighting communist 
guerrillas. The United States encouraged this shift as there was no 
alternative, but also to promote political reform in the AFP, which was 
becoming a tool of repression for Marcos. At this time military rebel 
factions began to grow, and would later try to overthrow Aquino. 
Unfortunately, the counter-insurgency and counter-rebel focus led to 
greater unfamiliarity among Philippine military leaders with role of 
the U.S. military presence in sustaining regional peace. By the end of 
the 1980s the AFP was not eager to support the U.S. military presence.
    By this time Washington was losing patience with Manila due to 
constant tensions caused by fractious politics and requests for 
assistance. In 1986 a consensus emerged in Washington to give a large 
amount of assistance to Aquino to help her fragile government 
strengthen democracy. Despite generous U.S. aid--over $3.4 billion 
during Aquino's term--her government did not stabilize quickly. When 
the Mt. Pinatubo volcano erupted in June 1991, causing great damage to 
Clark Air Base and Subic Naval Base, the United States withdrew from 
Clark, and lost much of its desire to remain at Subic. When attempts to 
negotiate a shorter-term access agreement failed in the wake of the 
Philippine Senate vote, the United States accepted a Philippine notice 
to leave, and the remaining U.S. forces departed Subic in August 1992.
    Cooperation fades. From 1992 to 1999 officials in both Washington 
and Manila have repeatedly reaffirmed the 1951 Mutual Defense Treaty, 
but were not able to fashion a new and mutually acceptable defense 
relationship. Although Aquino's successor, President Fidel Ramos, was 
personally popular in Washington, the top priority of his 
Administration was promoting free-market economic reforms and economic 
growth. Ramos was not eager to expend political capital on a still 
controversial military relationship with Washington. Exercises on 
Philippine territory were suspended after December 1996, when the 
Philippine Supreme Court rejected the Ramos Administration's extensions 
of a pre-existing Status of Forces Agreement (SOFA). Such an agreement 
was needed to establish the legal status of U.S. forces when in the 
Philippines. For most countries a SOFA is merely an executive 
agreement, but the Philippine Constitution requires that it be approved 
by the Senate like a treaty. A new SOFA, since renamed the Visiting 
Forces Agreement (VFA), was completed in January 1998.

                REVIVAL OF THE U.S.-PHILIPPINE ALLIANCE

    Former President Estrada and his Defense Secretary, Orlando 
Mercado, both voted against the 1991 bases treaty as Senators. However, 
after Estrada won the 1998 election, both led the campaign to achieve 
Senate approval for the Visiting Forces Agreement in the face of 
considerable political opposition. The Philippine Senate approved the 
VFA in May 1999. The Estrada Administration pushed for the resumption 
of alliance cooperation with the U.S. and for greater involvement in 
the security of Southeast Asia. This change in Philippine attitudes is 
due in large part to China, and to the realization by Philippine 
leaders that a strong U.S.-Pbilippine alliance has in the past kept the 
peace, and can do so in the future.
    To its credit, the Clinton Administration has responded positively 
to this new Philippine attitude. Following former Secretary of Defense 
William Cohen's visit to Manila in early October 1999, Washington and 
Manila have resumed substantive military exercises and have begun to 
assess the future of U.S.-Philippine military relations. In February 
last year, over 2,000 U.S. soldiers participated in the series of joint 
U.S.-Philippine exercises known as Balikatan (meaning ``shouldering the 
burden''). This past Balikatan featured small exercises on the island 
of Palawan, which is closest to the PRC occupied Mischief Reef. The 
next Balikatan exercise is scheduled for this April.
    Since the passage of the VFA, many U.S. Navy ships have visited 
Philippine ports. This helped to sustain the U.S. military presence in 
that region at a time when the PRC denied access to Hong Kong for the 
U.S. Navy. The Estrada Administration further signaled its interest in 
assisting regional stability by sending 750 troops to join the 
International Force In East Timor (INTERFET) and the associated United 
Nations Transitional Authority for East Timor (UNTEAT). The U.S. gave 
the Philippines aid in the form of trucks to help it accomplish its 
East Timor mission. The Philippines has also joined the U.S. in 
criticism of the recent abuses of political and human rights in 
Cambodia, Malaysia and Myanmar.
    In her initial statements President Macapagal-Arroyo has expressed 
her willingness to improve all aspects of the Philippines' relationship 
with the United States. This has been a long-standing view of hers. It 
can be safely expected that President Macapagal-Arroyo will also seek 
to continue the ongoing improvement in U.S.-Philippine military 
cooperation.
    After Cohen's 1999 visit the U.S. and the Philippines started a 
Defense Experts Exchange that has produced a broad assessment of 
Philippine defense requirements. This process will serve to give the 
U.S. a better understanding of Philippine defense needs, should the 
U.S. decide to better help the Armed Forces of the Philippines meet its 
pressing needs. This would also be a logical next step in the U.S.-
Philippine strategic relationship.
    Strategic importance. The strategic importance of the Philippines 
remains constant for the United States. In May 1995, almost four months 
after PRC structures were discovered on Mischief Reef, the Clinton 
Administration issued a statement that affirmed U.S. neutrality, but 
also emphasized that ``Maintaining freedom on navigation is a 
fundamental interest of the United States.'' This can hardly be 
exaggerated: Up to 70 percent of Japan's oil transits the sea-lane 
between Mischief Reef and Palawan. This sea lane is critical to the 
economies of Japan, South Korea, and Taiwan, which in turn propel Asian 
economic activity that allows the sales of enough U.S. goods to 
generate jobs for about 4 million Americans. While the U.S. has had a 
traditional position of neutrality regarding the conflicting claims to 
the South China Sea, the relative inaction of the Administration after 
the 1995 Mischief Reef incident did not seem consistent with U.S. 
interests. It certainly was cause for disappointment by Filipinos. 
However, the Clinton Administration started to make up for this by 
moving to revive military cooperation with Manila during its last two 
years.

                       A TIME TO HELP OUR FRIEND

    In President Macapagal-Arroyo the Philippine people have a leader 
who understands the burden of her office, the enormous demands on her 
leadership, and the necessity of defending the freedom of Filipinos. 
Her victory was a victory for the rule of law and for Philippine 
democracy. As the Philippines' historic and main ally, Washington 
should consider how it could help Filipinos.
    There is cause for the U.S. to consider how it can better focus 
existing U.S. economic assistance on developing Mindanao, especially 
the Muslim areas. This need not necessarily be expensive project 
assistance, but can also take the form of advice and consultants to 
help Manila tackle local problems. Any assistance that the U.S. can 
provide to help Filipinos remove barriers to trade will also be in the 
interest of both countries. In 1999 the Philippines rose from the 19th 
to the 16th largest U.S. trading partner, as the U.S. has long been the 
first or second major trading partner for the Philippines.
    As the Clinton Administration started, with the former Estrada 
Administration, to rebuild the U.S.-Philippine strategic relationship, 
it behooves the two new governments of Presidents George W. Bush and 
Gloria Macapagal-Arroyo to continue on this path. However, it is 
important to be mindful of lessons from the recent past. Both countries 
should not forget that a strong alliance has and can continue to 
contribute to security of the other. The Philippines retains its 
strategic position near critical sea-lanes, and near potential 
flashpoints that could engage U.S. forces, like the Taiwan Strait. In 
the past, strong U.S.-Philippine cooperation has deterred potential 
aggressors. When cooperation has lapsed, as it did in the 1990s, China 
took advantage and occupied Mischief Reef.
    It is also critical, as both Manila and Washington look to the 
future, to be sure that respective strategic goals do not diverge. 
There was clear divergence in the 1970s and 1980s that served to 
undermine political support for the alliance in both countries. Future 
cooperation must be grounded on a mutual understanding of threats and 
security needs. For example, the PRC challenge is specific for Manila, 
but also regional for Washington. Manila clearly needs help sustaining 
and modernizing its armed forces. The U.S. will require access to 
Philippine bases in the context of military cooperation that will 
support Philippine and regional security. Given the increasing 
political pressures on the U.S. military presence in South Korea and 
Japan, it is logical for Washington to again seek useful, but not 
permanent access to Philippine bases. By the same measure, the U.S. 
should encourage and help facilitate greater Philippine involvement in 
the region's security.
    Finally, it is critical that both avoid unnecessary dependency. 
Philippine dependency on U.S. economic and military aid in the past, 
though necessary, also bred resentments. Today the U.S. has a range of 
used but effective military equipment that it could offer to Manila for 
bargain prices, but this should be done in the context of an effective 
modernization program that is largely funded by the Philippines. That 
said, it does remain in the U.S. interest that the Philippines acquires 
an effective defense capability that can deter potential aggressors, 
like the PRC, and enable greater Philippine participation in bi-lateral 
and regional security cooperation. It is also in the U.S. interest that 
the Philippines be able to resist terrorism and the illegal drug 
trade--a real threat today in the Philippines. For this fiscal year, it 
would be appropriate to consider how the U.S. could make available to 
the Philippines spare parts for their helicopter fleet, and other 
sorely needed items like long-range radar, that the U.S. would have in 
excess storage.
    In closing, Mr. Chairman, I would like to mention some Philippine 
heroes who have for me personified the Philippine-American alliance. 
From an older generation I would mention General Luis Villa Real, who 
served in the American forces in World War II, and Ambassador Alex 
Melchor, a graduate of the U.S. Naval Academy. Both have led exemplar 
lives of public service, building their nation and defending its 
freedom from all internal threats. When I first met them in the mid-
1980s they were both leading efforts to oppose Ferdinand Marcos, and 
both went on to serve the Aquino government. Both Melchor and Villa 
Real have been constant allies of the United States, and despite their 
age, remain inspirational crusaders for freedom and honest government.
    From this same generation, I would like to mention my uncle, John 
Brush, who spent over three years as a civilian prisoner of the 
Japanese Army in the Philippines during World War II. He and his late 
wife owed their survival to friendship of Filipinos who sustained them. 
His respect for the Philippines has informed my own.
    From my generation, I would like to remember Eddie Federico, who I 
first met in a Bocolod City jail in 1988. He had just been captured as 
a key leader in the CPP movement in Negros Island. Over the next two 
years, Eddie changed his heart, renounced his Communist faith, embraced 
democracy and worked with the government to bring his colleagues out of 
the hills. He was effective and fearless in seeking to right his 
wrongs. But this was to cost him his life in early 1991 when he was 
assassinated in Manila by the CPP.
    To know the Philippine-American alliance is to know many such 
heroes. To me, these friends symbolize the willingness of the Filipino 
to defend their freedom, in a democracy like our own, which aspires to 
a more perfect union. The Philippines is a proud nation, it faces 
daunting challenges, but it is also our ally. America must invest in 
this friendship, not just because it is in our interest, but because it 
affirms our own democratic values, which were long ago embraced by the 
Philippines.

    Senator Thomas. Thank you, sir.
    Senator Lugar.
    Senator Lugar. Thank you, Mr. Chairman. I appreciate your 
holding this hearing, and the responses of the witnesses. It 
seems to me, as I have listened to your testimony, there are 
certain paradoxes in the situation that I want to discuss with 
you for a minute.
    You have pointed out that the base for the change in 
government is narrow, that it is the middle class and the 
upper-middle class. At the same time, the Philippines still is 
riven with corruption, although clearly the basis for the 
change in government was a reaction to the corruption that was 
felt by most of the people in whatever class they were in. As a 
result, the Presidency there that may be narrowly based, but is 
probably generally trusted to be well-motivated even by a 
system that is still corrupt and narrowly based in terms of 
ownership. Having terminated relations with the United States 
in terms of the military bases, as you suggested, they are on 
the threshold of trying to think through new security 
arrangements which you both advise we should help.
    Now, given all of that, I am curious as to what kind of 
effective economic strategy could be devised by the new 
President and the government. Given the lack of activity, or 
rather the lack of prosperity for the moment in Japan or 
elsewhere, our country really is probably the only source of 
significant capital and business partnership. Thinking outside 
the box for a moment, is this a time for a major breakthrough 
in our thinking? We frequently use the term, Marshall Plan, 
because it fit another continent or another time.
    Should we be trying to think through the infrastructure 
needs of the country, as well as the institution-building, so 
you would have less narrow ownership and a broader popular 
base? Some thinking that makes certain that the change reaches 
far into the population, so there are some roots for an 
economic revolution. Some thinking with the Philippine 
leadership on the fact that the Philippines, as well as Japan, 
Singapore, the ASEAN nations, take for granted that should 
there be aggression against any nation in the area, the United 
States is a defender.
    But the logistic possibilities of that defense are pretty 
small. As Secretary Perry discussed 3 or 4 years ago when there 
was the potential for invasion by North Korea of the South, 
getting 200, 300, 400,000 people to the area, as were 
contemplated for the rescue, requires bases, some place for 
people to regroup, for boats to alight, or for supplies to come 
in. The question is relevant even if the political will in the 
United States or Asia existed, and people wanted this kind of 
support.
    At some point, people have to think about these. The 
Japanese, to their credit, resisted attempts to expel American 
troops from Okinawa, the last vestige, aside from South Korea, 
of significant troops in the region. These are strategic 
questions that are important for the future of the Philippines, 
as well as for the area, if the Philippines were to take off in 
a partnership combining Philippine ingenuity and American 
capital.
    Otherwise, it seems to me that we are fated to wish the 
Philippines well, to indicate that we maintain a sentimental 
relationship, and that we hope they will work it out, but we do 
not want to interfere or feel they do not want us to interfere. 
We keep observing that the political culture is corrupt, that 
it is narrowly based, that there are many, many poor people 
that are staying poor, and that it is still a dangerous area in 
which there is no overall American strategy for changing that.
    This is almost too much to react to in one question, but do 
you react to any of these ideas, or is this analysis so far off 
that we ought to go back to ground zero and think up another 
one?
    Dr. Clad. No, sir. You raise a lot of things, though, and 
what I want to do is walk through them quickly but try to touch 
on each point as I take them down.
    The first thing I have written down for your note-taker is 
the word, In Tagalog, in Filipino called garapal. It is a 
useful word for understanding why the Philippine middle classes 
found Mr. Estrada so offensive. It is not that the scale of 
greed exceeded Marcos. Far from it. It was quite small by 
comparison. It was the way in which it offended sensibilities, 
and I think it is a very useful way to do it. There is 
something about it, the brazen nature of it, the involvement of 
a lot of--it is style, involvement of ethnic Chinese business 
characters from Macao, those sort of things hit hard. That is 
one thing.
    I think it is a country of contradictions. I think, for 
example, it is a mistake to give it--and I would never use the 
word myself, as a, ``basket case.'' There are areas, for 
example, back-room operations of American and other foreign 
corporations where the Philippines, which has now the world's 
third largest number of English speakers in any country, is 
taking a very interesting role in servicing large, 
multinational, whether it is payroll, whether it is production 
of business manuals, a number of things. This is a very 
exciting area in the Philippines and plays to its strength.
    Third, the professionalization of the business middle 
classes in Manila is a fact, and it was enhanced rather than 
hampered by the administration of President Ramos, and we are 
hoping to see a resumption of this. There are many things that 
are on track.
    As far as direct foreign investment is concerned, sadly, 
the Philippines, just as, sir, we out there for the first time 
in the mid-eighties, missed out, then, on the wave of direct 
foreign investment coming out of Japan and Korea because of 
their chronic political instability, and now, after the 
financial crisis of 1997, medium-sized foreign firms are 
looking to relocate their offices or corporate headquarters, 
and then you get this political risk overhang again, so it has 
not been all that neatly done.
    As far as a kind of Marshall Plan idea, sir, you will 
recall there was something of a multilateral aid initiative, 
the MAI, which, given our constrained circumstances, but also 
the cold war environment, we could contribute to, I think it 
would be hard to fashion a constituency that would be hard to 
go in now considerably, given, I think, especially the way in 
which the Philippines was no longer on the screen the way it 
was when we were in the bases in the cold war and the World War 
II generation was correspondingly younger.
    As far as what we can do to help logistically, Senator 
Lugar and Senator Thomas, you will remember the approach of the 
time Carl Ford, when he was in the Reagan administration, 
looking at places, not bases, and I think that approach has 
been a success.
    I am hopeful, and I think the tenor of my remarks and that 
of Mr. Fisher, that we can get back to a normal, quote-unquote, 
relationship with the Philippines as a country anchored in 
Southeast Asia so that we can do things with them 
multilaterally, and it is not just in this bilateral and 
sometimes rather touchy relationship in which the military 
establishments of both sides remember the events of 1991 and 
our eviction from Subic and so on, and so I think the healthy 
relationship is there.
    And I would return to my final remarks that if we are 
focused and look at things in the maintaining the military 
equipment, we aim to work with the Philippines in an ASEAN 
multilateral way and then assist, perhaps, with encouraging the 
type of energy reform we have seen, I think the focus will help 
as much as large numbers of dollars.
    Senator Lugar. Already I know a lot of work is done, and 
you touched upon this with regard to software and electronic 
aids and what-have-you. Is the Philippines a country in which 
something such as what has occurred in India might occur?
    Dr. Clad. Yes, sir. I believe it is already happening. That 
kind of infotech dynamism is there. The creative side of it 
needs to be fashioned, but already there are very encouraging 
signs. If you look at personnel hired by firms outside of the 
Philippines there are some intersecting signs, but some of the 
office software now is being written in Manila, so I think 
things are part of a complicated picture.
    Senator Lugar. Because we heard testimony, when the Irish 
Foreign Minister was here last week, that a revolution has 
occurred in Ireland with young people, and he claimed more 
software is being exported from Ireland than any other country, 
maybe, other than the United States. That sounds like a bit of 
blarney.
    Well, you know, 4 million people in a small country, that 
is a lot of software, but it occurs to me this is clearly a 
market where the United States firms have relations, because a 
huge amount of software work and electronic work occurs there. 
And now in India, quite apart from Indians who come to the 
United States. The ebb and flow back and forth with these 
nationals is interesting.
    Dr. Clad. Senator, if you and I are both right, we now have 
in Macagalong Palace a President who is completely alert to 
those possibilities, so I hope we are right.
    Senator Thomas. What we are really interested in is kind of 
your views of where we go from here. Would you respond to 
Senator Lugar?
    Mr. Fisher. I would simply add that, apropos of the 
comments of the Philippine information technology dynamism, the 
transition that we saw was just enabled by the widespread use 
of digital cell phones and the ability to send small mobilizing 
messages. It has had an impact on their democracy as well.
    Dr. Clad. The parity of the volume of text messages in 
metro Manila exceeds the whole rest of the world in 
combination.
    Mr. Fisher. But Mr. Chairman, in terms of where we go, I 
agree with Dr. Clad, I do not think that a Marshall Plan 
approach is really suitable or necessary at this time. Usual 
American honest, friendly advice is, indeed, something that we 
should offer where we think appropriate, and any encouragement 
that we can give to the new government to proceed with resuming 
the path of reform that was started by President Ramos was 
suspended under Estrada's administration, but reforms that 
strengthen the financial sector, improve transparency, increase 
opportunity, lower subsidies, improve access to capital by all 
classes, especially the lower classes, all of this will 
contribute to the Philippines' economic strengthening and 
economic growth.
    As regards to our alliance relations, Senator Lugar, I am 
one of those who believes that there is a place for the 
Philippine-American alliance in the larger American construct 
of alliance relationships in Asia. I think that if we value our 
alliance with the Philippines, we should talk to our allies 
about the future, about a part that they may play in a larger 
role, and also how they benefit from the wider strategic 
investment that we make in peace in Asia.
    I agree with Dr. Clad that our relationship will probably 
never approach that where it was in the 1980's, 1970's, but I 
would also add that there were several disparities in that 
relationship that helped contribute to basically the suspension 
of military cooperation in the early to mid-1990's. We did not 
share a common set of defense goals. We did not share an 
understanding, a mutual understanding on regional security, and 
the Filipinos focused on their internal insurgencies, did not--
or felt that they were being shortsighted, in the American 
view, on our focus on external defense issues, whereas our main 
concern were the insurgencies and such.
    All of this has now passed. Enough water has gone under the 
bridge, and I think that it is time for us to begin a new and 
long-term and far-reaching and far-looking conversation with 
our Philippine allies about roles that they may play, ways in 
which they may assist us, as you suggest, in terms of logistic 
support, how we might include them in a higher level of 
involvement and peacekeeping activities, or try to find ways to 
enable their participation, even at the level of observers, in 
our bilateral or multilateral alliance exercises in Asia.
    I think there is a lot we can do to contribute to help 
promote a greater awareness of our strategic investment in Asia 
and why we do that, and I also think that over time we can 
convince them to play a larger role, and that we will all 
benefit from that.
    Senator Thomas. If you came into this conversation and just 
had read a little of the background, you would assume that we 
have not had a relationship with the Philippines, is that the 
case?
    Dr. Clad. If the question is, it would sound as if you are 
talking about just another country----
    Senator Thomas. Well, we have to renew, we have to change, 
we have to strengthen. Have we not changed substantially from 
what our relationship has been in the past?
    Dr. Clad. My view is, we have.
    Mr. Fisher. This process is underway, but I point out that 
for most of the 1990's we were more or less indifferent of each 
other, and I would also submit that it was this indifference to 
our alliance relationship, which I believe emboldened the 
Chinese to move into Mischief Reef in late 1994, early 1995.
    I think that should serve as a lesson to us, when we do not 
pay attention to our alliances we invite trouble. This 
estrangement has as much to do with the Philippines and the 
choices that they made, and their indifference toward us, but I 
also believe that our indifference in the early to mid-nineties 
toward Manila helped to invite that trouble.
    Senator Thomas. Do you think their indifference toward us 
has changed? What do you predict to be the position of the new 
administration there?
    Dr. Clad. Sir, just, if I can, to underscore something Rick 
just said a moment ago, when I teach international relations at 
Georgetown and East Asia, one thing I tell the students is, 
remember, of all the countries in Southeast Asia, only the 
Philippines was stuck, quote-unquote, with a rising ascending 
power, and all the rest of them saw the Western powers 
disappear.
    The American-Filipino relationship is extraordinarily 
complicated, and characterized by a great deal of dependency, 
which is reinforced during the cold war by expectations, the 
way Marcos played us for extra money, and I think it became 
very unhealthy.
    When I said it is a healthy relationship, I did not mean to 
suggest that we were better positioned, for the reasons that 
Senator Lugar partly alluded to, but I believe that we are 
beginning to deal with one another as a major Asian country and 
the greatest of great powers, and I think that is healthy, 
particularly if it is anchored, as Mr. Fisher and others 
suggested, within a regional focus.
    As far as the new administration there, I believe we really 
do have the kind of people who see the world as it really is. 
We have an attitude that wants to include Filipinos into market 
dynamism, wants to be programmatic about politics, wants to 
focus the new foreign secretaries, also the Vice President. He 
realizes he had a southern issue to deal with. He wants to do 
that regionally, and the way the Indonesians were so helpful 
with assisting before the fall of Suharto and their own 
distractions.
    So I think we have in place a competent and realistic 
government in Manila, and I also believe that the new 
administration here sees that devoid of these old colonial 
relationships in a way that I think is very healthy for the 
future.
    Mr. Fisher. I would agree. Congressman Rohrabacher just led 
a delegation to Manila. He focused a great deal on security 
issues, bilateral and specific to the Philippines.
    My review of what he was able to learn, and from my 
conversations with friends who were with him, leads me to 
concur with Jim that a new administration is effused of 
straight-seeing and clear-headed people who do want to build a 
better alliance relationship. They want to continue what was 
started by the Clinton administration and President Ramos, the 
dialog, the resumption of exercises, and they do want to talk 
about the future.
    Dr. Clad. And if I may say, sir, I believe they also want 
to see us helping them in a regional context as well. They are 
no longer anxious to play the old bilateral game, which I think 
led us into so many traps and sensitivities. I think they hope 
that we will best help them in a way that is also assisting a 
regional cohesion, so I think it is a win-win there.
    Senator Thomas. Any further comments, sir?
    Senator Lugar. Well, I am encouraged by the council you 
have given us, because you are long-time students of the 
country. I echo the chairman's thought that it still is a very 
special relationship. In other words, this is not a situation 
of just taking antiseptically a view of another country in 
Southeast Asia.
    I remember a celebration here in Washington--time goes by 
rapidly--it was the 100th anniversary of Philippine 
independence. It was being celebrated by Filipinos. One of the 
extraordinary things about this was that the Filipino-Americans 
came from all over the country, with talent, professions, and 
some idea really of the Philippine presence in this country.
    You mentioned remittances back to the Philippines. Even 
more than that, it appears to me that there is probably a 
reservoir not only of goodwill, but ultimately of some money, 
of some catalyst for capital development.
    I appreciate your mentioning the multilateral assistance 
initiative, because that really did come out of the election of 
1986, and the feeling about 4 years later that we are not doing 
very much about helping the new democracy. So there was a 
resurgence, and some of that assistance went to Mindanao, as 
you remember. That sort of disappeared from the scene. Perhaps 
there is not the same feeling today but, on the other hand, I 
am inclined to think there may be more there than meets the 
eye.
    The new Presidency, how it came about, and the ties that 
the President has with the United States are considerable. This 
remains to be seen. Perhaps we should move, as you suggested, 
with the work and the military equipment and begin to talk 
about the strategic importance place of the country. It appears 
to me that for the breakthrough to occur, the economic growth 
has to be there. There has to be some production, and it has to 
be more broadly based. How these institutional changes occur is 
up to the Filipinos. It could be influenced, it seems to me, by 
our institutions, by the way we do things. We have failed 
altogether in similar instances in Russia, for example, but 
done much better in Poland, so there are some wins and losses 
in this, but the Philippine relationship is such that it seems 
to me that there is more of a chance for a win there.
    Thank you again, Mr. Chairman.
    Senator Thomas. Thank you, gentlemen. I think it is 
appropriate for us to talk about this issue. I think it is one 
that is out there, and it is very important to us in terms of 
Asia, and so I thank you, and we will keep the record open for 
any questions we might have.
    Thank you all for your participation. The subcommittee is 
adjourned.
    [Whereupon, at 3:25 p.m., the subcommittee adjourned.]