MANILA -- The Persian Gulf crisis could have grave economic consequences for the government of President Corazon Aquino. The United Nations' sanctions against Iraq and Kuwait have deprived the Philippines not only of Iraqi and Kuwaiti oil, on which it was dependent, but of remittances from Filipino workers in the gulf states, which provided a major source of foreign exchange.
Politicians, diplomats and economic analysts have said the blow to the Philippine economy triggered by Iraq's Aug. 2 invasion of Kuwait could be the most serious crisis to confront the Aquino government -- especially since it came while this country was struggling to recover from the July 16 earthquake that devastated central Luzon. How the president handles it could determine whether the Philippines slips into a new spiral of inflation and recession, sparking further political discontent and possibly another coup attempt by dissident military officers.
Before the crisis, the Philippines had more than 250,000 contract workers in the gulf states, including 60,000 workers in Kuwait. The money they have sent to families here, variously estimated at between $250 million and $1 billion each year, was a major source of the country's hard currency. Not only are such remittances crimped by the crisis, but there is concern that a prolonged confrontation in the gulf will force many of the workers back home and into the burgeoning ranks of the unemployed.
The workers' fate has become a politically sensitive issue for the government, which has been unable to evacuate them. Manila newspapers each day are filled with sometimes horrific accounts of returning workers who describe escaping from Kuwait across the desert or being abused by Iraqi troops and what some have said are Palestinian mercenaries for Iraq. The government has asked the Red Cross to assist Philippine diplomatic missions in the gulf states in documenting cases of abuse.
Concern over the fate of Filipino workers, plus the country's dependence on Iraq and Kuwait for about 20 percent of its oil, has led to a debate here in congress and newspaper columns about whether the Philippines might best serve its national interests by trying to stay out of the gulf conflict. Several Philippine senators told Sen. Richard G. Lugar (R-Ind.) during a recent visit here that while they agreed with U.N. condemnation of Iraq, they were reluctant to back the U.S. military buildup in the gulf region. Some Philippine columnists and congressmen have cited fears that the Philippines may be dragged into a gulf war because of the presence of U.S. military facilities in this country.
The crisis also threatens to further undermine the country's fragile economic growth. Aquino's press undersecretary, Horacio Paredes, told reporters that while oil will still be available on the world market, "the problem is getting enough dollars to purchase" it.
The Philippines has oil reserves to last about 70 days, according to government statistics. Paredes said the government plans to increase its foreign exchange reserves, in part by asking banks to set aside 15 percent of their dollar reserves and make the money available for oil imports.
Government subsidies now keep the price of oil low for Philippine consumers. If there is a further rise in world oil prices, which over the course of the month-long crisis have doubled from $16 a barrel to about $32 then tapered off to nearly $27, continuing those subsidies would drive the government's budget more into the red.
But allowing the retail oil price to rise might trigger discontent, particularly among civil servants who already have been warned not to expect pay increases because of the gulf crisis.
The country's Communist Party, which has close ties to the labor movement in key sectors such as transportation, might try to take advantage of any public discontent over higher oil prices. In the violence of the last four years here, increased militancy by Communist-dominated labor unions often has been followed by agitation from right-wing military factions. Two bloody coup attempts, in August 1987 and last December, were preceded by transport strikes in protest at higher fuel costs.
The crisis already has affected the exchange rate. Shortly after Iraq invaded Kuwait, the rate climbed to around 25 pesos per dollar on the black market, up more than two pesos. Some analysts predicted it will climb further if the crisis worsens and companies need more dollars to import more expensive oil.
The gulf crisis also threatens the Philippines' profitable banana industry. One newspaper, quoting industry sources -- including chief banana exporter Jesus Ayala -- said the industry may have to lay off as many as 10 percent of its workers because of reduced exports to the Middle East.
Raul S. Manglapus, the Philippine foreign secretary, said Manila will ask the United Nations for flexibility in complying with the sanctions against Iraq because of adverse effects on the economy here and concern for the tens of thousands of Filipino workers there.
The gulf crisis's threat of economic problems comes as the government has been struggling to recover from the July earthquake, redirecting its energies to the massive job of reconstruction and lowering its projections for economic growth for this year. Manila newspapers recently quoted an Agriculture Department official's warning that a food shortage loomed over the metropolitan area later this year because of extensive damage caused by the earthquake in key food-producing provinces and the debris still blocking major highways.