358. Memorandum of Conversation0

SUBJECT

  • Corruption in the Philippines

PARTICIPANTS

  • Mr. Jose Yulo, Philippine Citizen
  • Mr. Myron Cowen, Former Ambassador to Philippines
  • Mr. Johnson, Deputy Under Secretary for Political Affairs
  • Mr. McConaughy, Assistant Secretary for Far Eastern Affairs
  • Mr. James Bell, Director, Office of Southwest Pacific Affairs

At the suggestion of former Ambassador Myron Cowen, Jose Yulo, a wealthy landowner and political figure in the Philippines, called on Mr. Johnson on Saturday, August 12, to express his views on the current political situation in the Philippines.

Mr. Johnson opened the discussion by expressing the concern of high-level U.S. officials with respect to corruption in the present Philippine administration. He pointed out that the Philippines could not assume a role of leadership in Asia until there was a change for the better. Mr. Johnson said he recognized that there is a good deal of graft and corruption [Page 781]in other Asian governments, but pointed out that the U.S. always expected a little more from the Philippines.

Mr. Yulo agreed completely with Mr. Johnson’s comments and said that the situation also worried him. Several things, he thought, might be done to try and improve the situation. First he mentioned the possibility of getting some experts from the IMF or elsewhere to be placed in strategic ministries and agencies of the Philippine Government. Mr. Johnson said that this idea also interested us very much, but that we were inclined to think the individuals involved should not be Americans. In any event, we believe they should be provided through an international agency such as the IMF. Asked what the chances were of President Garcia requesting some technicians of this kind, Mr. Yulo said that he had recently received word from Garcia that he would give serious consideration to such a proposal after the elections.

Mr. Johnson said that the steps taken to eliminate the multiple exchange rate and devaluate the peso to permit a free system should be very helpful in correcting the present situation. He wondered if it would be possible to accelerate the plans to accomplish this objective. Mr. Yulo thought that this was unquestionably a step in the right direction but he was a little hesitant about moving too rapidly for fear of a flight of capital. Mr. Johnson pointed out that if the proper conditions existed in the Philippines, there would very likely be a return of capital to the Philippines for investment. After reviewing the exchange controls that have been in effect for the last 10 years and his part in helping set them up, Mr. Yulo said that some time ago consideration had been given to requesting a $300 million stabilization loan and indicated that a stabilization loan (amount not specified) of some kind might be desirable before all controls are eliminated.

Mr. Johnson asked about the cost of living and specifically the price of rice. Mr. Yulo attributed high rice prices to the Chinese middleman and said that President Garcia some time ago had called in the rice distributors and told them they must reduce prices. When they refused to do so, he imported rice and prices have since dropped. Mr. Johnson asked whether the United States had provided any rice under PL 480. Mr. Bell said there was now under consideration a request for 30,000 tons but that we were having problems with the Department of Agriculture over the method of payment. Agriculture favors the use of Title IV and a longterm payment in dollars, whereas the Department believes that longterm dollar credits for food are not desirable.

Mr. Yulo handed Mr. Johnson a paper which he had prepared at the request of Ambassador Cowen outlining policies which he would recommend as needed reforms in the Philippines.1 In discussion of one of [Page 782]the points in this paper—land administration and distribution, Mr. Johnson asked about land distribution, particularly the question of small farmers owning their own land. Mr. Yulo said there are still a number of very large landowners, of which he was one. Based on his own experience (some 14,000 people live on Yulo’s estate near Manila), he felt that there was no great need for breaking up the big estates. He pointed out there were large areas of unused land in Mindinap. In response to Mr. Johnson’s question, he said that there was in the Philippines legislation similar to the U.S. homesteading laws.

Mr. Cowen asked if Mr. Yulo would give Mr. Johnson the benefit of his views with respect to Liberal Party candidates Macapagal and Pelaez. Mr. Yulo, who was Macapagal’s running mate in 1957, said that he was disappointed in Macapagal, in part because he does not believe Macapagal is strong enough to handle the job of the presidency of the Philippines, and at least in part because some of Yulo’s friends and political associates had been frozen out of influential positions in the Liberal Party. According to Yulo, Macapagal and the young element have complete control of the Liberal Party and used dubious methods—terrorism—to control the Liberal Party convention. Mr. Yulo. said that even Pelaez does not seem to be thoroughly behind Macapagal and although campaigning vigorously for his own candidacy, Pelaez was giving only lip service to Macapagal. Yulo further thought that Pelaez was too “leftist.” (Pelaez is personally known to the drafting officer. He is a nationalist and a fairly young progressive who favors land reform and other types of social and economic progress which would not likely have an appeal to Yulo.) Yulo is convinced that Garcia will win the election with little or no difficulty. He pointed out that in addition to the usual fraud at the polls, an additional factor militating against Macapagal is the appearance of a third candidate, de la Rosa, who has entered the race, avowedly to draw votes away from Macapagal.

(In a subsequent conversation with Yulo and Ambassador Cowen, the conversation turned to an American citizen named Harry Stonehill, who Ambassador Cowen views as a very bad influence, deeply involved in graft and corruption. Stonehill has recently purchased Chick Parsons’ interest in the Manila Evening News and is supporting Macapagal for the presidency, according to Yulo.)

Mr. Yulo told Mr. Johnson that he did not plan to return to the Philippines until after the elections. He will be in New York for about two weeks and then will tour Europe. However, he said, that he had the means to get a confidential message to President Garcia and that he would see that Garcia was informed of the concern in Washington re graft and corruption in the Philippines.

  1. Source: Department of State, Central Files, 796.00/8–1261. Confidential. Drafted by Bell on August 14 and approved in G on August 28.
  2. Attached but not printed.