Marcos’s military pension, US cooperation dilemma

By Richard Javad Heydarian

Historically, the Philippine military played a crucial role in the toppling of two powerful presidents. And that helps to explain the sensitivity of pension reform moves currently afoot.

In his second State of the Nation address, Philippine President Ferdinand Marcos Jr hailed the country’s “sound” economic fundamentals despite an uptick in inflation over the past year.

Eager to press ahead with a massive infrastructure initiative, however, he has called on lawmakers to institute new tax measures under the “medium-term fiscal framework,” including value-added tax on the booming digital-economy sector, expanded motor-vehicle user’s charges, and new taxes on the mining sector.

The government expects to raise between 12.4 billion and 15.8 billion pesos (US$$220 million to $300 million) in additional resources under the first year of the framework’s implementation.

The prospect of new taxes amid historic inflation rates didn’t go down well among the Filipino populace, who are still reeling from one of the highest living costs in Southeast Asia.

But the president faces an even more sensitive and highly consequential fiscal reform challenge, namely the proposed reform of the Philippine military and uniformed personnel pension, which is has raised fears of a backlash on the part of elements of the country’s powerful security forces.

Confronting the prospect of a fiscal crisis in coming years, the Marcos administration is pushing for “self-regenerating” pension plans for both the Armed Forces of the Philippines and the Philippine National Police.

Marcos’s top technocrats have warned that the status quo is unsustainable, since the pension’s annual payouts could reach the 1-trillion-peso mark by 2035 from 213 billion pesos this year.

In his address, Marcos played down the challenge, promising a soft landing on the issue. Given the Philippines’ long history of coups, however, Marcos needs to keep the military on his side.

And this only raises the stakes for his military pivot to the US, a key source of training and equipment for the armed forces. Reforming the pension is inextricably linked to ongoing plans to expand Philippine-US cooperation under the Enhanced Defense Cooperation Agreement.

Duterte’s dilemma 

History offers clear warnings to proceed carefully. To start with, the Ferdinand Marcos Sr regime collapsed in 1986 after a popular coup by his top henchmen, former defense minister Juan Ponce Enrile and military chief Fidel Ramos.

Although mainstream narratives emphasize the “People Power” protests led by the late president Corazon “Cory” Aquino, historians often speak of a “civilian-backed coup” to describe the chain of events that culminated in the overthrow of the Marcos dictatorship.

In 2001, populist president Joseph Estrada, a Marcos loyalist, was similarly toppled by another round of People Power protests. But the crucial factor was the armed forces’ top brass’s withdrawal of support for the embattled president amid escalating popular opposition.

Over the succeeding years, president Gloria Macapagal Arroyo also faced multiple coup attempts amid chronic corruption and election anomalies, underscoring the influence of the powerful military in shaping Philippine politics.

A self-described “socialist,” with an avowedly pro-China foreign-policy orientation, president Rodrigo Duterte wasted no time to win over the country’s armed forces. In his first few months in office, he personally visited as many 14 military camps, lavishing praise and promising expanded benefits to soldiers and generals.

Soon, he appointed as many as 60 senior generals and senior officers from the military and security services to cabinet and sub-cabinet positions, making his administration the most militarized in recent memory.

On multiple occasions, he also revisited his peace negotiations with communist rebels in deference to his generals. He also rescinded his earlier threat to boot out American troops from the Philippines.

As the former president put it in a public address, “the military would oust me” if he fully ignored their concerns. By 2018, Duterte tried to soften the blow of his China-leaning foreign policy by doubling entry-level police and military personnel’s salary, while boosting all ranking officers’ wages by 72%.

Meanwhile, Duterte also promoted a whole host of friendly generals, while appointing a succession of newly-retired military chiefs to prized civilian positions. The military also benefited from the acquisition of modern weapons amid a billion-dollar modernization program.

What the military wants 

In fairness, the armed forces remained broadly professional, maintaining their commitment to defending the country’s sovereign waters amid growing Chinese encroachments throughout Duterte’s presidency.

But Duterte’s charm offensive also largely explains the absence of any serious coup attempts throughout his extremely controversial term in office.

The upshot of the populist president’s policies, however, was a fiscal time bomb, as the government lavished benefits on security personnel in an unsustainable fashion.

Just as the Duterte administration increased wages and benefits, it kept the military’s pension system highly liberal, whereby uniformed personnel are not required to make contributions and retired personnel would receive pension increases whenever active servicemen enjoyed expanded benefits.

Earlier this year, Philippine Finance Secretary Benjamin Diokno warned that the military pension system was not “not sustainable,” warning that “if this goes on, there will be a fiscal collapse.” In response, former acting defense chief Carlito Galvez warned that any reform of the pension system could force the premature retirement of 70-to-80% of enlisted personnel.

A few months later, Marcos appointed Harvard-trained lawyer and longtime businessman Gilberto “Gibo” Teodoro as the new defense secretary.

His first marching orders to the new defense chief, who also served in the same capacity during the Arroyo administration, was to oversee the rationalization of the military’s pension system by reducing monthly pension for retirees, raising retirement age and/or instituting mandatory contributions from soldiers.

Recognizing the sensitivity of the issue, Teodoro promised “minimal” financial burden on the uniformed services.

“We want a self-sustained pension system,” he said, “but it needs a couple of years to load it up in order for it to be self-sustaining.” When asked about the impact on morale of the armed forces, Teodoro emphasized the need to “appeal to their patriotism.”

As the Marcos administration proceeds to rationalize its historically generous pension system for the military, it will inevitably have to consider the armed forces’ strategic preferences. In particular, the Philippine military supports expanded defense ties with the Pentagon, a key source of training, equipment and aid over the past half-century.

Eager to avoid confrontation with China and its proxies, Marcos has repeatedly equivocated on the exact nature of the agreement with the US. For the military, however, the defense pact is a great boon, thus their preference for a maximalist version of the agreement which expedites modernization of Philippine military and joint preparations with the Pentagon for any potential contingencies in either Taiwan or the South China Sea.

“If we are to protect our sovereignty and territorial integrity, including the protection of maritime resources that should be enjoyed by our people, we need a 360-degree protection capability,” Colonel Medel Aguilar, armed forces spokesman, told the media this year.

“Aside from equipment, modernization also means getting facilities – such as runways, barracks for our soldiers, and where to store equipment during times of emergency,” the armed forces’ spokesman added.