Ebb Tide

In February 1945, War Correspondent William Gray reported for TIME the destructive battle in which MacArthur's troops freed Manila from the Japanese. Last week Gray, now an editor of LIFE, cabled from Manila this report on the Philippines five years after liberation:

THE streets of Manila, once shell-pocked and littered with rubble, are smooth again and crowded with new cars. The Quezon and Jones bridges across the Pasig River are handsomely restored; the Santa Cruz and Ayala bridges will be restored by next year. Manila's shops bulge with almost every American product from tomato juice to tractors. But despite all signs of rebirth, the Philippines are in trouble.

Military Initiative. The most conspicuous of the Philippines' difficulties are caused by the Communist-led Huks, peasant insurgents who are trying to overthrow the government. Philippine army intelligence says it has definitely identified only 6,000 armed Huks and another 4,000 who serve as reinforcements, propagandists and supply troops. More ominous is an official estimate that 60% to 70% of the peasants in Huk areas are supporting the rebels, who now operate in 18 of the 24 provinces of Luzon as well as on a few of the smaller islands.

The Huks hold the military initiative in the Philippines. They raid villages, kill landlords and officials, and stage sneak attacks on Philippine army and constabulary units. A few weeks ago they boldly raided the U.S. air base at Clark Field in an unsuccessful attempt to steal weapons.

To beat down the rebellion, the government has about 37,000 men in its combined armed services. On Luzon the constabulary, traditional internal security force, was integrated into the armed forces in April, and overall charge of anti-Huk operations was given to the armed forces' chief of staff, lantern-jawed Major General Mariano Castaneda. The integration was a step in the right direction, but almost nobody believes that military force can suppress the rebellion unless the government can at the same time win back the confidence of the people.

"Fat Like a Pig." Confidence in the government has been slipping during the past ten months. The public learned about the government's growing deficit for the first time last July. Now bankers expect that by the end of 1950 the deficit will be more than $200 million, ten times the deficit of June 1949.

Worried by this muddled federal finance and by a partial government import ban designed to save foreign exchange, wealthy citizens began late last year to convert their pesos into dollars for investment in the U.S. This flight of capital was finally halted in February of this year after the U.S. restricted conversion of pesos into dollars by suspending the free convertibility clause of the Philippine Trade Act of 1946. But by then the Philippines' 1945 dollar reserve of $658 million had dropped to $220 million.

The trade deficit has grown despite rich transfusions of American aid which last year amounted to $324 million and this year will bring another $260 million into the islands. Much of the $2 1/2 billion U.S. postwar aid was in the form of surplus military property. Distribution of this property became a gigantic swindle. I asked a businessman what he was doing. He answered with candid cynicism: "Last year I was in the surplus property racket, and this year I am taking life easy."

Last November's presidential election also left an unsavory taste in the Philippines. Most Filipinos think that victorious President Elpidio Quirino, anxious to forestall any congressional investigation into the election results, made a deal with Jose Avelino, who had been suspended as president of the Philippine Senate for trafficking in government-owned beer. Avelino still controlled enough votes in Congress to get Quirino's election certified as legal. And there is no doubt about the fact that Quirino later helped Avelino to get back his Senate presidency, then sent him flying off on an expensive world tour as a good-will ambassador.

These and other rumors of corruption in government circles have hurt Quirino's prestige. Last week, shortly after Manila's tabloid Star Reporter referred to him as "our beloved President . . . who is growing fat like a pig on public taxes," Quirino showed concern for public opinion and appointed his vigorously critical Vice President, Fernando Lopez, to investigate corruption in the government.

Old Vendettas. But Quirino bears little responsibility for at least one element in the Philippines' economic and political deterioration. His faults do not include the narrow nationalism which is the strongest legislative trend in the Philippine Congress. Economic nationalism has frightened off prospective American investors, and inspired in some American businessmen already in the Philippines a strong desire to head for home.

Most prominent of the extreme nationalists is Jose Laurel, Quirino's chief opponent in the last election and head of the Nationalist Party. Laurel had Huk support during the election. If he chose, popular Jose Laurel could be useful in an anti-Communist front against the Huks, but he refuses to cooperate unless Quirino's Liberal Party publicly admits that it cannot handle the job alone and publicly asks the help of the Nationalists.

This makes bargaining hard for Quirino, but he may yet discover that he cannot do without Laurel's aid. The fall of China has encouraged the Huks. Should China's Communists take Formosa, only 65 miles from the Philippines' northern tip, Filipino Communists would become an even more serious threat to the government.

So far, China's fall has not yet hurt the Philippines as much as internal dissension has. Today the strength of the government's forces in the Philippines is still greater than that of the Communists. But its strength is ebbing away in disunity, as businessmen and politicians fight out their old vendettas and pursue their schemes to advance their personal ambitions. The Philippines can be lost, as China was.

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