THE sugar industry became embroiled in political controversy in the early 1920s for complex reasons. Remember that in 1909, the Payne-Aldrich Tariff Act of 1909 imposed a quota of 300,000 metric tons on Philippine sugar exports to the United States, which the Underwood-Simmons Tariff Act of 1913 promptly removed. Then World War 1 erupted in 1914 and Philippine sugar exports to the United States expanded. In 1916, the Philippine National Bank (PNB) was created through Republic Act 2612 to provide financial support to the country's cash-crop economy. Then things get a bit messy.

In 2007, I published a scholarly article for Ateneo's Philippine Studies journal entitled "Philippine Financial Standing in 1921: The First World War Boom and Bust," where I explained the entire mess. As mentioned, the cash-crop economy was booming because of the war. Sugar hacenderos (planters) and millers borrowed heavily from the PNB, which eagerly approved the massive loans because exports (to the United States) were growing at a dizzying pace. PNB's deposits also soared because the bank became almost the primary depository of the national treasury. Everything was fine until late 1919 when demand for sugar (and cash-crops in general) began to slow down.

In 1920, things turned ugly. As sugar exports faltered, the hacenderos and millers defaulted on their PNB loans, and the bank began to suffer liquidity problems. As PNB was previously designated as the primary depository of the national treasury, the colonial government found itself insolvent. Insular Auditor (the equivalent of the Commission on Audit today) William Nolting rued that the problem "will take a long period to straighten out and will result in heavy losses to the government."

Coincidentally, in the 1920 elections in the United States, the Republicans regained control of the White House. President Warren Harding subsequently formed an investigating mission to ascertain the readiness of the Philippines for independence (consistent with the preamble of the Jones Law of 1916) and to propose American policy in the archipelago. The mission was headed by Army Gen. Leonard Wood and former governor-general W. Cameron Forbes. The mission report came out in late 1921 and served as the backbone of American policy, more so because Wood subsequently became governor general in September 1921. The report scarcely mentioned the PNB situation, but it became a major focus of the Wood administration as many of the sugar centrals were placed on receivership after loans with the bank were foreclosed.

In another scholarly article I wrote in 2014 for the De La Salle University's Asia Pacific Social Science Review entitled "The Politics and Economics of Recovery in Colonial Philippines in the Aftermath of World War 1, 1918-1923," I explained that the conflict between governor-general Wood and Filipino politicians that erupted into the so-called Cabinet Crisis of 1923 (when the entire Filipino Cabinet members of the Wood administration resigned from their posts) was partly a product of the chief executive's determination to sell the sugar centrals (among other assets) to American businessmen during the early 1920s. This was a thorny issue for Filipinos because the conventional wisdom post-Jones Law of 1916 resolutely held that Philippine independence could be derailed by greater American private business interests in the archipelago.

Get the latest news
delivered to your inbox
Sign up for The Manila Times’ daily newsletters
By signing up with an email address, I acknowledge that I have read and agree to the Terms of Service and Privacy Policy.

Then president Manuel L. Quezon with national assembly speaker Jose Yulo. PHOTO FROM WIKIMEDIA COMMONS
Then president Manuel L. Quezon with national assembly speaker Jose Yulo. PHOTO FROM WIKIMEDIA COMMONS

Then Senate president Manuel Quezon pushed for Filipino private ownership of key economic interests in the country, and in the absence of Filipino capitalists, he said these should be under government control. Key national economic interests should never be turned over to private American hands to ensure the immediate granting of Philippine independence from the United States. Thus, Wood's push to sell off the sugar centrals to American private business entities was deemed by Quezon as a direct threat to Philippine independence.

This situation created an irresistible opportunity for the unholy marriage between ambitious political entrepreneurs and shrewd economic interests in the country, one that profitably persisted for many decades afterwards. The sugar industry's recurring moral hazard leaned on steadfast government support, and the wealthy cash-crop barons were obligated to bankroll the ambitions of top politicians.

However, the sugar industry towers over the other cash crops in the sense that it was able to send many of its members into the highest echelons of politics in the country, while the other industries were content with providing financial backing for powerful political figures. Probably the most successful of these sugar barons was Fernando Lopez, brother of ABS-CBN's Eugenio. He twice served as the country's vice president: from 1949-1953 under President Elpidio Quirino and from 1965-1973 under President Ferdinand Edralin Marcos.

Then president Ferdinand Marcos Sr. and vice president Fernando Lopez. PHOTO FROM WIKIMEDIA COMMONS
Then president Ferdinand Marcos Sr. and vice president Fernando Lopez. PHOTO FROM WIKIMEDIA COMMONS

Lopez was also a senator from 1947-1949 and from 1953-1965.

Another prominent sugar industry politician was Jose Yulo, who served as speaker of the National Assembly before the war, congressman and senator (briefly), as well as secretary of justice (in the 1930s and in the 1960s), associate justice and chief justice of the Supreme Court.