It is highly doubtful the Philippines – or other Asian governments – will pull an Argentina anytime soon, yet Asia may have to work hard to avoid the temptation.

Manila: Ever since Argentina defaulted on debt in 2001, the Philippines has been fending off worries it may do the same. To counter it, this highly indebted nation is working to strengthen its balance sheet. But rather than seeing Argentina as an example of what not to do, should the Philippines, the 12th-biggest Asian economy, see it as a role model?

Senator Manuel Villar of the Philippines thinks the answer is yes. He wants a repudiation of certain government debt issues, and recently he even filed a bill to create a “Council for Debt Relief.”

The plan was quickly rejected, but with Argentina expanding 9 percent, it may be tempting for some Filipino lawmakers to follow its lead. That would be a mistake for one of Asia’s most fragile and politically important economies. The costs of blowing off investors could far outweigh the benefits.

To Villar, it was a “creative” response to a fiscal crisis that has left the Philippines spending a third of its budget paying interest. After all, he says, the debt has its roots in the corruption of President Ferdinand Marcos, who was tossed out in 1986. The idea is that debt repudiation may be fairer than extracting more taxes out of an impoverished populace.

Some Filipinos have been impressed by Argentina’s debt restructuring, in which most investors were persuaded to accept about 32 cents on each dollar. Countries that treat investors so badly are supposed to be mired in crisis for years. Argentina seems to be disproving this.

“Argentina pulled off these achievements by focusing all the country’s resources on developing the domestic economy, which it was able to do by setting aside the economic prescriptions of the International Monetary Fund,” says Representative Satur Ocampo.

It is not that simple, of course. More than a third of the 39 million people in Argentina live below the poverty line, unemployment remains high and obtaining long-term credit in capital markets remains a chore for many companies.

Argentina seems to be proving wrong the so-called “Washington consensus” – that free trade, deregulation and privatization is the answer – but it would be a dangerous precedent for the Philippines or other indebted Asian nations to follow.

The reason: Investors may be even quicker to flee at the first sign of trouble than they were in 1997 amid the Asian crisis. Who would wait around hoping a government would not pull an Argentina?

The good news is that President Gloria Macapagal Arroyo would block such a move. Arroyo, a trained economist, understands the risks in reneging on bond obligations – especially since the Philippines did it 20 years ago.

It is one thing to reconsider whether U.S.-style capitalism is best for your economy. It is quite another to take steps that would remove the option of tapping the capital markets. Instead, Arroyo has pledged to end deficits by the end of her term in 2010. The deficit last year was 187 billion pesos, or $3.5 billion.

If the Philippines does not use the opportunity afforded by the 6 percent growth of today to reduce debt, the repudiation risk may re-emerge. Sound far-fetched? Consider that the man who almost beat Arroyo in the election last year, Fernando Poe, roiled markets by saying the Philippines should consider restructuring its debt.

All this gets at a bigger point about how a rising number of emerging-market nations are re-evaluating U.S.-style capitalism and globalization. Most want the benefits that come with open trade, yet there is a clear sense that some leaders fear the process has gone too far.

“Dogmatic views about the universal superiority of free markets have been losing ground around the world,” Paul Krugman, an economist and a columnist at The New York Times, wrote last month.

In Asia, cities are seeing more Starbucks coffee chains and 7-Eleven convenience stores and Western-style shopping malls go up, yet stable growth, increased foreign investment and reduced poverty remain elusive. Even when economies enjoy rapid growth, it does not always flow down to those who most need it.

And so, in places like Argentina and Venezuela, there is increased emphasis on helping the poor and less on making global investors happy. Opposition leaders in Mexico also are getting traction speaking a language that is sure to trouble free-market enthusiasts.

Only time will tell whether these governments are doing the right things – and whether bondholders will see more efforts to restructure debt. Yet anyone who thought the economist Joseph Stiglitz was being hyperbolic in his 2003 book, “Globalization and its Discontents,” should visit developing Asia. The search is on for a more equitable global economic and financial system.

The Indian election last year was proof enough. Rapid growth encouraged the government to fill the airwaves with an “India Shining” slogan. The hundreds of millions not feeling the prosperity had their own slogan: “We won’t be ignored.” Markets were shocked that voters showed Prime Minister Atal Bihari Vajpayee the door.

It almost happened in the Philippines. Arroyo boasted that her government was delivering 6 percent growth. Yet many of the 86 million people in the nation who were not feeling it preferred Poe, a former action-film star with no governing experience and at least a passing interest in restructuring Philippine debt.

It is highly doubtful the Philippines – or other Asian governments – will pull an Argentina anytime soon, yet Asia may have to work hard to avoid the temptation.

William Pesek Jr./Bloomberg News, International Herald Tribune, April 18, 2005