The MacNeil/Lehrer NewsHour

Intro

ROBERT MacNEIL: Good evening. Here are today's major news headlines. Italian prosecutors charged two more suspects in the Achille Lauro hijacking. U.S. authorities are still determining whether the body washed ashored in Syria is that of the American who died on the ship. Fifteen Marines died today when a helicopter crashed in the sea off North Carolina. Details of these stories coming up. Jim?

JIM LEHRER: After the news summary we talk in a newsmaker interview with Franco Modigliani, today's winner of the Nobel Prize for economics. Then Judy Woodruff reports on the politics of trying to reform the tax system, and we look again at what's coming in the Philippines, and what, if anything, the United States can do about it.News Summary

MacNEIL: There were more developments in the Achille Lauro hijack story. Italian prosecutors charged two more Palestinians, making a total of seven. Final word is still awaited from Damascus on whether the body washed up on the Syrian coast is that of Leon Klinghoffer, the elderly American the hijackers allegedly murdered. Mohammed Abbas, the Palestinian leader the U.S. believes masterminded the hijacking, was reported to have arrived in South Yemen. The fact that Italy let Abbas go is still generating bitterness between Washington and Rome. In Brussels for a NATO meeting, Foreign Minister Giulio Andreotti and Secretary of State George Shultz met without resolving the differences. Andreotti said the tone of U.S. criticism was unacceptable to a country that has been fighting terrorism for 40 years. Shultz said the U.S. could still not understand.

GEORGE SHULTZ, Secretary of State: Mr. Andreotti gave his view of the release of Mr. Abbas, and I'd have to say -- and I gave my view of why I felt, and why it is so widely felt in the United States, that the release of a person who at least our evidence shows was involved with that hijacking and therefore involved with a murder we found very hard to understand.

MacNEIL: President Reagan said today he would not apologize to Egypt for ordering the interception of the airliner carrying the four alleged Palestinian hijackers. Egyptian President Mubarak, annoyed at the U.S. action, had demanded a personal apology from the President. Asked today if the U.S. had anything to apologize for, Mr. Reagan said, "Never." Jim?

LEHRER: Secretary of State Shultz also brought a message to NATO today about SDI, the Strategic Defense Initiative, also known as Star Wars. He told the allied foreign ministers meeting in Brussels the U.S. would conduct space weapon research within existing treaty limits. Some European officials had expressed concern U.S. research might violate the current anti-ballistic missile treaty.

MacNEIL: President Reagan has sent a personal envoy to Manila to discuss the political situation in the Philippines with President Ferdinand Marcos. Republican Senator Paul Laxalt of Nevada, a close friend of Mr. Reagan's, will see Marcos tomorrow. Press reports said Laxalt was carrying a blunt warning that the Marcos government is in danger of being overthrown if it doesn't introduce reforms. The White House called such reports overblown; so did the State Department.

CHARLES REDMAN, State Department spokesman: Press characterization of the Laxalt trip is inaccurate. This trip is part of the close consultations which have long existed between the United States and the Philippines. We are working closely with the Philippines, as I said a close and trusted ally, to help it through this period of trial. We are confident that with sufficient political will and spirit of compromise the Philippines can overcome its difficulties. We do not intend to move our facilities out of the Philippines. These facilities play a key role in insuring the security and stability of our allies and friends in East Asia and the Pacific Region.

LEHRER: Another American won another Nobel Prize today. Franco Modigliani of the Massachusetts Institute of Technology was awarded the Nobel Prize in economics. Modigliani was born in Italy, but came here in 1939 and is now a U.S. citizen. The Nobel committee said they were honoring him for his theories on personal savings and business. At a news conference today in Boston he had some harsh words about the way economics is run in Washington.

FRANCO MODIGLIANI, Nobel Prize for Economics: The government deficit of the dimension we have is a disastrous policy which is going to be very, very costly -- not to me because I am old. It's going to be very costly to you people who are young. Because it is government deceiving simply reduces offsets the saving the people do and leaves less available for investment. In the case of the United States, we have managed to keep investment fairly even, if fairly high. Why? Because we have borrowed abroad. We cannot use domestic saving. We borrow abroad. But you people are going to be paying for those debts in the future through high taxes and the like. So remember, if you do not fight against the deficit and not the stupid amendments that they are doing, but effective cutting and raising taxes, if necessary, okay, you are going to be sorry for that.

LEHRER: Speaking of economics, there was a tentative agreement today in the 87-day-old Wheeling-Pittsburgh steel strike. The Associated Press reported the financially troubled company and United Steelworkers negotiators signed off on a new contract in Pittsburgh. It will now go to the 8,200 striking workers for ratification.

MacNEIL: Fifteen Marines were killed today when a Marine helicopter crashed into the sea during maneuvers off the coast of North Carolina. Four of the 19 aboard the Sea Knight assault helicopter were rescued in the crash. The helicopter was taking off from the carrier Guadalcanal just before dawn when it crashed in 50 feet of water. It was the second major of a Marine helicopter this year. Seventeen Marines died in the other crash in Japan.

LEHRER: Traffic through the St. Lawrence Seaway remains blocked tonight. A major accident in the Welland Canal which links Lake Erie to Lake Ontario caused it. Last night a 125-foot section of a canal lock gave way and caved in on the Liberian-registered freighter Furia. The ship was pinned to the side of the lock until pulled free. Damage to the lock was such that it could not be reopened, and officials said they do not know how long it will take to repair the damage. The seaway is the shipping route from the Great Lakes to the Atlantic Ocean, and traffic is particularly heavy now before the ice of winter forces it closed in mid-December.

And finally in the news of this day, there's been another outbreak of wild fires in Southern California. At least 20,000 acres have been burned, and some 2,400 people forced to flee their homes. Fifteen houses have been destroyed. Dry, hot winds have driven the fires, several of the worst being near Malibu, 40 miles west of Los Angeles.

MacNEIL: That's our news summary. Coming up, the winner of the Nobel Prize for economics, a report on the flagging politics of tax reform, and the looming crisis in the Philippines. Good With Numbers

LEHRER: Franco Modigliani. In 1939 he was a 21-year-old economics student in his native Italy forced to flee the Fascist Mussolini regime because he was a Jew. Today, a U.S. citizen, a professor of economics at the Massachusetts Institute of Technology, he won the big prize, the Nobel Prize for economics. The Nobel committee said it was for his theories on personal and corporate finance. He is with us tonight for a newsmaker interview from the studios of public station WGBH in Boston. First, congratulations, Mr. Modigliani.

FRANCO MODIGLIANI: Thank you.

LEHRER: You must be very pleased and excited, I assume.

Mr. MODIGLIANI: Well, who wouldn't be? That is the greatest recognition that an economist can have, and I'm joining a club which consists of people that I have profoundly admired for many years.

LEHRER: Several of your colleagues were reported today as saying that this was inevitable. They knew that eventually the Nobel Prize committee was going to get around toFranco Modigliani. Did you feel that, too?

Mr. MODIGLIANI: Well, every economist thinks that someday maybe he'll make it. I felt just like the other economists, and, well, lo and behold, yes, today I did make it, and it's great. It certainly was not expecting it now.

LEHRER: It was 30 years ago you first came up with some of your theories. Have you got any theory as to why your theories gained recognition this year?

Mr. MODIGLIANI: I'm sorry. I didn't quite hear that.

LEHRER: Do you have any feeling for why the committee chose you this particular year, 30 years after your theories came out?

Mr. MODIGLIANI: No, I don't think that there was any special thing about this year. It seems that this year is the year that everybody wants to recognize me, and they have come in, too. My students have just had a special celebration for my 67th birthday. So I cannot see anything but pure coincidence in all this coming at the same time.

LEHRER: You had some fairly harsh things to say today at your news conference about the way the federal government of the United States conducts its economic policy. Generally, what's the problem? Why do you think the government has so much of a problem dealing with economics?

Mr. MODIGLIANI: Well, I feel that the government is not sufficiently aware of the serious implication of the deficit. The investment is the lifeblood of a country. It's what makes for progress. It's what makes for a high standard of living. The government is killing investment by using the savings that people are making, by using them to finance the deficit to the extent that we make up. By importing capital, we are acquiring a huge debt. We used to be one of the world's great creditors. We are now one of the world's great debtors, and we will soon be such a great debtor there has never been anything like. And this is simply a tremendously serious problem for the future. I believe the administration either doesn't believe it or thinks that there are other things that are more important. I don't believe there is anything that's more important.

LEHRER: What do you think of the Gramm-Rudman-Hollings amendment, the balanced-budget amendment, that would cause the government to balance the budget by 1991?

Mr. MODIGLIANI: On the whole I think that it is a small compromise. I would rather see it that way than nothing at all. But I think that taking five years or whatever it is to reduce the deficit is too long, and I also believe that Congress is giving too much power to the President by letting him be the final umpire as to what is being cut off. So I am basically against that amendment, and I hope that the House will act to correct that. We need to be willing to consider higher taxes if we are going to get out of this pickle. There is no other way, and we have to stop this notion that taxes cannot be cut. The United States is a low-tax country. There is no evidence that taxes within reason do any harm to economic progress.

LEHRER: Is that what you would do if it was left to you right now to balance the budget -- to get rid of the deficit, just raise taxes?

Mr. MODIGLIANI: I would make three things which everybody has voted for, who is reasonable. I would try to cut expenditure, civilian expenditure; I would certainly do a good trimming of the military expenditure; and I would raise taxes as far as necessary.

LEHRER: What kind of marks would you give President Reagan and his administration for the way they have handled the economy in the first five years of their administration?

Mr. MODIGLIANI: On the whole I would give them rather low marks. I will give them credit for having the courage to bring the inflation to an end. I think that, with the help of the Federal Reserve, they have done that. But I think aside from that most of the actions have been, I think, wrong, beginning with the deficit, and also such things as so-called measures to increase saving, which consisted in cutting taxes and giving more profits to business. Those actions have not increased investment because investment cannot increase without saving increasing, and those actions would not increase saving. So all they have done is created higher interest rates. I believe also that the neglect of the high interest rates resulting from the deficit, in terms of what they do to Europe, to the stagnation of Europe, to what they do to the debtor countries, cannot be condoned. So on the whole I nd that most of the administration policy has been -- deserves a low mark, although I broadly applaud the efforts to give more power to private enterprise.

LEHRER: I take it you are not a supply-side economist, correct?

Mr. MODIGLIANI: That is correct, depending how one defines that. I certainly don't believe in the baloney that if you cut taxes then the government will have higher receipts. And the evidence is fairly clear that if you cut taxes you get less receipts.

LEHRER: What kind of economist are you?

Mr. MODIGLIANI: First of all, I am a very reasonable economist.

LEHRER: I see, okay.

Mr. MODIGLIANI: And I am an economist who believes that the market system is the best system, first of all. Secondly, that there is some room for the government to contribute and help in keeping the economy on an even keel, and that this cannot be done just by regulating the money supply. That is a useful thing, but there are other ways of doing it. And I believe that we have had a time of great difficulties after the oil crisis. Everybody was bewildered by that development. That caused inflation. The inflation is over. I think economists of my persuasion, which I would roughly call Keynesians, are in a position of providing very good advice to the country, and the advice is being followed indirectly, for instance, by the Federal Reserve, which is not behaving in a modernist fashion.

LEHRER: Do you have an opinion about the big push for tax reform?

Mr. MODIGLIANI: Yes.

LEHRER: What do you think about it?

Mr. MODIGLIANI: Oh, I think the tax reform is a great idea but, frankly, I think it's pie in the sky. I think that the notion of abolishing all privileges is great, except that it's hard to persuade the privileged to give up the privileges. And I'm very much afraid that we're going to try and then let in one amendment after the other, by the end of which the tax form would be even bigger than it is now. So in principle I applaud the idea of having no loopholes and few low brackets, but I am very doubtful that this can be done, and I don't even believe genuinely that the administration is prepared to push it.

LEHRER: Back to the personal, do you expect the fact that you have now won the Nobel Prize to change your life in any way?

Mr. MODIGLIANI: Not at all. I expect to continue as usual as long as I can. My greatest satisfaction in life are my students. I have had wonderful students, and I still have them, and I will continue to teach. I will continue to pursue my studies, and will continue to speak out on public affairs every now and then, particularly those of the United States and sometimes those of Italy, my native country, to which I am still bound by great affection and I follow quite closely.

LEHRER: So you don't want to change your life, in other words? That's what you're saying?

Mr. MODIGLIANI: I'm not going to change my life, no.

LEHRER: How are you going to spend the $225,000? Have you thought about that?

Mr. MODIGLIANI: Yes, I think I will try to spend them according to my theory of saving. That is, I will try to spread them over the rest of my life. That's what my theory says, and I'll do my best to honor it.

LEHRER: All right. Well, again, Professor Modigliani, thank you very much for being with us, and congratulations on winning the Nobel Prize in economics.

Mr. MODIGLIANI: Thank you very much. It's been a pleasure to be with you.

LEHRER: Thank you. Robin?

MacNEIL: Speaking of tax reform, a few months ago tax reform was the sexiest political phrase in Washington. It seemed that everyone was for it, and everyone was excited about it. But, as Judy Woodruff now reports, only President Reagan seems to be still excited. Judy? Tax Reform Politics

JUDY WOODRUFF: The President's tax reform package was dealt a serious setback last week when the Senate passed a budget-balancing plan and dumped it in the House's lap. On the surface it doesn't appear the two issues are related, but many of the key lawmakers involved in seeing tax reform through the House will now have to spend their time instead working out a compromise on cutting the federal budget. This is just the latest in a series of problems for tax reform, the item President Reagan has said is at the top of his agenda for this year. But, as we found out talking with members of Congress in recent days, reforming the tax code looks harder the closer they get to it.

[voice-over] Congressman Hal Daub is a conservative Republican whose Omaha, Nebraska, district went two-to-one for President Reagan last year. Daub is so enthusiastic about the President's plan to overhaul the tax code, he calls himself an evangelist for tax reform, which he equates with tax cuts.

Rep. HAL DAUB, (R) Nebraska: I'm willing to trade off a lot of things to get lower rates for workers. And businesses ought to be willing to trade off some things to get lower rates for industry.

WOODRUFF [voice-over]: But even the most committed disciples of the Reagan plan, and they are few in number, have found that there are powerful interests in their home districts that have a problem with it. In Daub's case, one such interest is the insurance industry.

BOB MARKS, Mutual of Omaha: As you know, the committee proposes to deny insurance companies deductions for their accrued unpaid losses, beginning in 1989, what we call our loss reserves. I just wonder if you could comment on the background for such an extreme proposal.

Rep. DAUB: I oppose the Treasury II recommendation. I am not impressed at all with the attempt by the committee to resolve it, and believe your industry. Have you read their proposal, their alternative? I think it's much more sensible.

WOODRUFF [voice-over]: Democrat Ed Jenkins, who represents northeastern Georgia is, like Daub, on the House tax-writing committee, Ways and Means. Jenkins believes the tax code needs to be reformed, too, but prefers a version more to the liking of the Democrats.

Rep. ED JENKINS, (D) Georgia: This tax reform package must be revised and will be revised before it can be passed in the Congress. It must have the Democratic imprint upon it because the Democratic imprint means that we will make it more fair to the average middle-class person.

WOODRUFF [voice-over]: Jenkins is sensitive to changes the Reagan plan makes that affect his Democratic constituency.

Rep. JENKINS: I do not believe that it is fair, as proposed by the President of the United States in this tax package, to impose income taxes on college scholarships.

WOODRUFF [voice-over]: Still another Ways and Means Committee member, Massachusetts Democrat Brian Donnelly, has many more concerns, one of which is the President's proposal to do away with deductions for state and local taxes.

Rep. BRIAN DONNELLY, (D) Massachusetts: It clearly impinges upon the ability of states and localities to raise the money necessary to run the types of government they want. And if Massachusetts, we want to have a progressive type state government which results in a little bit of a higher effective tax rate, than Mississippi, than Florida, than New Hampshire to our north, then that's our right.

BARBER CONABLE, former congressman: Normally we've been incremental. We've indentified things that were particularly bad and tried to change those. And you could isolate this or that special interest in the process and keep a majority of the people concerned about taxes with you.

WOODRUFF [voice-over]: New York Republican Barber Conable had served almost 20 years on the House Ways and Means Committee before he retired last year.

Mr. CONABLE: In this case the President wants to change everything at once, and created the initiative that led people to believe there was going to be a dramatic change. The problem with that is there are lots of losers in radical change.

JIM WETZLER, former committee aide: Either way you vote, you're likely to exasperate the voters who disagree with you more than you'll please the voters who agree with you. And so they're in a difficult position. That's one of the reasons the Congress isn't enthusiastic about doing tax reform.

WOODRUFF [voice-over]: Jim Wetzler was formerly the deputy chief of staff of the Joint Tax Committee, in the thick of tax legislation for years on Capitol Hill. He agrees with Congressman Jenkins that the very makeup of the Ways and Means Committee makes writs in the Northeast, where you have the Rust Belt, and they are very concerned about investment tax credit, and I understand that. The West and the South have other interests, and in order to balance those, each particular geographic group will have to give a bit in order to come out with a package.

JIM SHANNON, former congressman: There is incredible pressure on the members of the committee ever since the President began talking about this bill.

WOODRUFF [voice-over]: Former Congressman Jim Shannon served on the Ways and Means Committee for six years.

Mr. SHANNON: Every special interest in the country has been beating down the doors of the members of the Ways and Means Committee trying to make their case. And this is such a sweeping bill and such a complicated bill, that it has taken an awful lot of time on the part of all the members to deal with all of those interests, some of which are legitimate and some of which aren't.

Mr. CONABLE: A lot of people are trying to see him. A lot of people are calling. His staff is, at this point, terribly irritable because the phone rings all the time. And the member of the committee is sitting hour after hour in the committee, 'til his head aches, trying to figure out some way to be constructive without offending a lot of people.

WOODRUFF [voice-over]: To give the members of Congress ammunition to fight off some of the negative pressure they're getting, President Reagan has been on the road, beating the drum for his tax reform plan.

Pres. RONALD REAGAN [October10, 1985]: The main ingredients are tax rate cuts for individuals and businesses, loophole closings and a near-doubling of the personal exemption for you and every dependent in your family.

WOODRUFF [voice-over]: Last week was Chicago; the week before, Cincinnati. Everywhere he goes, Mr. Reagan gets an enthusiastic response.

Pres. REAGAN: Tax fairness will be America's Christmas present to ourselves, and we shouldn't let any Grinch steal our Christmas this season, this year.

WOODRUFF [voice-over]: But in recent weeks the news coverage the White House was counting on from these tax speeches has been overshadowed by international events -- the Soviet leader's visit to France, the ship hijacking, and even before then there were signs that the American people were not stirred up about tax reform. A Wall Street Journal-NBC poll done earlier this month showed that despite continued strong popular support for the President himself, fewer than one in 10 Americans considered tax reform the most important issue facing the country.

Rep. JENKINS: People talk about the deficit more than they talk about tax reform. They talk more about trade issues than they talk about tax reform. I think that the President has been unable to this date to spur the imagination of the people in this area. And I think it's one of his first failures thus far in the public relations field. Normally he can sell anything.

Mr. SHANNON: Just look at the polls. You can see that there is very, very little public pressure on the committee to get this bill done, and that means that in this process of making tough decisions there is very little political benefit for the members of the committee in going ahead.

WOODRUFF [voice-over]: What then is pushing members of Congress to deal with the tax plan?

Rep. DONNELLY: Ronald Reagan, Daniel Rostenkowski. But those are the first two impetuses. The second impetus is very much political on both sides -- poltiical that we as Democrats feel strongly that if we don't give the President a fair shot at this that we're going to be crucified by the public relations people at the White House that we're the party of special interest. Everything we heard just in the last presidential election -- that we're the party of special interest, we're the party that can't stand up to all these pressures. And we're not going to allow that to happen.

WOODRUFF [voice-over]: That was the calculation made by Ways and Means Committee Chairman Dan Rostenkowski, who has his political reputation riding on getting a bill out of the House, and has come up with his own version of tax reform.

Mr. SHANNON: Dan Rostenkowski is a great leader of that committee, and he has great loyalty of members both from the Democratic and Republican parties, and they don't want to make him look bad.

Mr. WETZLER: I think he's going around each of his members asking them what are the issues here where you really are most concerned and most need to have the proposal modified, and to the extent the members make suggestions that he's able to live with and not undermine the basic thrust of his package, he'll try to do that.

WOODRUFF [voice-over]: But feelings run so strong on some fundamental issues that Rostenkowski clearly has his work cut out for him. While President Reagan and conservative Republicans insist the top rate for upper income taxpayers must be lowered to 35 , liberal Democrats say that's unacceptable.

Rep. DONNELLY

Where I come from there's always been a difference between Democrats and Republicans, and that difference has been less on social issues and foreign affairs issues. The issue has always been on who picks up the tab for the government. They want to lower the top rate. I think the top rate is where it ought to be.

WOODRUFF [voice-over]: Some of the federal revenue lost from the lowered rates the President wants to make up by doing away with deductions for state and local taxes. Midwesterners like Congressman Daub agree.

Rep. DAUB: It is abused. It is a tax expenditure that is growing at an alarming rate. And it makes no sense from this member's point of view to continue to encourage that kind of a write-off against the federal set of spending priorities that never received any of that revenue in the first place.

WOODRUFF [voice-over]: But members from high-tax states like New York and Massachusetts feel just the opposite, which is why Chairman Rostenkowski has put off state and local taxes, and the question of the top rate, 'til after the committee resolves all the other issues of tax reform.

Rep. DAUB: Our objective is lower rates, a broader base so that we can save again and grow again. I won't vote for tax reform, if it doesn't have the bottom line of growth, very clearly, stamped all over the total set of the provisions that we come up with in the package called tax reform.

WOODRUFF [voice-over]: For all the President's insistence that tax reform be passed ths year, even his staunchest supporters say there are elements they won't accept. For their part, many Democrats on the Ways and Means Committee say they are running into opposition from their colleagues in the House.

Rep. DONNELLY: There was a speech made on the floor saying -- by one very articulate member, and what he was saying during the caucus was, you're asking me to bleed, to take on this group in my district or this industry in my region, and what are you going to give me on the other side?

WOODRUFF [voice-over]: Congressman Jenkins puts the odds for massive tax reform at no better than 50/50, because he says there's no public clamor for it and it offends so many people.

Rep. JENKINS: From a political standpoint, that argument is being made daily by many members of the House. Why should you make us walk the plank, when the odds are that the bill is not going to get through anyway?

WOODRUFF: President Reagan's original goal, as we said, was to have a tax reform bill on his desk by the end of this year. Now the word on Capitol Hill is that it may not even reach the House floor by that time, much less the Senate. As the House Ways and Means Committee was meeting today, a staff member commented, "The whole thing has been badly derailed. What was a fast-track, front-burner item," he said, "has clearly been moved to a middle burner." Philippines: Storm Warnings

MacNEIL: As we reported, Senator Paul Laxalt, perhaps President Reagan's closest congressional friend and the chairman of his re-election committee, has been dispatched to Manila to dramatize U.S. fears about the stability of the government of Philippine President Ferdinand Marcos. Laxalt meets Marcos tomorrow, reportedly to urge economic, political and military reforms to counter growing opposition. Marcos is being challenged by critics within the political system and by communist-led rebels. Since the U.S. maintains two major bases in the Philippines, the future of the Marcos government has sizeable strategic as well as political ramifications in Washington. Recently our special correspondent Charles Krause and producer Susan Mills completed a five-part series on the problems facing the Philippines. Here is their recapitulation of the issues that prompted the Laxalt mission.

CHARLES KRAUSE [voice-over]: Just three years ago, Ferdinand Marcos and his wife Imelda made a triumphant state visit to Washington. They were given a warm welcome at the White House. President Reagan praised President Marcos as a "loyal and trusted ally" in the Pacific.

Pres. REAGAN: Our two peoples enjoy a close friendship, one forged in shared history and common ideals.

KRAUSE [voice-over]: Today it's one state visit the U.S. government would like to forget. The Laxalt trip to Manila demonstrates growing concern at the White House and on Capitol Hill that President Marcos is a liability, and that without significant reforms the Philippines could soon end up with a leftist government unfriendly to the United States.

Rep. STEPHEN SOLARZ, (D) New York: I think that the Philippines is shaping up as the Vietnam of the 1990s, in the sense that unless fundamental changes are made in that country, there is a very real possibility that at some time in the 1990s the Philippines could be the next major Southeast Asian country to fall under the control of the communists. And if it does I think it would have far more severe and significant consequences for the United States than the fall of Vietnam did a decade ago.

KRAUSE [voice-over]: In the Philippines there are demonstrations against the Marcos government at least once a week. The American Embassy in Manila is usually a target, because the left has exploited U.S. support for the Marcos regime. The left calls it the U.S.-Marcos dictatorship. The Philippines' worsening economic condition has led to more and more strikes. Again, the left has infiltrated some labor unions and exploited low wages and growing unemployment. Poverty and hunger are blamed on the Marcos government and U.S. corporations doing business here. In the countryside an estimated 15,000 guerrillas belong to the communist-led New Peoples Army. They're now active in virtually all the country's 73 provinces. According to U.S. intelligence, the guerrillas do not receive outside help. Their arms come from raids and from corrupt Philippine army officers. Their money comes from businessmen forced to pay what the guerrillas call "revolutionary taxes." Reportedly, the NPA has encountered some resistance in recent months, but Communist strength is growing, in rural areas and in the cities.

STEPHEN BOSWORTH, U.S. Ambassador to the Philippines: If one examines the growth of the insurgency over the last year or two and projects those growth trends out into the future, then I think it's quite reasonable to reach the conclusion that within three to five years the situation here could be very serious indeed.

KRAUSE: The Pentagon has publicly said that it fears that the guerrillas, the NPA, could come to power here or at least reach a strategic stalemate.

FERDINAND MARCOS, President of the Philippines: They are completely wrong.

KRAUSE: Why is that?

Pres. MARCOS: Because their perceptions are [unintelligible], are fed by people who may not see the way we see it. Do you tell me that the rag-tag group of about 10,000 men, who has probably arms amounting to about five to seven thousand, are going to overcome our armed forces? It's ridiculous.

KRAUSE: Well, yes, but it was, after all, the Pentagon which is saying that they're fearful of an insurgency.

Pres. MARCOS: Keep one thing clear. Your government is -- they are not quite clear about exactly what they want to do. There are some who say you should use aid as a leverage or military compensation package for the bases as a leverage for reform. Reform for what? We've been reforming since 1965. They never took that into account. I am surprised that people who have been trying to fight insurgency in other parts of the world and have failed are now trying to teach us how o fight insurgency. That is a serious matter. We have captured the new leaders of the Maoist or Peking-oriented Communist Party. They're all in jail, and almost all the members of the Central Committee. We have accomplished all of this, and if some of you people who have gone to the Central Americas and have not done very well now come and tell us how to run the anti-insurgency campaign; now you judge, who has the better credentials?

KRAUSE [voice-over]: Rule number one of any successful counterinsurgency campaign is that a government must retain the trust and loyalty of its people. That's not happening in the Philippines. In Negros the army, poorly paid and badly disciplined, is viewed with increasing hostility. Many people here now describe it as an unfriendly occupation force. Fred Pfleider is one of them. A retired army officer, he's become a critic of the Marcos government and a leader of the democratic opposition in Negros.

FRED PFLEIDER, opposition leader: On a one-to-one basis the soldier can still outfight the insurgent. Also, the soldiers outnumber the insurgents. They are better equipped, they are better trained. And although, by and large, they are not as highly motivated as the insurgents, the motivation is there. But what is really important here, I believe, is that the population, the people, have learned to sympathize with the guerrillas, and the alienation of the people from the government is, in Negros at least, is almost complete.

KRAUSE [voice-over]: Negros has been described as an almost feudal society. A relatively few sugar planters own most of the land, and the Marcos government protects the planters' interests by repressing union activity. Once one of the richest provinces in the Philippines, Negros is now one of the poorest. A drop in world sugar prices, coupled with corruption and mismanagement on the part of the Marcos government, has destroyed the local economy. Sugar mills have been abandoned. There is not enough work. Many of the rich have become poor, and many of the poor have become desperate. At the Lacamilay sugar plantation we found whole families eating grass and leaves, the same grass and leaves they feed to their pigs. They're even worse off than their neighbors, because a few years ago workers here joined a noncommunist sugar workers union. Lacamilay's owner locked them out. Today their only income is selling rocks and gravel for construction. It's back-breaking work that brings in even less than working in the sugar fields.

Mr. PFLEIDER: If you go out and you talk to the poor, and if they were prone to be honest to you they'd tell you that they're more willing to take their chances with the NPA, the communists, than with the government. I don't mean to say that they're all communists already, but they feel the deprivation and the oppression. I personally believe that this problem of the rich and the poor defies solution in the kind of system that Marcos seeks to perpetuate.

KRAUSE [voice-over]: The nightmare for Ambassador Bosworth and the U.S. government, of course, is that a communist takeover would adversely affect very important U.S. interests in the Philippines.

Amb. BOSWORTH: I think our primary interest long term is a political interest. It derives from the fact that this was our only former large colony. Now, beyond that, of course, we have an enormous strategic interest here as well.

KRAUSE [voice-over]: Shortly after World War II, the Philippines was given independence, but the United States kept important military facilities, principally at Subic Bay and at Clark Air Force Base nearby. Today their location and their well-trained Filipino workers make the bases vital to U.S. strategic interests from Hawaii to the Middle East. For most of the past 20 years the United States has relied on Ferdinand Marcos to guarantee continued access to the bases. Because he was a good friend, Washington looked the other way when he ruled by martial law from 1972 until 1981. He rewrote the constitution and continues to rule in an authoritarian manner. Simmering opposition to Marcos finally boiled over when his chief political rival, Senator Benigno Aquino, was gunned down at the Manila airport two years ago. As the opposition continued to grow, the Reagan administration changed course, beginning to talk about the need for reform. The idea, to end years of government corruption, growing poverty, political repression and military brutality. The goal, to save the Philippines from a communist takeover, to save Clark and Subic Bay for the United States. At the heart of U.S. policy is the view that within two years the Philippines should have its first open and honest presidential election since 1969. Ambassador Bosworth denies reports that the U.S. government expects and would like Marcos to lose that election.

Amb. BOSWORTH: I think that the analysis from Washington, and indeed, an analysis which is shared here is that in order to provide for the long-term political stability of this country, the fundamentally required ingredient is a strengthening of these institutions, these democratic institutions. But I don't think that it is accurate to speculate that somehow we have concluded that we should see -- that we would prefer to see another president of the Republic of the Philippines or we would not. That's a choice which can only be made by the Filipino people. Our task is to assist this political process in ensuring that the Filipino people have an opportunity to make their votes known.

Rep. SOLARZ: The problem here is that the political, military and economic reforms we're asking the government of the Philippines to make, if they are made, would inevitably diminish the power of President Marcos. Insofar as I can determine, he seems to be far more interested in preserving his own power than he is in advancing the interests of the Filipino people.

KRAUSE: Do you think that the United States, which is clearly worried about the situation in the Philippines, has concluded that you are a liability and that, one way or another, you must leave the presidency?

Pres. MARCOS: Is that very important?

KRAUSE: To whom?

Pres. MARCOS: To the government of the Philippines? Are we going to run our government to satisfy the American officials?

KRAUSE: Well, I think that's what everyone wants to know. To what extent their pressure --

Pres. MARCOS: Don't you think that this question of pressurizing a president can boomerang?

KRAUSE: Is that what's happening?

Pres. MARCOS: It might be the reason for all of this talk about abrogating the bases or negotiating -- renegotiating. I have reserved a decision, or the decisions on this as the foreign policy formulating authority. But I notice a feeling of restlessness and, should we say, a feeling that all of this efforts may be considered as forms of insult against our own government officials, including the president.

KRAUSE [voice-over]: Ambassador Bosworth says U.S. policy is to urge Marcos to make reforms, but that U.S. influence is limited.

Amb. BOSWORTH: There are a lot of uncertainties and a lot of variables in this very complicated situation, but I think if we continue to base our policies on these fundamental objectives and these fundamental national values, that we as a country can have some degree of satisfaction that we've given it our best shot.

KRAUSE [voice-over]: Even now at 68 and in the twilight of his presidency, Ferdinand Marcos retains enough power to determine his country's future, at least for the next few years. Optimists say a combination of U.S. pressure and his own sense of history will lead Marcos to arrange an orderly and peaceful transition to a democratically elected government. Pessimists fear Marcos will hold on too long, until a communist-led takeover of the Philippines becomes inevitable. The Laxalt trip demonstrates that the Reagan administration is increasingly worried about the outcome.

MacNEIL: That report by Charles Krause. More now on the problems facing Ferdinand Marcos. Monsignor Antonio Fortich is the Catholic bishop of Negros Occidental Province. Negros, as we heard, is a center of the communist-led insurgency against the Manila government. Raul Manglapus is a former Filipino foreign minister, senator and opposition candidate for President. He's now in exile in the United States. He's the founder of the Committee for a Free Philippines, and is a fellow at the Center for International Affairs at Harvard University. He joins us tonight from the studios of public station WGBH in Boston.

Monsignor Fortich, starting with you, do you think there is a new urgency, is justified in American concern? Is the situation in the Philippines noticeably deteriorating?

ANTONIO FORTICH: I believe that the situation of our country needs to be helped, especially along the lines of the socio-economic rehabilitation of our own people. Like, for example in Negros alone we have now experienced around 400,000 people displaced in the sugar industry, because the sugar industry in our country is distressed industry. And naturally these people have no means of livelihood. Coupled with that, we have thousands of malnourished children. So I believe that the best help that we Filipinos, first of all, can do for our own fellow men is to see to it that these malnourished children will have food to eat. And if the United States, upon realizing the situation of our own country, would be interested then, the best thing to do is, naturally, to help us in nutrition of our malnourished children so that in that way we will be able to prevent the deteriorating condition of the province of Negros Occidental.

MacNEIL: Is the economic situation, the hunger and the unemployment, is that driving more people to sympathize with the rebels there?

Msgr. FORTICH: As far as our experience is concerned, as a pastor of the flat, because I have gone around the whole province of Negros Occidental together with my priests, we have observed that the hunger situation has attracted more people to sympathize with the insurgents for the simple reason that they are hungering for food. And so I believe that in order to stabilize the situation of Negros Occidental more food should be sent to our province so that these displaced workers would realize that our government cares for them.

MacNEIL: Mr. Maglapus, what do you see as the urgency of the situation? Do you think there is time for a gradual restorationof sort of free democratic institutions in the Philippines, or that it is too late for that now?

RAUL MAGLAPUS: I think there is still time if we embark on the correct scenario. The problem is, well,with Senator Laxalt going to the Philippines, those Americans who have followed what we Filipino exiles have been trying to say for the past 12 years to the American media must now be saying this is all deja-vu because we have been saying exactly what President Reagan has now had to admit, namely, that supporting a dictator all this time makes it difficult in the end for America to disengage itself and America has then to look for desperate measures. The problem is that, inhibited perhaps by a desire to appear non-interventionist, the administration, the American administration, has had to fall short of what ought to be undertaken in the Philippines, and that is to stop regarding Marcos as part of the solution. Marcos is the problem. Now, we of course are not expecting the United States to do our job for us. We in the opposition in the democratic movement are preparing to provide the political will in order to rally our people, including the armed forces, to bring about a final solution. And that does not begin, I should stress at this point, the final solution does not begin with elections in which Marcos himself is to be a candidate. It begins with unity to bring pressure in order to remove Marcos from power and then elections in which there can be a free competition of political ideas.

MacNEIL: Do you agree with that, Monsignor Fortich, that Marcos is the problem, that you can't begin a solution to the Philippines problems until he steps down?

Msgr. FORTICH: I believe that if our leaders there in the Philippines will truly be courageous enough to sit down with President Marcos and tell him the truth of what is happening in the countryside --

MacNEIL: Do you think he doesn't know the truth of what's happening?

Msgr. FORTICH: He must have certain knowledge, but this is now a concerted effort among the leaders of our own country that the situation is becoming worse and that therefore we should have that unity which is necessary to save democracy in our own country. This is one thing that we have not yet accomplished, the real leaders getting together with him in order to give a sustained effort that democracy may be able to survive.

MacNEIL: Mr. Maglapus, President Marcos didn't show in that interview, of which that was just a short version -- we ran the full versions a few weeks ago. He didn't show the slightest sign that he thought that he was the problem or even that there was a problem, that he should step down. How do you achieve what you say is necessary?

Mr. MAGLAPUS: Well, I think the first thing we have to do is to recognize that we have been maneuvered into trying to do things in reverse in the Philippines. Now, Bishop Fortich I think correctly laments what I think he perceives as a lack of solid unity among the opposition, but that is because we have been preparing to choose a candidate to run against a dictator who will be a candidate himself. Now, that has never happened in any country in the world, where the dictator has ever allowed himself to lose power by election.

MacNEIL: But how do you get rid of the dictator?

Mr. MAGLAPUS: Well, this is the study that I'm doing here at Harvard. There have been 13 countries in the last 10 years that have succeeded in going back to democracy. Not by doing what we are trying to do in the Philippines, namely, holding elections where the dictator himself is a candidate.

MacNEIL: Do you think it's wrong for the United States to be urging early elections on Marcos?

Mr. MAGLAPUS: Well, to begin with, as Bishop Fortich and the others have been trying to say, I think it's not up to the United States to tell us what to do. I think we ourselves ought to say to ourselves, well, this is wrong. This is not doing it the right way. Unfortunately, the United States goes along with this, perhaps because the main interest of the United States is not the return of democracy, but the introduction of what they would regard as stability in order to protect American military and economic interests.

MacNEIL: In a word, gentlemen -- we just have less than a minute. In a word, given the personality of Mr. Marcos and the rate at which you see the situation deteriorating, are you optimistic that there is going to be a return to democracy in time to stop a more radical solution -- in other words, a communist takeover? Are you optimistic it will sort itself out?

Msgr. FORTICH: I would say it is a tremendous process of effort and coordination and unity that we have to face. I would not be very pessimistic either in the sense that I would say that there is no salvation for our country for, after all, the Filipinos have always stood firm in moments of crisis, even with the Japanese and some other ideologies. So what is necessary now here is a concerted effort to save our country as Filipinos so that democracy will survive in our country.

MacNEIL: Well, we have to leave it there. Mr. Maglapus, thank you for joining us in Boston, Monsignor Fortich in New York. Jim?

LEHRER: Again, the major stories of this Tuesday. Italian authorities charge two more Palestinians in connection with the hijacking of the Italian cruise ship and the murder of an American passenger. The wanted PLO leader, Mohammed Abbas, has reportedly fled to South Yemen. Fifteen U.S. Marines died in a helicopter crash off the coast of North Carolina. And MIT economist Franco Modigliani won the Nobel Prize for economics. Good night, Robin.

MacNEIL: Good night, Jim. That's our NewsHour tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.