September 6, 1945, Thursday

I wrote a letter to my wife, congratulating her on the occasion of her birthday on September 9. How painful! This is the first time I will not be with her on her birthday.

I also told her to have Paddy and Monching arrange my bail so that when I arrive in Manila, I shall not stay long in jail.

We live on hope. All kinds of rumors are circulating about our departure. There is no definite news as yet. What must be happening?

September 5, 1945, Wednesday

We seem to have been forgotten, not only by the Americans but also by our own government, and even by our most intimate friends. Is Osmeña decided not to help us? With so many planes and other means of transportation, is it not possible to ship us to Manila? Why was it that when we were brought here, they found a freighter? Why cannot the Mactan which is cruising the southern waters pass by Puerto Princesa. Where are our friends?

The United Charter was ratified by our Senate. Out of the present membership, 15 voted for approval. This is illegal as the Constitution requires 2/3 votes, or 16 votes. Such an important humanitarian document should not start its life in the Philippines with a violation of our fundamental law.

We do not know whether any discussion of the Charter took place. If I were there, I would ask clarification of the provision on independent peoples. I would ask whether it is applicable to the Philippines. I would want to know whether the ultimate independence of now dependent countries is guaranteed. Unless satisfactorily answered, I would propose a reservation; at least I would put on record the following: (1) that the Philippines should not be among those affected by this provision as we are not a dependent people like those in English colonies, and our eternal craving is independence for our country; (2) that since the purpose is to avoid war or at least remove its causes, no people should be continued as dependent. They should ultimately enjoy the God-given right to all peoples under the sun — the right to independence.

* * * * *

As I said before, when I have the time, I will write all that we talked about in the last two meetings. Meanwhile, I would like to make of record the following facts brought out:

Our first connection with the Japanese began this way. About the time the Japanese entered Manila on January 2, 1942, some Japanese came to see Don Quintin Paredes. They wanted to know his opinion on the organization of an administration. Paredes was taken to the office of General Maeda, Chief of Staff of the Japanese Army who, not in very clear terms, asked Paredes to organize or cooperate in the organization of some form of administration. Summarizing what they talked about, Paredes reported that the General wanted him to organize or cooperate in the organization of a body which shall take care of certain activities like building of roads and bridges, planting and harvesting crops, keeping peace and order, and making people return to their homes. Paredes told the General that he could not speak for all the Filipino officials.

The next day, Paredes went to see Yulo to confer with him about the matter. Yulo thought the matter was a very serious one and immediately consulted Chief Justice Ramon Avanceña, the grand old man, whose patriotism had already been shown by words and deeds. Meanwhile, Vargas, the man left by the President in charge of the government in the Philippines and who as Acting Mayor surrendered Greater Manila, was in continuous communication with the Japanese officials. Jose P. Laurel had also been visited by some Japanese including General Mayashi, whom he had known in Japan. Benigno Aquino and Claro M. Recto were also contacted by Japanese officers and civilians, and later also had conferences with General Maeda. They went to see Mr. Yulo, where it was decided that a meeting be called with all the members of the Cabinet of Pres. Quezon, the Senators-elect, some Representatives-elect, the heads of political parties, representatives of the press and elder statesmen. As a senator-elect, I was one of those called.

I have already given an account of what happened in the meetings in the house of Speaker Yulo. I will make a resume of the causes of our acceptance.

1. Maltreatment of Filipinos and atrocities committed by the Japanese were an everyday occurence all over Manila.

Everyone who came to the meetings brought fresh news of abuses and atrocities committed by the Japanese, both military and civilian. Don Ramon Fernandez, a most respected citizen, was slapped. In many parts of Manila, men were tied to electric posts, brutally beaten up and left exposed to the sun. I cannot forget the men I saw on the corner of Azcarraga St. and Rizal Avenue who were left to die. Arrests were very common and many of those arrested did not return; those who came back reported horrifying experiences. Properties, especially houses and automobiles, all kinds of foodstuffs were confiscated.

During those early days of Japanese occupation, news were constantly coming from the provinces of atrocities committed.

2. There was no doubt that unless we accepted, the Japanese would have governed directly or through Gen. Artemio Ricarte or Benigno Ramos. These two men were openly supporting Japan and undoubtedly would obey and implement whatever the Japanese wanted.

Ricarte had some strange ideas. When the slapping of men and women was brought to his attention, he said it was all right; our people need it; we have been wrongly educated by the Americans. (“Mabuti nga po. Kinakailangan ng ating mga kababayan. Masama ang itinuro sa kanila ng mga Americano.”) He also later advocated a resolution against the Americans and a formal outright declaration of war against America and Great Britain.

3. Acceptance would be in accordance with the instructions of President Quezon to us. He told us to protect our people and for the purpose we could even have an understanding with the Japanese. He only imposed one condition. We must not take the oath of allegiance.

This is the reason why when at one time the Japanese proposed the taking of the oath we all refused and we were willing to be punished. The Japanese gave up as a mass resignation of officials and employees could have spoiled their world propaganda that the Filipinos were with them.

4. We feared, later confirmed by events, that unless we accept there would be no peace and order. We would not be able to plant and to harvest and our people would die of hunger before the Philippines could be liberated by the Americans.

5. From the beginning, probably to attract us or for propaganda purposes, the Japanese wanted to give us independence. We could not refuse as we would not be able to explain our refusal. So we preferred the provisional arrangement entered into as we all then believed that America would come back soon.

Chief Justice Avanceña approved everything we did. He said he would be willing to stake his reputation, everything he had.

The alternatives from which to select were the following:

(a) Continuation of the Commonwealth. Rejected by the Japanese.

(b) Organization of a Republic. Immediately rejected.

(c) Special organization under the Japanese Military Administration. This was followed, but we endeavored to make as little change as possible as when we were in the Commonwealth Government.

The Japanese wanted to call the central body “Control Organs.” There were a lot of jokes about this expansion. We decided for Philippine Executive Commission.

How I was appointed was finally disclosed. I was not in the original list prepared by the Japanese. Those in the list were Vargas, Aquino, Laurel, Yulo, Paredes and Recto. The Japanese insisted on this list. They said they wanted all the factions duly represented. But later it was decided to appoint Yulo Chief Justice. Yulo did not want to serve in any capacity, but if he had to serve, he preferred the Supreme Court. Yulo was slated for Commissioner of Finance. In view of his appointment as Chief Justice of the Supreme Court, two names were submitted for the position. Quirino and myself. Vargas did the selection. It was fatal in so far as I was concerned.

Vargas and Aquino aspired to be Chairman. Vargas from the very beginning acted as spokesman on our behalf although he had never been authorized. Because of this advantage, he won over Aquino Under the circumstances, it was preferable to have Vargas.

We afterwards discussed the following:

1. Message to our combatants in Bataan and Corregidor urging them to surrender. A prepared message was presented to us. Everybody was against it. The language was very bad, but we felt that that was better since it would be our best proof that it had been imposed. Alunan remarked: “Cuanto peor el lenguaje mejor.” Nobody remembered that he had signed.

2. It is said that we sent letters to Roosevelt and Quezon urging them to stop the hostilities. We did write Quezon under imposition. But nobody remembers the letter to Roosevelt as clearly it would have been improper.

For some time, I have felt fear that we might have to wait for Laurel, Vargas, Aquino, Osias and Capinpin who were still in Japan. It will delay our cases considerably. It may also complicate them. I hope this will not happen.

September 4, 1945, Tuesday

According to the radio, the occupation of Japan by the American Army was proceeding smoothly. The General Headquarters was established in Yokohama. MacArthur lives at the Summer Residence of the Emperor near Tokyo. (I forgot to state that the Chief of Staff of the Japanese Army, Gen. Umeozu also signed the surrender document. We met him in Manchukuo. He seemed to be a very kind man.) A big combined Navy is now in Japanese waters and American soldiers are pouring into Japan.

Pu Yi, the Emperor of Manchoukuo, is reported to have abdicated. He once gave us a banquet in his Palace at Heinking.

At about ten o’clock, Lt. Hagonberg came. It turned out that he was visiting Dean Bocobo. The latter is very much depressed and always thinks he is seriously ill and dying. The doctors and all of us think that his nerves were all shattered as a result of our unjust and unnecessary detention. Hagonberg was trying to comfort him. He told Bocobo to have patience; that he will soon be out; that the only difficulty now was transportation. Before he left, the Lieutenant talked to many of us, especially Recto. Among other things he said: “It is a shame how you have been treated this way. Any person in whose heart justice and humanity throb will feel the same indignation.”

After midnight, Bocobo again began moaning and calling, stating that he was dying. By the way, he had not been sleeping for many days. He was calling repeatedly for a doctor. Dr. Luz, a few beds away, went to his aid. But Bocobo kept yelling, “I want a doctor.” The Lieutenant and Dr. Bunye came. Dr. Bunye said there was nothing the matter with him. We fear he has lost his mind.

September 3, 1945, Monday

General Yamashita, the Japanese Commander-in-Chief in the Philippines, surrendered with thousands of his men in Baguio in the presence of Lt. Gen. Wainright. He was immediately confined in New Bilibid in Manila and will be tried as a war criminal. Under him, thousands and thousands of Filipinos, including my own daughter and brother-in-law, were massacred. He should be made, to atone for it. He should commit harakiri.

While on the way to luncheon a discussion ensued as to the retaking of the Philippines by MacArthur. With the exception of Alunan, all those who expressed themselves were of the opinion that the loss of over a billion pesos and the death of probably 200,000 Filipinos might have been avoided if the Philippines had not been retaken; that it was absolutely unnecessary since with America’s control of air and sea, better equipment, and the atomic bomb, Japan could have been brought to her knees by direct attack on Japan. But MacArthur, according to them, was ambitious. He desired to erase the blot on his record caused by his defeat in Bataan and Corregidor, and his escape from Corregidor. He said that he would return. And he wished to make good his word. The trouble was that in his effort to recover the Philippines, millions worth of properties and thousands of Filipino lives were sacrificed. Recto remarked: “MacArthur has destroyed the Philippines.” (“MacArthur ha destruido Filipinas.”)

In the afternoon, the Provincial Treasurer, Arcilla, came with letters for us. He first asked us to sign the receipt for the letters. We were very excited; we thought that it was an order for our release. It was a resolution presented by Rep. Magalona petitioning MacArthur to release us under bail. We appreciated it as we know Magalona had the best of intentions. But we all agreed that it was a foolish resolution. How can MacArthur grant us bail? The petition should have been to immediately turn us over to the Commonwealth, especially since there was already a plan for the disposition of our cases.

September 2, 1945, Sunday

Big day. Historical Day. The surrender document of Japan was signed on board the Missouri, a 45,000 ton dreadnaught, in Tokyo, by Foreign Minister Shigimatsu of Japan, General MacArthur and representatives of nations. General Wainright of Philippine fame was with Gen. MacArthur. It marked the end of the Pacific war in so far as hostilities are concerned. The formal end would be when the formal Treaty is signed.

It was declared a V. J. Day and a program of celebration, with Hollywood stars, was held. President Truman spoke.

In the morning, we held a meeting of all Class A presided over by Chief Yulo. The purpose was to coordinate our defense. We discussed all the events and checked on the facts regarding each event. We wanted no discrepancy. We traced the history of our connection with the Japanese, from the entry in Manila of the Japanese up to the time we fled from their jurisdiction. When I have the time, I shall make a resume of what we talked about.

To us, this is a day of hope. We all expect and pray to God that we may soon be able to join our dear ones. But we are still here. We do not know what delays our departure. There is absolutely no reason why we should not be out in a few days. MacArthur already announced that on or shortly after V.J. Day, we would be turned over to the Commonwealth Government. Pres. Osmeña and the Senate have already prepared the machinery and procedures to be followed for our cases. Why don’t they take us to Manila to allow us to secure release by means of a bond? We are innocent and we want formal vindication. We welcome an investigation and trial. We want our country and future generations to know what we have done for them. In fairness to us, we should be given every opportunity to defend ourselves, a right guaranteed by the Constitution. We should be allowed to write to our families to file the necessary bail. We do not know whether this is possible, now that censorship has been discontinued. We expect our families to arrange our bail as soon as we are turned over to the Commonwealth.

September 1, 1945, Saturday

I am sick. I have fever and eruptions cover my whole body. How I remember my wife and children! How I miss their loving care!

We learned that the drawing of lots to determine who of the Senators should serve 2 years, 4 years, and 6 years took place last August 23. They used a device — something like that used by the Sweepstakes Office. Those who came out for 6 years are Pedro Hernaez, Proceso Sebastian, Nicolas Buendia, Vicente Rama, Alejo Alonto, Domingo Imperial, Emiliano T. Tirona and Eulogio Rodriguez; for 4 years, Melecio Arranz, Quintin Paredes, Ramon Fernandez, Esteban de la Rama, Manuel Roxas, Carlos Garcia and Rafael Martinez, and myself; and for 2 years, Ramon Torres, Elpidio Quirino, Claro M. Recto, Jesus M. Cuenco, Jose Yulo and Vicente Madrigal. Evidently, the deceased senators David Maramba and Jose Ozamis were not included or assigned to 2 years. I do not believe this could be legally done; they should have been included. It is especially important as Ozamis might have died after the 2 year term was over. There is some criticism about the drawing. Fraud is insinuated. I doubt it, however; if the Sweeptakes system was adopted, fraud is impossible.

I am satisfied with the result. Now if I decide to quit politics as I have always wanted, I can. But I may be forced to continue in politics to seek vindication.

I would like to have the following for they contain important publications: (1) Daily News, August 24, 1945; (2) Daily News Magazine, August 1,1945; (3) Gallegos’ Economic Emancipation, published on August 17, 1945, (4) 7 papers published by the Pacific General Headquarters.

August 31, 1945, Friday

I have been asked many times how the Japanese financed themselves during their regime.

They came here bringing with them Japanese military notes. It can be assumed for certain that those notes are not backed by reserves. There is nothing behind it except the backing of the Japanese government. As a matter of fact, they are not currency or money. They are in reality requisition slips. Instead of forcing the Filipinos to give them food, equipment and materials, they found this indirect and less painful way of attaining their wishes. At the beginning the circulation of the currency of the Commonwealth was allowed. Following the economic law that bad money drives away good money, the latter soon disappeared in the market. Later, the Japanese made the circulation of the currency of the Commonwealth illegal. Those caught exchanging military notes for Commonwealth notes were taken to Ft. Santiago and punished for committing a hostile act.

The Japanese government then established the Southern Development Bank. They did not use the two Japanese banks, the Yokohama Specie Bank and the Taiwan Bank, except that the Taiwan Bank was used to liquidate the American and other foreign banks. As a matter of fact, the Southern Development Bank was not a bank but acted as a branch here of the Japanese Government Treasury. It was given the sole power of note issue. All the military notes were distributed through it. I had numerous discussions with the Japanese as to the nature of these notes. They have always insisted that they were Southern Development Bank notes, whereas I always maintained that they were Japanese Government notes. I did not feel it proper for the Philippine Government to deal with a private bank.

The Japanese, unlike the Americans, practically made the countries occupied by them defray all the expenses of their Army. They did this by means of the issuance of military notes. I also have no doubt about this as I happened to see the Japanese Government budget. In the statement of income, there was included what was called Contribution of the Southern Islands. (I was not sure what they called it, but I am sure that there were billions — 17 billion as I remember — provided as income from the Southern Islands.) As there was no direct request for funds, necessarily they must come from the proceeds of the military notes. They cannot ask for direct contribution because nobody or very few would give. This was shown when subscriptions were opened for the Philippines to buy and donate an airplane to Japan. Very little was collected and the project was stopped. It would not have been possible to collect a sufficient amount to buy even a small airplane unless force was used, as was done in many cases. As a matter of fact, those military notes were no more, no less than requisition slips. The whole financing of the Japanese, including the expenses of the Army and Navy and what they called war development companies, was exclusively handled by the Southern Development Bank.

This bank made every effort to exercise all the powers of a Central Bank and of a clearinghouse. It insisted that all the other banks deposit their funds with it, especially the reserves of the banks. I opposed this very strongly. I was willing to stake even my life to uphold my view. All the bank managers naturally were afraid to have any sort of issue with the Japanese. I told them that they need not assume any responsibility. I gave them orders not to deposit with the Southern Development Bank without my express authority and order. At that time, there were already on deposit in the Southern Development Bank funds of the different banks amounting to about 1000,000,000 pesos. About three-fourth or four-fifth of the funds belonged to the Philippine National Bank.

It must be stated in this connection that at the beginning I had no supervision over the Philippine National Bank. Supervision was being exercised by Malacañan. The reason was that the P.N.B. was a government corporation and Malacañan was in charge of all national companies. Later, I found out that it was Executive Secretary Pedro Sabido who was handling P.N.B matters. Even after his appointment as Minister of the new Department of Economic Affairs, he attempted to continue exercising the powers; as a matter of fact, after his appointment, he became even more insistent. He contented that the supervision of the Philippine National Bank properly belonged to his department since the bank was a government corporation and his department was in charge of all government corporations. He further contended that the Department of Economic Affairs should control the Philippine National Bank to enable it to realize the purpose for which it was established and also to facilitate the financing of the national companies.

Finally, he contended that, under the law, the Secretary of Finance is already the head of the bank, and it is not proper nor advisable for the Secretary of Finance to be also the Supervisor; otherwise; the Secretary of Finance would be supervising himself. I refused to devote much time and words to the discussion which was academic. So far as I was concerned, the argument I emphasized was that I found it impossible to supervise the banking and financing business unless all the banks were under me. Supervision over the P.N.B. was especially necessary since at least 70% of banking transactions in Manila was handled by the Philippine National Bank. I concluded in a memorandum to Pres. Laurel that if he decided to deny my request, I would strongly recommend that the supervision over all banks be transferred to the Ministry of Economic Affairs. After due consideration, the President told me that he fully agreed with me and he would immediately issue an order accordingly.

Days and weeks passed, the order did not come. I found out that the Minister of Economic Affairs was very insistent. So the President decided to submit it to the Council of State composed of Chief Justice Ramon Avanceña as President, and Don Miguel Unson, Don Pedro Aunario, Don Rafael Corpus, Don Ramon Fernandez and Don Jose Paez. The Council considered the matter very thoroughly and even heard the arguments of Minister Sabido. The President, and this was confirmed later by Don Miguel Unson and Don Rafael Corpus, advised that the Council upon preposition of Don Miguel Unson, decided unanimously in my favor. He assured me that he would issue the order forthwith.

Days passed; weeks passed, no order came. I decided to prepare the order myself and give it personally to the President. It was not signed and issued. I prepared another and left it with the President. After a few days, I asked him about it. He was surprised that I had not received it yet. I prepared another and this time I did not leave Malacañan without the President’s signature.

After the President signed the order, I immediately called Mr. Carmona, President of the P.N.B.. I must first state that under the order, I had all the powers of the Board of Directors of the Bank. I asked him about the deposits. He told me that he had submitted the matter to Malacañan and that no objection had been expressed on the part of Malacañan to the existing arrangement. When I asked for a written authority, he advised that he had not received any and that his experience was that he got no action from Malacañan on matters taken up by him, or at least action was delayed for weeks and even months.

I asked him to explain how he happened to have such a large deposit in the Southern Development Bank. He answered that from the very beginning the military people as well as the Manager of the Southern Development Bank requested him and even ordered him to deposit all excess funds of P.N.B., or funds not needed for ordinary daily transactions, with the Southern Development Bank. Pressure was used so that he had to make some deposit, but he assured me that it was far from what he could have deposited.

The Japanese reorganized the clearing house. Under the new system, all clearing balances were kept by the Southern Development Bank. There was no liquidation and the funds could be withdrawn only when the corresponding bank needed funds. So the deposit of P.N.B. in the Southern Development Bank increased everyday. This was also true as regards the other banks, Bank of the Philippine Islands and Bank of Commerce. They were also being required to make deposits. They said that they had to conform unless they wished their banks closed and their officers accused of a hostile act. I ordered them not to deposit. When they expressed fear, I told them that they should tell the Japanese that, per my order, they had to secure my approval. I also told them to withdraw their balances in the clearing house from the Southern Development Bank.

Mr. Hariguti Takahashi and the Manager of the Southern Development Bank came to me to request me to authorize the deposits. I flatly refused. This is one of many similar incidents I had with the Japanese. One instance was when a large Japanese sugar concern wanted to acquire the Philippine Refining Co., which was owned by the government and practically had the monopoly of sugar refining in the Philippines. An official of the company was told that an unfavorable recommendation from him would be interpreted as a hostile act. I told him to tell the Japanese to talk to me. The Japanese never came to see me. Another instance was when the Japanese Army proposed that the Textile Department of the National Development Company be constituted into a separate company and recapitalized with equal participation of the Philippine and Japanese governments. The participation was later changed to 40% for the Japanese and 60% for the Filipinos. I was made to understand that the plan had already been agreed upon by somebody in Malacañan. I prepared a memorandum strongly opposing the plan. The reason I gave was that the National Development Company, as any other national companies, was formed not for profit but rather to carry out national economic policies. Another time was when Colonel Utsonomiya, later promoted to General, approached me to ask me to allow the importation of opium. I told him that the laws prohibited the importation of opium and penalized its sale. Twice the Colonel approached me. I maintained my position. When it came to protecting our people and their rights, I ignored consequences absolutely.

In connection with the banks, a Japanese officer came to see me. He said that it had been reported to them that in the Ministry of Finance, there was somebody who was anti-Japanese and always worked against them. I knew it was merely a ruse. I answered that I assume responsibility for anything done in the Ministry of Finance.

Mr. Carmona wisely did his best to attain our purpose without unnecessary exposition. Carmona was so capable and prudent that he was able to withdraw a very good portion of the deposit and to maintain the deposit at a very low level.

My views and actions were fully reported to the President and he approved.

I had many other incidents. During a bombing raid, a boat loaded with military notes was blown up and all along Malate and Ermita, it rained notes. They were picked up by the people and spent. The Japanese who had the serial numbers of the notes prohibited the circulation. I protested on the grounds that the notes were already in the hands of innocent persons. For instance, there was Mrs. Mariquita de Ocampo who sold her furniture for 7,000 pesos as she needed the money. Afterwards, nobody would accept her money. What fault had she committed? Finally, the notes were accepted.

The Japanese wanted the administration to be self-supporting. They themselves prepared and imposed the approval of tax laws. From the beginning, my plan was not to change our tax laws; not to burden the people with more taxes than what they had to pay before the war. But how do we finance the government? Of course I had to make it look like I was trying to increase the income by means of assistance of our people. So I did not object to the increase in the income tax law, although I insisted that low incomes not be taxed and larger incomes not be taxed as heavily as in other counties. This is also the reason why I sold an amount of bonds instead from where I proposed to get the money.

Even during the time of the Commission, we borrowed money from the Army, It reached the amount of ₱23,000,000. During the Republic, I secured a credit of over ₱100,000,000 from the Bank of Japan, about ₱50,000,000 of which I got through the Southern Development Bank. When I submitted it to the Cabinet, there was some opposition. I did not argue, but after the meeting I explained to Minister Osias who was the one strongly opposed that my purpose was to charge to the Japanese as much of our expenses as possible. The Japanese Army after the establishment of the Philippine Republic tried to collect our previous indebtedness of ₱23,000,000. I declined on the ground that the Executive Commission was a mere instrumentality of the Japanese Administration. The amount was never paid.

Returning to inflation, I could do nothing as the Japanese did not want to give any power which would enable me to do something. I thought and thought about what to do until I came up with the idea of establishing a Central Bank if I could get the Japanese to approve my conditions. Some of them were: (1) That the Central Bank shall have the sole power of issue of notes. With this I meant to curb the unbridled issue of notes by the Japanese and the unlimited grant of credits to Japanese companies. (2) That the Ministry of Finance shall have jurisdiction and power of supervision over the Japanese banks. I demanded this most important power to control large credits given by the Japanese banks to Japanese companies and nationals. (3) That the Central Bank shall be the depository of the reserves of the other banks. And (4) That the Central Bank shall handle the clearing house balances.

The Japanese were opposed to my plan at the beginning, but in view of the fact that we were a Republic and they therefore could not openly deprive us of the right to exercise powers belonging to all independent states, they changed their tactics. They instead did their best to delay the establishment of the bank. They put up all kinds of objections and suggested many modifications. They wished preferential treatment or at least equal treatment for Japanese banks. I could not of course accept this. Mr. Haraguti, while I was speaking before the National Assembly about the establishment of a Central Bank, sent me a memorandum. I got the impression that he was opposed to it or wanted to delay it. I immediately suspended the proceedings and charged that Mr. Haraguti was out of line. He immediately saw me and tried to explain that such was not his intention. I know English well, I believe, and I had no doubt that my interpretation was correct.

The bill was approved by the Assembly but upon the request of Speaker Aquino a provision was inserted to it so that the establishment of a Central Bank would depend upon the promulgation order by the President. Aquino at the beginning was strongly opposed to the bank; later, he withdrew his objection but was evidently not interested in its establishment. However, the Japanese had not given up. We had no facilities here for the printing of notes and this had to be done in Japan. We prepared the necessary designs. We were told that all the printing presses were busy printing notes for other countries and that they could not begin making delivery until May, I believe of 1945. I went to Japan where I made every effort to expedite it but in vain. I was told that the delivery had to be periodic and the amounts for each period could not be very much. The matter remained in that state until hostilities in the Philippines began.

Another reason why I wanted the Central Bank was that I did not want to have a shortage of notes. We had a terrible crisis about the first months of 1944 because the ships used for transporting the notes were probably sunk or blown. The Japanese banks had no more available notes and the Southern Development Bank had only about ₱10,000,000 in notes of 10, 20 and 50 centavos. The Japanese banks suspended payment, and there was a run in all the banks as the public feared that the banks had no more funds. The Japanese banks, including the Southern Development Bank, wanted to get the notes of the Filipino banks. I refused to authorize the Filipino banks to loan their funds to the Japanese banks. I also instructed the Manager of the Philippine National Bank to withdraw a part of its deposit from the Southern Development Bank. We were all very much worried. Stoppage of payment of banks would paralyze business. All demands for withdrawal in Filipino banks were met. The Philippine National Bank, however, had to offer notes in small denominations. Generally, those wishing to withdraw big amounts desisted as the package of the money would be quite bulky. After a few days, shipment of notes came and the crisis passed. Because of this, I inquired about machines and materials in the Philippines that could be used in case of shortage of notes. We could print here but in limited quantities.

* * * * *

We heard on the radio that Truman had said that the Philippines might have her independence in 4 or 5 months. This means that we may have our independence by next January. I welcome it; I want to have it right now. We would have been spared the loss of billions of pesos and thousands of lives if only people ceased to be mentors of other people.

This means the election will have to be held soon. We may not even be able to take part in the elections. Until we are cleared, we cannot be of much service.

According to the radio, Ambassador Vargas was found in Tokyo and he is a very worried man. He was generally criticized for having been very weak with the Japanese. We were aware of it and we thought him a useless man and an incapable executive. But after we reflected, it may well be that under the circumstances, he did what would be of the greatest benefit to the people. Supposing that instead of getting the confidence of the known murderers, the Japanese, he had fought and defied them. He becomes a hero. But he sacrificed his country for w would have meant direct or almost direct rule by the Japanese. Instead of 200,000 dead, we probably would have had to mourn the loss of millions of our countrymen. Vargas has done much for our country.

August 30, 1945, Thursday

Taruc and Alejandrino left this morning.

It is reported that there is terrible inflation in Manila. Prices, especially of foodstuffs, are very high. Rice, for instance, is reported cost 200 pesos. There must be a great deal of suffering. How can employees live on the salaries they generally receive? And it seems that nothing is being done to combat inflation. At least we have not read of any. On the contrary, it seems that reckless spending and speculation are being tolerated. War always brings inflation. It is because of the enormous expenditures that have to be made in connection with the war effort. Inflation is caused by over circulation or by the fact that the money circulating cannot be absorbed by production and the requirements of business. It cannot entirely be eliminated but it can be minimized.

There are many measures that can be taken for the purpose. The first step is to go into the source of money — and this is the large expenditures for the Army and Navy in the Philippines. Steps can be adopted in this connection as I am sure the Americans will be willing to help and to cooperate. During the Japanese regime this was inpossible as they ignored absolutely any request for their assistance. Japanese companies and even individuals compelled the sale to them of Filipino businesses, and they invested lavishly in almost everything. Necessarily, the circulation became so enormous that the purchasing power of the military notes went as low as 1 peso for 500 to 1000 military notes. The U.S. Army and Navy can help very much absorbing a good portion of the payments made by them. The soldiers could be made to send more money home or to invest in government bonds, etc.

Since the inflation is a result of under-production and of the fact that businesses can not absorb the money in circulation, no effort should be spared to increase our agricultural and industrial production. Likewise, our commerce must be increased. Every incentive should be given to normalize and develop business. In this connection, the Filipino merchants should be given encouragement as much as possible. To increase production and facilitate the movement of commodities, transportation and communications must be restored and improved. Sufficient trucks should be assigned to the sources of production. Boats should be secured at once to resume the inter-island intercourse.

When there is inflation every conceivable means must be adopted to curb and regulate prices. When there is a big demand and very little supply, the prices increase and if there is no limit prescribed or stock limits are not enforced, prices soar to heights that most people cannot reach. Foodstuffs specially must be controlled. Our experience during the Japanese regime was that rice affected prices immeasurably; it practically regulated prices. Every time the cost of rice went up, prices of all other commodities and services followed. When a market vendor increased his price, he alleged that he has to pay more for his rice. When a “cochero” increased his fare, he alleged that he has to pay more for his rice. The worst sufferers, the employees, demanded better salaries and those demands had to be granted. But everytime increases were made, more money circulated and the result was the worsening of inflation — a vicious circle.

The best remedy is to enable the employees to acquire essential commodities at reasonable prices. They are more interested in acquiring what they need to live rather than cash which cannot buy what they need. House rents must also be regulated. But we must not be unreasonable about this. During the Japanese regime landlords were treated rawly. Rents were fixed at not more than 75% of pre-war rents. Most landlords suffered, especially those who belonged to the middle class with a fixed income. The worst feature of this order of rent control was that the order did not apply to houses and buildings newly rented which were rented out at exhorbitant rates. But the present landlords must not be allowed to charge very high.

Another necessary measure is the control of banks, insurance and other companies that receive and invest funds. Banks should be required to have a larger reserve so as to tie up a good portion of the money. Their investments should be controlled. Under no circumstances should money for speculation businesses be allowed. On the other hand, all investments which will increase production or which will develop business should be encouraged. Wisely managed, this may be a very effective measure against inflation.

Also, efforts should be made to import commodities for trade. The purpose is to increase commerce and thus more circulation can be absorbed. Arrangements must be sought so that more bottoms could be assigned to the Philippines.

Another hedge against inflation is taxation. Big incomes must be taxed higher than the ordinary so as to withdraw more money from circulation or speculation. Higher taxes should also be imposed on speculative enterprises. On the other hand, the taxes on production and transportation enterprises should not be increased.

Another means against inflation is the issuance of bonds. Every effort should be made to make the people save money by investing in bonds. Unlike previous sale of bonds purchases by banks, insurance companies and other investment enterprises should not be emphasized. Instead, the public in general should be invited to invest to the limit. But if the proceeds of the sale of bonds will be circulated again, then we gain nothing. They should be impounded and if spent, they must be invested in production enterprises or in the construction or reconstruction of public buildings and other permanent improvements.

When there is inflation the laborers and other persons rendering services do not suffer very much. It is because they can charge for their services as much as might be needed by them to live. A “cochero”, for instance, can increase his fare if necessary to live.

There are other measures that can be taken to combat inflation.

As to whether inflation is highly undesirable, there are some differences of opinion. Some contend that it is desirable. The great majority of economists, however, hold the opposite view. There is no doubt that it benefits debtors. It is heaven for debtors. Producers are also generally benefited. The only trouble is that they seldom learn the lessons taught by previous inflations. They generally expand greatly, and when depression comes, and depression generally follows at the wake of inflation, they find themselves with equipment and facilities that they have to scrap. They find that they cannot continue their business at the same pace without leading themselves to insolvency.

But there is no doubt that inflation is a curse, and evil which must be combatted with decision and energy. The great majority of the people suffer from it and if allowed to go unchecked the whole economy of the country will be dislocated.

August 29, 1945, Wednesday

Taruc and Alejandrino, the two communists or ex-communits and Hukbulahaps, were notified yesterday that they were leaving for Manila today. This morning they left by plane. We noticed that they left with a heavy heart and we felt exactly the same. Those two men have won the friendship and admiration of all of us. As friends and comrades they are as good as anybody can be. The impression they left is just the reverse of what they were pictured to us before. They were not quarrelsome, cruel and bloodthirsty as they were reputed to be. On the contrary, they are suave in manner, sociable and know how to get along with others. We do not know whether they have modified their views, but several interviews with them have convinced us that they are not the radical men who would forcibly deprive all the citizens of their right over their property. They harbor no ill-feeling or prejudice against the capitalists. They only insist that the masses be given such social protection and opportunity to enable them to live decently. They hate a dictatorial government; they will die for democracy. They are highly patriotic; they love their country above everything. They assured us that there would be no compromise as regards Philippine independence. They will fight even the Americans if they deny us our right to freedom. They are very willing to join hands with us in everything that would help our country and our people. They do not know what is in store for them. We hope that they will be released outright. They are not so optimistic, however. They fear that they will again be requested to surrender their arms numbering about 20,000 rifles and other arms. They were requested to donate these weapons to the Philippine Army for the reason that our Army had no money to buy arms. They refused. Before leaving they told us that they would not compel their men to turn in their arms. Let them do so on their own free will. They will remain in prison if necessary to uphold their views. Or they may be tried for some other cause. They are not collaborationists in the sense that they served or in any way were connected with the Japanese for the truth was that they fought the Japanese. They, therefore, should not have been placed among us. Perhaps the Americans prefer to dispose of their cases before the government is turned over completely to the Commonwealth.

Taruc and Alejandrino returned as they were not able to catch the plane this morning. They are scheduled to leave tomorrow.

Tonight the Class B quarters were inspected and searched. The Lieutenant found clothes supposed to have been stolen from the Supply Office. Some internees are implicated. They did not search the Class A quarters. Had they done so, they would have a large quantity of clothes, shoes, etc. which belong to the Army. These were acquired through donation or purchase. The Captain and the Lieutenant asked us to cooperate with them. I suppose what they were really saying was that they expect us not to receive or buy hereafter. They happened to see the Navy shoes of Arsenio Luz. They confiscated the shoes.

Recto is found to be positive for malaria. We are all scared as so many of us are already suffering from that sickness, we fear that if we remain here for a few weeks more we will all contract the disease.

My son Tony tried to land a job. He failed. He could not find a job — in some places, the employers expressed fear when they found out he bears my name. The Spaniards say, “No hay hien que formal no venga,” meaning that sometimes some good comes out of evil. Not being able to find employment, Tony was compelled to engage in business and he is quite successful. He makes enough money to support my family. He has already proven that he is an able merchant since during the Japanese regime he was also quite successful in business. After all, I am very happy that he did not become an employee. During inflation one of the worst sufferers are those with fixed income like the employees. But even under normal conditions I do not wish my sons to be employed, especially in the government service. There is too much injustice and disappointment. I have seen enough to dislike the public service. Furthermore, there is no future in government employment unless one is very lucky, as in my case. In so far as civic spirit is concerned, a person can also serve his country outside the public service. A merchant or a farmer serves his country just as much as politician, a government official or employee.