July 9, 1945 Monday

I notice in the papers that many questions are arising as a result of the Japanese occupation. Some of them are the following: (1) Bank deposits during the Japanese regime; (2) Japanese military notes (“Mickey Mouse” money); (3) Real estate transactions during said regime.

All deposits during the Japanese regime have nullified. This is of course a necessary consequence of the fact that the Japanese military notes have been declared worthless. Such action for the present is entirely justified. If bank deposits during the Japanese regime are recognized, no bank will be able to open. They will have to be declared bankrupt unless the government assumes responsibility for such deposits, which is of course impossible. The military notes, of course, have to be declared worthless because there is no reason for them and they were issued by the enemy. The United States and Philippine governments cannot be made responsible for them. They have to be outlawed. These military notes are not really money or currency. They were really only a means of requisitioning Filipino materials. It was the equivalent of the Japanese confiscating the food and other materials belonging to the Filipinos without compensation. But at the same time, the Japanese, by order, declared them legal tender — refusal to accept was considered a hostile act punishable with a heavy penalty. We therefore, against our will, had to recognize them as legal currency. They were used in all transactions. In the meanwhile, the circulation of Philippine Commonwealth money was strictly prohibited. Anybody circulating them or even possessing them was arrested and punished. The Japanese had spies to detect those violating the prohibition.

I do not believe though that the so-called Mickey Mouse money problem is permanently dead. I think after the war, discussion of that subject would have to ensue. The Japanese have circulated here over a billion. Where are they? The rich, the influential, the intelligent do not have them. As they knew what would become of those notes, they disposed of all that they had. So where did they go? They must have gone somewhere since they were not destroyed. I suspect that they went to the masses — to the laborers, small merchants, producers and vendors especially the small ones like those who produced and sold “camote”, “casava”, vegetables, etc. They must possess quite a big amount. They worked hard for their money. When normalcy is resumed, they will demand that the notes be recognized or be given some value. I do not believe they will stop their demand until they get something. I believe they will get something. Even now in Congress, a resolution was introduced to register this kind of money and try to get payment from Japan. I am sure it will be taken up in the peace conference. I suggest that proceeds from the sale of Japanese properties and holdings be applied to the payment of these military notes. After the war, Japan will not be in a position to pay. So I believe that the United States Government or the Philippine Government will pay even a small portion. There is a precedent for this. Belgium was in the same situation as the Philippines after the First World War, although the German marks circulated in Belgium went down in value and afterwards became worthless. The Belgium government assumed responsibility and paid a portion of those marks at a rate which I do not remember just now.

However, in recognizing these military notes in whole or in part, the necessary economic measures must be taken to avoid inflation. The release of such a big amount necessarily will cause inflation. Furthermore, the government cannot afford to pay at one time and if it has to borrow money, it will need also a big amount for amortization and interest. What should be done is to make an accurate and scientific readjustment in the circulation. Nobody knows how much Japanese military notes have been circulated in the Philippines. Notwithstanding all my efforts, I could not ascertain it. I believe, however, it is not as much as I originally thought. The military notes circulated only in Manila and some provinces in Luzon. In the South, with the exception of Davao and inside the cities of Cebu, Iloilo and Bacolod, they did not circulate at all. A good portion of those notes had been destroyed. My estimate now is that there is only over a billion. The way to find out is to have them registered. Supposing it is one billion, I would pay immediately 5% or about ₱50,000,000. The rest or ₱950,000,000 I would divide into 40 parts each part to be paid in installments every year. Each installment would be ₱23,750,000. I believe that this amount can be absorbed by the natural increase in our production. This is just an example. The installments may be paid every five years if so desired. There should be three provisions: (1) That the periods may be shortened, if the finances of the government and the development of production — agriculture, industry and commerce — so warrant; (2) That the bonds are negotiable; and (3) That if the finances of the government so permit, the bonds may be redeemed sooner at a discount the amount of which shall depend upon the maturity of the bond. In other words, if for instance, a bond will mature in 30 years, after a period of five years the government may purchase them if offered by the holders at 25% or 50% of the face value of the bonds as may be decided upon.

But I say this must be considered after the complete termination of the war. While the war is still going on, it is natural that the Japanese money be declared worthless. One advantage of the postponement is that, if we get anything from Japan by way of an indemnity or by confiscation of their holdings in the Philippines, such amount will eliminate or at least lighten the burden that may be imposed the government.

Another point is, if we declare the Japanese notes worthless forever, it may relieve Japan from the obligation of providing for them as part of the indemnity.

It is reported that Pres. Osmeña sent a message to Congress recommending a solution to the problem of indebtedness incurred before the war paid during the Japanese occupation. The recommendation of his advisers, as I remember it, is the following: (1) Declare all payments invalid; (2) Declare all payments valid; (3) Revalue the payment made in accordance with the rate of exchange between the Philippine peso and the military note at the time of the payment. I do not understand why the government should meddle in a strictly private affair as this one. Furthermore, I doubt whether payments made could legally be declared illegal. It will be an epso facto law. As to the revaluation, this will involve many complications. Everything may as well be left for the courts to decide.

December 23, 1943

Christmas will be more gloomy and depressing than those of the past two years, and there would be fewer gifts. Not because there was a proliferation of unemployment—the Army was employing all those who were willing to work in fortification projects into which the whole archipelago was being converted.

There is money aplenty, so much of it that it had lost its value. Fortunes were amassed, some in two or three months, in the maniacal fury of buying things and selling them all. The new rich and some of the old ones, did not know what to do with so many paper bills which filled their pockets. As these bills did not have any guarantee, nor any signature which confirmed them, and as virtually no one believed in the ultimate victory of the Axis, everybody was speculating on the value of these bills when the original ones would be back in circulation. Most people were inclined to believe that President Quezon would not give them any value, or would bring them back to their real values. In view of this, there arose the desire to buy property, jewelry, stakes in mines which did not produce or had not produced in many years, Philippine bills, dollars, gold and anything which represented value for the present and for the future. These were bought at fantastic values.

The transaction of these commodities was the endeavour which today raked in huge profits. Consequently, there were legions of agents devoted to the buy-and-sell business as it was now known. This business was the most common topic nowadays together with that of the war.

Consequently, there are legions of agents devoted to the buy-and-sell business which they transact not in luxurious offices but on the sidewalks of Escolta and Rizal Avenue.

The value of Philippine money is four times that of the Japanese military bills, although legally, they are valued at par. There is big demand for genuine Philippine money, first, because of the expected return of the currency, and second, because there are agents who bring them to those who have fled to the mountains of the Visayas and do not accept Japanese money. Instead, they buy genuine Philippine money at exhorbitant rates. The Military Police is after these runners, many of whom have been caught and thrown into the prisons of Fort Santiago.

Sunday, March 22, 1936

All day at sea and very rough–all hands more or less under the weather. Bridge in p.m. Quezon has, so far, won all the rubbers and we three are all losers.

Talk with Quezon off Panay. I asked him about Philippine sugar shares; he said they were good for dividends for ten years–even after the “sanctions” levied five years hence. He told me that the planters are counting on the continuance of free trade with the United States. I remarked that I had bought some gold shares–he commented “They are good.” I said I was thinking of buying Shaw’s Philippine Iron Company’s shares–he said if you wait, you may be able to buy shares in a government-owned Company in Surigao–“you reserved them for the government twenty-one years ago.” I asked him if they had been recently surveyed and were as rich as we had believed? “Yes,” he replied.

I then asked about the possibility of setting up separate Filipino consulates–said he had taken it up with Secretary Hull before inauguration, and he had referred it to William Phillips. Had received no answer as yet.

Next I reported a conversation with Simmie concerning the arrastre plant. He replied that Simmie is a good man: “if I leave that business in private hands, his company will have the preference–but I want more money from it.”

Said Rodriguez would not remain as head of the National Development Co. He would send him around the world for a year to study industry and commerce, adding: “he talks too much”!

He asked me if I had talked with the High Commissioner about silver–I said certainly not; that I would not go to the High Commissioner about anything official without his instructions. I had asked Weldon Jones about it as he (Quezon) had requested and was waiting his report before making up my own opinion. Quezon said that the High Commissioner had talked with him about it.

We laughed a little over “experts” and he said he was getting one to come out here with only his travel paid.

I asked him if the United States would not give the Philippines the equivalent in silver even if they had refused to pay the losses on devaluation in gold. Quezon said that Morgan had formerly been ready to do this, but businessmen in Manila were carrying on with capital borrowed abroad and they are now afraid their loans would be called if silver in large quantities were introduced into the Philippines currency. He also remarked that the Philippine loss on devaluation was already more than thirty million pesos–especially when computed in terms of trade competition with Japan; he added that the present was the moment to get any benefits or concessions from the United States, before the Republicans get in.

I remarked that the Manila Bulletin was still fighting hard, against us and he replied: “They are the damndest die-hards and reactionaries I have ever seen.”

Next he commented upon Dr. Victor Clark, the financial expert of the American Congress, who had come for a few months to the Philippines as an adviser. Quezon said Clark was able to review all things dispassionately because he wasn’t even prejudiced about the Soviets, and that was the supreme test for an American.

Then he spoke of lawyers, and remarked that Clyde Dewitt was the best American jurist in the Philippines, and Jose Laurel was the best Filipino jurist.

At luncheon, on the steamer I told the President, of his daughter “Baby’s” witty reply to my comment on his speech in Zamboanga, and he sprang up and kissed her, saying; “She is a true daughter of mine.”