TO TOP IT all, Fortune’s lawyers sued her, alleging she had abused her powers in classifying certain cigarette brands manufactured by Fortune as foreign and therefore subject to a higher tax. She lost the case at the Court of Tax Appeals, Chato remembers, because the bureau’s lawyer assigned by the Office of the Solicitor General “was arguing the case for Fortune and we were sold out.” Coincidentally, one of the three judges who ruled in Fortune’s favor was Manuel Gruba, Tan lawyer Lily Gruba’s brother.

When the case was brought to the Court of Appeals and the Supreme Cour, Chato lost again, partly because the solicitor-general, who was supposed to be defending her, neglected to include in his brief that there was no previously existing ruling that classified these brands as local, so she was only reiterating existing BIR policy, not arbitrarily imposing a new one. “We lost the case on a technicality,” says Chato, herself a tax lawyer. “It’s unforgivable that we would lose a case on a fact that had already been established but would never even appear in our defense brief.” Later, Solicitor-General Raul Goco would be shunted off to a diplomatic post, partly because of the way he had bungled, deliberately or not, the Tan cases.

Today, Chato is still facing a civil suit with P290 million in damages that had been filed by Fortune. “That is the kind of difficulty that would be confronting a public official,” she says. “Even if you want to do what is right, you are faced with a situation where you don’t get the kind of backup or support for doing what you need to do.”

In the meantime, things have changed at the BIR. It is rumored that among Erap’s first concessions to Tan was to allow him to name his choice for BIR commissioner to replace Chato. The new man at BIR’s helm, the soft-spoken Beethoven Rualo who has been with the bureau for over 30 years, gives these rumors credence. Not long after his appointment, Rualo told reporters that he had known Tan a long time and would be honored to be considered the tycoon’s friend.

Chato remembers Rualo as a slow-footed bureaucrat who lacked dynamism and drive, so when she was pursuing the tax cases against Tan, she took him out of the operations division. Now, as BIR boss, Rualo reorganized the bureau and put his own people in charge. He has also demonstrated a certain dynamism in exonerating Tan. By November 1998, barely five months after he assumed office, the BIR under Rualo had already decided on two tax evasion charges against Tan firms that Chato had a hard time prosecuting because of the resistance within the bureau while she was still at the helm. One 1987 tax assessment filed against Allied Bank for P338 million was reduced to zero while another filed in 1993 against Fortune Tobacco for nearly P8 billion was shrunk to only P5 million.

An examination of both decisions shows that they set aside the evidence that had been previously gathered by BIR investigators. Instead, they took the companies’ assertions on faith, saying there was insufficient evidence to show evasion. In an interview, Rodulfo Salazar, head of the BIR’s Appellate Division, insists that the deliberations on these decisions were exhaustive. But Chato believes the rulings were so anomalous that they could be the basis for charging BIR officials in the Office of the Ombudsman. Whatever the case, the decisions attest to Tan’s enduring influence in the BIR bureaucracy.

THE LESSONS that can be learned from the Lucio Tan school of business and government are rather cynical ones, and his triumphs only reinforce the validity of his practices. Indeed, it has been argued that the financial success of Tan’s enterprises (with the lone exception of PAL, of course) attests to the kind of exemplary entrepreneurship that the Philippines needs. Thus, Estrada, bristling at the criticisms hurled against Tan, referred to the tycoon as a “hero.”

It is true that much of the economic dynamism in many Southeast Asian countries has been attributed to the vitality particularly of ethnic Chinese entrepreneurs. In their ascent to financial heights, notes Japanese scholar Kunio Yoshihara, Chinese businessmen throughout the region were “helped by political patrons and monopoly concessions from governments.” In Indonesia and Thailand, he adds, government connections were important in the initial stages of capital accumulation. In the post-war period, Southeast Asian businessmen—and not only those of Chinese ethnicity—benefited from protection from import competition, restrictions on the entry of foreign goods, low interest loans from government banks, and tax exemptions.

In the last year, however, as the Southeast Asian economic bubble burst, there has been a rethinking of this view. In fact, the pendulum has swung to the opposite extreme, with analysts blaming special favors to businessmen, corruption and cronyism for the region’s troubles. The new thinking that is now gaining credence is that more stringent government regulation is needed to ensure the development of sound economies and mature markets. The orthodoxy now being preached is that vibrant economies are premised on impartial judicial systems, procedural predictability and strong bureaucracies impervious to political pressure. Certainly, it is hard to imagine how the foundations of a “modern” economy can be built in a country where a tax collection agency so easily revises its tax deficiency assessments with every change in administration.

The contradictions are bound to catch up with the Estrada administration. For one thing, the sincerity of Erap’s slogans—“Walang kaibigan, walang kamag-anak” and “Erap para sa Mahirap”—will be frayed if he is so often seen in the company of rich cronies like Lucio Tan. Moreover, like any government, Estrada’s will need to raise revenue collections in order to survive and that would be difficult if it is perceived to be coddling a major tax evader. It doesn’t help that a 1998 Social Weather Stations survey says that four of every five Filipinos want the tax cases against Tan to continue. If Lucio is so easily let off the hook, other taxpayers will likely take a lackadaisical attitude toward paying the government its due. And if more taxes are not collected, Estrada will have a hard time finding the resources for his safety nets and pro-poor programs.

Sooner or later, therefore, Estrada will have to deal with the dilemma that is Lucio Tan. This is difficult for the president, not only because of a shared past and a sense of debts owed, but also because Lucio is, by all accounts, even those of his enemies, an utterly charming and likeable man. Even Chato, in the one meeting she had with him, was surprised to find Tan so soft-spoken and unassuming. A simple man who disdains ostentation, Tan’s quiet, modest ways and his philanthropy (he builds schoolbuildings and is a major donor to various causes) have won him support in some sectors.

“He’s the most simpatico person,” concedes Monsod. “I like him very much even if I hate what he’s doing. He’s so eager to please all the time and he is so maamo (gentle).”