philippines - international university of japan · december 25th (christmas day); december 30th...

Country Profile 2006

Philippines This Country Profile is a reference work, analysing the country�s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit�s Country Reports analyse current trends and provide a two-year forecast.

The full publishing schedule for Country Profiles is now available on our website at www.eiu.com/schedule The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

The Economist Intelligence Unit

The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide.

The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group.

London The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: [email protected]

New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: [email protected]

Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: [email protected]

Website: www.eiu.com

Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com

Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office

Copyright © 2006 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited.

All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it.

ISSN 0269-5979

Symbols for tables �n/a� means not available; �� means not applicable

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

MANILA Quezon City

Cebu

Davao

San JoseSan JoseSan Jose

Ilagan

SanSanSantiago

Tuguegarao

San Vicente

Cabanatuan

PasigPasigPasig

Puerto Princesa

Roxas

Brooke's Point

Quezon

El Nido

Zamboanga

Lamitan

Jolo

DapitanCagayan de OroCagayan de OroCagayan de Oro

BacoloBacoloBacolod

ButuanGingoogGingoogGingoog

Tandag

Surigao

Talibon

Catbalogan

CalbayogCalbayogCalbayog

Laoang

Balangkayan

Allen

Cadiz

DanaoBaybay

Sorsogon

Coron

CalapanCalapanCalapan

Roxas

Looc

Pinamalayan

Santa CruzBoac

Lucena

Virac

Bulan

Legaspi

Libmanan NNaga

Daet

Lopez

San PaSan PaSan Pablo

MalolosMalolosMalolosSan FernSan FernSan Fernando

clobanclobanTaclobanOrmoc

Bayugan

Bislig

Mat

Malaybalay

MINDANAOMINDANAOMINDANAO

SAMAR

LUZONLUZONLUZON

MINDORO

PANAYPANAYPANAY

NEGROS

LEYTE

Sulu Sea

Celebes Sea

Basilan Is.

Jolo I.

Pangutaran I.

Buluanga I.

Culion I.

Lubang Is.

Pollilo Is.

Batan Is.

Babuyan Is.

Dumaran I.

Scarborough Shoal

Balabac I.

Cagayan I.

Tawitawi I.

Tapul I.

Cuyo Is.

Camiguin I.

Siquijor I.

Siargao I.

Dinagat I.

LeyteGulf

Moro Gulf

Tablas I.

Burias I.

Catanduanes

Masbate I.

VisayanSea

Sibuyan

Sea

BOHOLBOHOLBOHOL

PALAWAN

CEBCEBCEBU

South China Sea

Philippine Sea

Iligan

Tagum

General Santos

Datu Piang

Polomoloc

Dipolog

Tanjay

Dumaguete

Bais

IloiloIloiloIloilo

BagoononCanlaon

Cauayan

n Carn CarSan Carlos

Roxas

Masbate

IrigaIrigaIriga

Cotabato

PagadianPagadianPagadian

OzamizOzamizOzamiz

Tarlac

CarlosCarlosSan Carlos

Alaminos

ngelesngelesAngeles

Olongapo

Mariveles

Iba

Batangas

ayayTagaytay

CaviteCaviteCavite

Mamburao

San Jose

San Fernando

BanaueBanaueBanaue

TabukTabukTabuk

Laoag

Vigan

AparriAparriAparri

DagupanDagupanDagupan

BaguioBaguioBaguioBayombongBayombongBayombong

Luzon Strait

DavaoGulf

Balintang Channel

Babuyan Ch a n nel

Bohol Sea

PHILIPPINES

MALAYSIA(SABAH)

Mindoro

Strait

Ca

ga

yan

R.

Ca

ga

yan

R.

© The Economist Intelligence Unit Limited 2006

August 2006

Main railway

Main road

International boundary

Main airport

Capital

Major town

Other town

SpratlyIslands

PACIFICOCEAN

INDIANOCEAN

ParacelIslands

LAOSLAOSLAALAOSMMMYANMAR

THAILANDTHAILANDDDTTTHAILAND

BRUNEII

TAIWANCHINA

SINGAPOREREE0 km 100 200 300

0 miles 100 200

Country Profile 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006

Comparative economic indicators, 2005

Gross domestic product(US$ bn)

Sources: Economist Intelligence Unit estimates; national sources.

0 100 200 300 400 500 600 700 800

Vietnam

Philippines

Singapore

Malaysia

Thailand

Hong Kong

Indonesia

Taiwan

South Korea

0 6 12 18 24 30

Vietnam

Philippines

Indonesia

Thailand

Malaysia

Taiwan

South Korea

Hong Kong

Singapore

0 2 4 6 8 10 12

Singapore

Hong Kong

Taiwan

South Korea

Malaysia

Thailand

Philippines

Vietnam

Indonesia

0 2 4 6 8 10

South Korea

Taiwan

Thailand

Philippines

Malaysia

Indonesia

Singapore

Hong Kong

Vietnam

Gross domestic product(% change, year on year)


Consumer prices(% change, year on year)


Gross domestic product per head(US$ �000)


Philippines 1

© The Economist Intelligence Unit Limited 2006 www.eiu.com Country Profile 2006

Contents

Philippines

3 Basic data

4 Politics 4 Political background 6 Recent political developments 9 Constitution, institutions and administration 10 Political forces 13 International relations and defence

16 Resources and infrastructure 16 Population 17 Education 18 Health 18 Natural resources and the environment 19 Transport, communications and the Internet 21 Energy provision

21 The economy 21 Economic structure 22 Economic policy 23 Economic performance 25 Regional trends

26 Economic sectors 26 Agriculture 28 Mining and semi-processing 28 Manufacturing 29 Construction 29 Financial services 32 Other services

32 The external sector 32 Trade in goods 33 Invisibles and the current account 34 Capital flows and foreign debt 35 Foreign reserves and the exchange rate

36 Regional overview 36 Membership of organisations

39 Appendices 39 Sources of information 40 Reference tables 40 Population 40 Labour force 40 Transport statistics 41 Energy consumption by source

2 Philippines


41 Outstanding public-sector debt 41 Money supply 41 Interest rates 42 Gross domestic product 42 Nominal gross domestic product by expenditure 42 Real gross domestic product by industry 43 Prices and earnings 43 Production of major crops 43 Fishing production 43 Minerals production 44 Manufacturing production 44 Private construction 44 Philippines Stock Exchange indicators 45 Visitor arrivals by country of residence 45 Main composition of trade 45 Key commodity exports 46 Main trading partners 46 Balance of payments, national series 47 External debt, World Bank series 47 Net official development assistance 47 Foreign reserves 48 Exchange rates

Philippines 3


Philippines

Basic data

300,179 sq km

87.9m (2005 government estimate)

Population in '000 (2000)

Metropolitan Manila Davao 1,147 (National Capital Region) 9,933 Cebu 719 Manila (capital) 1,581 Zamboanga 602 Quezon City 2,174 Cagayan de Oro 462 Kalookan 1,178 Bacolod 429 Pasig 582 General Santos City 412 Valenzuela 485 Iloilo 366 Las Pinas 473 Paranaque 450 Makati 449

Tropical

Hottest month, May, 24-34°C; coldest month, January, 21-30°C (average daily minimum and maximum); driest month, February, 13 mm average rainfall; wettest month, July, 432 mm average rainfall

Filipino (Tagalog), English and Spanish; many local dialects

Metric system; also some local units

Peso (P)=100 centavos. Average exchange rate in 2005: P55.1:US$1. Exchange rate on August 5th 2006: P51.5:US$1

Eight hours ahead of GMT

January-December

January 1st; March 24th (Maundy Thursday); March 25th (Good Friday); May 1st (Labour Day); June 12th (Independence Day); August 28th (National Heroes' Day); November 1st (All Saints' Day); November 28th (Bonifacio Day); December 25th (Christmas Day); December 30th (Rizal Day)

Land area

Population

Main towns

Weather in Manila (altitude 14 metres)

Languages

Weights and measures

Currency

Time

Fiscal year

Public holidays in 2005

Climate

4 Philippines


Politics

The Philippines is a pluralist democracy modelled on the US, with an executive presidency, a bicameral Congress and a Supreme Court that can rule on the constitutionality of government actions. In January 2001 Gloria Macapagal Arroyo, then vice-president, replaced the incumbent president, Joseph Estrada, in a civilian coup backed by the military. She served out the remainder of his six-year term before winning re-election in her own right in the next presi-dential election, held on May 10th 2004. The congressional elections held on the same day produced a large pro-administration majority, headed by Ms Macapagal Arroyo's party, Lakas ng Edsa-National Union of Christian Muslim Democrats (Lakas), in the House of Representatives (the lower house) and gave the president a larger majority in the Senate (the upper house). Concerns over the legitimacy of Ms Macapagal Arroyo's presidential victory have emerged, plunging the Philippines into an ongoing political crisis.

Political background

The Philippine islands, inhabited by Malay peoples, were a colony of Spain from the late 1500s until the end of the 19th century. In the early 19th century export crops�sugar, coconuts, abaca (Manila hemp) and tobacco�were developed. At the same time a Chinese entrepreneurial class evolved, marrying into the indigenous population and forming an elite based on land ownership. Spanish colonial rule ended in December 1898 after the US intervened in a popular rebellion that had broken out two years earlier. Spain ceded the Philippines to the US. In 1934 the Philippines became an internally self-governing commonwealth, with full independence scheduled for July 4th 1946. The transition to independence was interrupted by the Japanese invasion of December 1941. The Japanese occupation and the battle for liberation destroyed much of the Philippines' physical infrastructure.

The independent republic, inaugurated on schedule in 1946, maintained preferential economic relations with the US. The constitution was modelled on that of the US and, as in Washington, power tended to alternate between two parties, the Nationalists and the Liberals. The fairly peaceful alternation in power within the political elite was interrupted in September 1972 as the president, Ferdinand Marcos, neared the end of his second term. Citing the threat from "subversive forces", Mr Marcos imposed martial law.

For the next 13 years, until 1986, the Philippines experienced "constitutional authoritarianism". The most effective opposition came from the communist New People's Army (NPA), which was active in rural areas, and from the southern areas, where a secessionist Muslim movement had been active since before the introduction of martial law. The situation changed radically in August 1983, when Benigno Aquino, the opposition leader regarded as the most credible alternative to Mr Marcos, was assassinated minutes after his return from exile and while under military escort. A series of massive demonstrations followed. To reassert his own supremacy, Mr Marcos called an early presidential

The colonial and commonwealth periods

An independent republic closely tied to the US

The Marcos autocracy

Philippines 5


election for February 1986. In a close-run contest he was narrowly defeated by the candidate of a temporarily united opposition, Corazon Aquino, Mr Aquino's widow. The attempt by Mr Marcos to hold on to power set off a coup attempt by the military, backed by the deputy chief of staff, Fidel Ramos, and the defence minister. This received critically important backing from Mrs Aquino's People's Power movement and the local Catholic Church. Under pressure from the US, Mr Marcos went into voluntary exile in Hawaii, where he died in 1989.

Under the new regime civil liberties were restored, political prisoners were released and an attempt was made to negotiate with the NPA. A new constitution, drawn up by a convention appointed by Mrs Aquino, largely restored the set-up that existed before 1972, but with new controls on the presidency. From July 1986 there was a series of attempted coups, and rumours of coups, in which elements of the military were involved. In all cases the loyalty of the then army chief of staff, Mr Ramos, was critical. Meanwhile, the reform hopes of the early days faded. The much-vaunted land reform was stalled by bureaucratic delay and landlord opposition, widespread corruption continued and the government was perceived as ineffectual.

Mr Ramos won the mid-1992 presidential election. Within months of coming to power he had built up a large pro-government majority in Congress, secured a cessation of hostilities by dissident military groups and begun the process of peace negotiations with both communist and Muslim secessionist rebels. A ceasefire was agreed with the Muslim rebels in late 1993, and the communist insurgency began to weaken. However, deep-rooted economic and social problems remained largely unresolved. The president came under increasing pressure from some of his supporters to stand for a second term in 1998. But this would have required a revision of the 1987 constitution, and was strongly opposed by the Roman Catholic Church, opposition politicians and some prominent business people, all of whom feared a drift to a constitutionally rigged autocracy on the Marcos precedent. Mr Ramos endorsed the secretary-general of Lakas as his nominee for the presidency in November 1997.

In the presidential election of May 1998 the administration's candidate was beaten by a wide margin by the popular vice-president and former film star, Joseph Estrada. Mr Estrada, who was backed by an alliance of the two opposition parties, the Nationalist People's Coalition (NPC) and Laban ng Demokratikong Pilipino (Laban, or Struggle for a Democratic Philippines; the pro-administration party under Mrs Aquino), won 40% of the vote in a field of ten candidates. The Lakas candidate for the vice-presidency, Gloria Macapagal Arroyo, won even more resoundingly, with 50% support. The coalition backing Mr Estrada won only around 60 of the 208 directly elected seats in the House of Representatives, but as the party of the presidential incumbent, renamed Laban ng Masang Pilipino (LAMP, Struggle of the Filipino Masses), it attracted enough defections from Lakas to build a large majority in the lower house by end-1998.

Joseph Estrada is elected president by a wide margin

The return to a free democracy

Political stability under Fidel Ramos

6 Philippines


Recent political developments

A lurch towards populist policies under the self-proclaimed "president for the poor" were avoided in the first two years of the Estrada administration as it maintained the macroeconomic targets and liberalising stance of its pre-decessor. However, policy formulation and implementation were often inco-herent and unco-ordinated. Cronyism re-emerged on a major scale, and the president himself was implicated in a stockmarket scandal in January 2000. Although the president boosted his personal popularity by launching an all-out attack in March 2000 on Muslim rebels in Mindanao, sentiment in the business community, both foreign and domestic, deteriorated further as allegations of corruption by the president came to light. These culminated in October 2000 when a disaffected presidential crony claimed that Mr Estrada had been re-ceiving multimillion-peso monthly pay-offs from the proceeds of illegal gambling, as well as a slice of government funds for tobacco industry support.

On November 13th 2000 the House of Representatives voted through articles of impeachment on four counts: bribery, graft and corruption, betrayal of public trust and culpable violation of the constitution. However, on January 16th 2001 pro-Estrada senators won a vote in the Senate rejecting as inadmissible evidence that could have led to Mr Estrada's impeachment. The opposition was not prepared to accept a de facto acquittal on these terms. Mass street demonstrations immediately began, on the pattern of February 1986, and�as in 1986�civilians and the military came together. The heads of all the armed services and of the national police joined the call for the president to resign. Besieged in the presidential palace, Mr Estrada agreed to leave the premises�although he refused to resign formally. He was deemed by the Supreme Court to have abandoned the office of president, and Ms Macapagal Arroyo was sworn in as president on January 20th 2001.

The ouster of Mr Estrada prompted a rebound of confidence among the political and business elite. In May 2001 followers of the deposed president attempted to storm the presidential palace after Mr Estrada was arrested on a charge of "economic plunder"�a capital offence. The administration secured a strong popular mandate in the congressional election in mid-May 2001, with a sizeable majority in the House of Representatives and a slim, but viable, majority in the Senate. Hopes that Ms Macapagal Arroyo's first administration would achieve rapid progress on economic reform were, however, dis-appointed, as the government grappled with the ballooning budget deficit inherited from the Estrada government and the security situation in the south of the country remained dire. Ms Macapagal Arroyo has come to rely increasingly heavily on the US in counter-insurgency activities within the Philippines. In the wake of the September 11th 2001 terrorist attacks in the US, Abu Sayyaf, an extremist Muslim rebel group in Mindanao was linked by the US to the al-Qaida terrorist network. This paved the way for a resumption of US military aid, in the form of hardware and of technical assistance, agreed in December 2001, and the deployment of US personnel on the ground from January 2002 in support of the Philippine military's campaign in the south.

Inefficiency and corruption lead to Mr Estrada's ouster

The new government gradually gains legitimacy

Philippines 7


Ms Macapagal Arroyo managed to hold the government together in the run-up to the presidential election on May 10th 2004. Her main rival was a film star and political novice, Fernando Poe, an associate of Mr Estrada. Mr Poe initially rode high in the opinion polls, but the candidacy of Panfilo Lacson, the police chief in Mr Estrada's administration, split the opposition vote, allowing Ms Macapagal Arroyo to win re-election by a margin of around 1m votes on May 10th. She was sworn in for a fresh six-year term on June 30th, despite the fact that Mr Poe's supporters continued to contest the legitimacy of the result. Ms Macapagal Arroyo can claim some improvement in negotiations with insurgent rebels, including Muslim separatist groups in Mindanao and the Communist Party of the Philippines.

Election result for House of Representatives, May 2004 (no. of seats)

K-4 coalition 181 Lakas 91 Nationalist People's Coalition 58 Liberal Party 29 Kampi 3Laban ng Demokratikong Pilipino 15Others 16

Total directly elected 212Indirectly elected (party list) 24

Total 236

Source: www.congress.gov.ph.

Since re-election, Ms Macapagal Arroyo's main priority has been to push revenue-raising legislation through Congress. The administration had some success in this, getting three bills on to the statute books, including a law to expand value-added tax (VAT). However, the government has been mired in controversy over the legitimacy of its victory in the May 2004 presidential election, as well as a number of other corruption allegations. The production of an audio tape purporting to show that Ms Macapagal Arroyo had discussed the vote count with election officials was particularly damaging to the president's authority. In July 2005 one-third of the cabinet resigned, and it seemed likely that Ms Macapagal Arroyo might be forced to stand down. However, demon-strations against the president failed to build sufficient momentum, and the influential Catholic Church also declined to join the clamour for Ms Macapagal Arroyo's departure, and the government was able to survive the political crisis.

The political uncertainty continued into 2006. In February the government was forced to declare a state of emergency after the army claimed to have foiled a political coup plot. Although the declaration lasted only one week, the event highlighted the extent to which the president is dependent upon the support of the military. In June the opposition launched a new impeachment case against the president, in what was the first opportunity permitted after the 12-month gap required since the earlier impeachment complaint presented to the lower house in June 2005. The present complaint repeats last year�s allegations of electoral fraud and corruption. Given that the pro-administration coalition controls 186 of the 236 seats in the House of Representatives, the impeachment

Ms Macapagal Arroyo wins a second term

Political uncertainty continues

8 Philippines


complaint will not be able to secure the support of 78 members (one-third of the membership of the house) needed to transfer it to the Senate for trial. The administration will take care that its support remains solid. No change in this situation is possible in the absence of a cataclysmic political shock or until next year�s congressional elections, when all the seats in the lower house will be in contention.

Important recent events

August 2001

A ceasefire is agreed with the Moro Islamic Liberation Front (MILF, a group demanding autonomy in Mindanao) as the preliminary to peace negotiations.

May 2003

The Philippines is declared a Major Non-NATO Ally during a visit by the president, Gloria Macapagal Arroyo, to the US. Both countries commit themselves to crushing the Abu Sayyaf guerrilla group.

July 2003

An attempted coup by more than 300 junior officers and soldiers in the Makati financial district of Manila is crushed, but security-related jitters continue.

May 2004

Ms Macapagal Arroyo wins re-election and has the support of an enhanced majority in the Senate, the upper house.

July 2004

The Philippines withdraws its small military force from Iraq in order to save the life of a Philippine hostage. The decision receives harsh criticism from the US and Australian governments, but US assistance to the government for the war in the south of the Philippines continues.

December 2004

Congress (the legislature) passes a bill raising excise taxes on alcohol and tobacco. This is followed in January 2005 by the passage of a bill providing financial incentives to revenue-raising agencies to increase collections.

May 2005

After a mammoth struggle, Congress passes a third revenue bill, increasing value-added tax collections.

July 2005

Allegations of electoral fraud in the May 2004 presidential poll resurface. One-third of the cabinet resigns. Ms Macapagal Arroyo clings on to power, despite an opposition attempt to impeach her, but her authority is weakened.

February 2006

The president declares a week-long state of emergency after the army claims to have foiled a coup.

Philippines 9


June 2006

The death penalty is abolished amid claims that the president is attempting to boost her flagging popularity in a largely Catholic country.

Constitution, institutions and administration

The constitution introduced in 1987 provides for a single six-year presidential term. The president is chief executive, head of state and commander-in-chief. The legislature is bicameral, with a Senate (upper house) of 24 members elected "at large" (on a nationwide ballot), and a House of Representatives (lower house) composed of 212 members directly elected by district and up to 52 members chosen by party list. Senators have six-year terms and representatives three-year terms. The president may not abolish Congress, and the presidential veto can be overridden by a two-thirds majority in the legislature. The judiciary, which is independent of the executive, rules on the constitutionality of presidential decrees. A permanent, independent com-mission oversees compliance with a bill of rights contained in the constitution. Ms Macapagal Arroyo is in favour of moving towards a parliamentary-style constitution. However, rapid progress on the issue is unlikely.

The president selects the members of the cabinet, but, in line with the separation of powers, they must be from outside Congress. All cabinet appoint-ments require congressional approval, but, once approved, an incumbent can be removed only by the president. The National Economic Development Authority (NEDA), headed ex officio by the planning secretary, co-ordinates policy and decisions in all areas relevant to the economic development plan.

The institutional structure is transparent, but its operation is far from open. This stems from the deeply entrenched patronage system that pervades Philippine society, where a favour granted requires a favour in return. Although this can have a benign aspect, preserving social stability in the short term, it seriously undermines the quality of policy formulation and implementation.

Traditionally, government in the Philippines has been highly centralised. However, the 1987 constitution made provision for the establishment of auton-omous regions in two areas with distinct historical and cultural heritages�the Cordillera region of northern Luzon, and Mindanao�if the local population voted by referendum for such status. Both autonomous regions have been established, although the autonomous region in Mindanao is limited to the five provinces (out of 13) in Mindanao that voted for inclusion. The autonomous authorities have powers in the areas of personal and property relations, regional and urban planning, education, and economic and social develop-ment. The Local Government Code of 1991 also devolved some fiscal powers, in the form of the oversight and control of government spending, to local governments.

A structure on the US model

Two autonomous regions

10 Philippines


Political forces

Political parties in the Philippines are based on personalities rather than ideo-logies. All those represented in Congress support the existing political and social structures, espouse a market economy (until it threatens sectoral interests), and are nationalistic, to varying degrees. There are thus continual shifts in allegiance. The president tends to attract a greater following in Congress than the election results would indicate, at least in the early years of a presidential term. In the final years of a presidential term of office the parties tend to splinter as presidential hopefuls emerge and the president has only limited patronage to offer.

Following the May 2004 congressional elections, the largest party in Congress is the pro-government Lakas, which was formed in 1992 to support the presi-dential candidacy of Mr Ramos. Its strength in Congress was eroded after the May 1998 election, which brought Mr Estrada to power, but surged once more in the 2001 mid-term election following the assumption of the presidency by the Lakas vice-president, Ms Macapagal Arroyo. Lakas won 91 of 212 directly elected seats in the House of Representatives in the May 2004 election. Al-though Ms Macapagal Arroyo won the election with the backing of Lakas, which she co-chaired with the speaker of the House of Representatives, Joe de Venecia, since the election she has attempted to revive her personal vehicle, Kampi, by persuading members of other parties to switch loyalties.

The NPC was originally formed to support the presidential candidacy of Eduardo Cojuangco (a former Marcos crony) in 1992. In the 1998 election it backed Mr Estrada's presidential candidacy and was the largest component of the pro-administration coalition, LAMP. The NPC remained part of the pro-administration coalition led by Lakas under Ms Macapagal Arroyo, and won 58 seats in the May 2004 election. Together, the three main pro-administration parties have a solid majority in the House of Representatives.

The Liberal Party (LP), led by the president of the Senate, Frank Drilon, was founded in 1946 and was the party of Ms Macapagal Arroyo's father, Diosdado Macapagal, who was president from 1961 to 1965. The LP was previously part of the ruling coalition, but joined the calls for Ms Macapagal Arroyo's resignation in July 2005. The party won 29 seats in the 2004 election.

Laban was formed in 1988 to back the Aquino presidency. After the 1992 election its position as the largest party in the House of Representatives soon collapsed owing to defections to the new administration party, Lakas. The party gave its support to Mr Estrada in 1998 after its leader, Edgardo Angara, abandoned his own presidential ambitions to run for the vice-presidency. Laban won only 15 seats in the May 2004 election.

Outside the mainstream of congressional politics are political forces for which ideology is the determining factor. The National Democratic Front (NDF) is the umbrella organisation for the Maoist Communist Party and its military wing, the NPA. The Philippines has a long tradition of rural rebellion, and the NPA,

Parties based around personalities

Lakas and Kampi

The NPC and the LP

Laban

The NDF rebels

Philippines 11


founded in 1969, took up the fight waged by the Hukbalahap rebel movement in Luzon in the mid-1950s. The NPA expanded rapidly under martial law, with the number of its regulars rising to an estimated 25,000 by mid-1985. It was then thought to control one-fifth of villages and to be active in 60 of the 75 provinces, as well as in the Manila region. Its attachment to the Maoist dogma that revolution must come from the countryside meant that it played no role as an organisation in the overthrow of Mr Marcos. The post-Marcos regimes have eroded its popular base by offering amnesties, the legalisation of the Communist Party (in late 1992), and land and jobs to surrendering rebels, while maintaining an active military campaign. Peace negotiations with the govern-ment are currently not on the agenda, owing to the NDF's insistence that the government first persuade the US and other governments to remove the rebel group from their lists of terrorist organisations.

Another rebel movement, more heavily armed but less cohesive, is that of the Muslim secessionists in Mindanao. In the past, the main rebel group was the Moro National Liberation Front (MNLF). The Moro Islamic Liberation Front (MILF) has been more active in recent years. The secessionist movement has a history stretching back several centuries. There is no easy solution to demands for secession or autonomy for Mindanao, since migration from Luzon and the Visayas in the 1950s and 1960s has created a Christian majority�or near-parity�in a number of provinces in the region.

A referendum on autonomy was held in Mindanao in August 2001, but it failed to produce an agreement that the whole of Mindanao should come under the control of an autonomous administration. The MILF has recently taken part in peace talks with the government under Malaysian auspices, and these are expected to continue, but hardliners within the rebel movement may delay progress towards a peace accord. A more extreme group, Abu Sayyaf, which is said to have connections with the al-Qaida international terrorist network, periodically kidnaps foreigners for ransom and is not open to the possibility of dialogue with the government.

Another important political force is that represented by the Roman Catholic Church. It played an active part in the civilian opposition to the Marcos regime, and helped the military rebellion that brought Mrs Aquino to power by bringing the population out on to the streets of Manila in its support. The church also took the lead in demands for Mr Estrada's resignation in the wake of the corruption allegations in late 2000. The church initially gave its blessing to Ms Macapagal Arroyo's disputed victory in the May 2004 presidential election, but has since called for an investigation into allegations that the president contacted election officials during the vote count.

The rebels in Mindanao

The Catholic Church

12 Philippines


Main political figures

Gloria Macapagal Arroyo

The president, brought to power in January 2001 in a civilian coup backed by the military. Ms Macapagal Arroyo had been elected vice-president in May 1998, with more than 50% of the vote. She completed the presidential term of the ousted president, Joseph Estrada, and won re-election in her own right in May 2004. Ms Macapagal Arroyo's first term was disappointing in terms of economic reform. Since her re-election she has moved more determinedly to address the parlous state of the public finances, but allegations of fraud during the presidential election have weakened her authority and may lead to slower progress on economic reform during the remainder of her term.

Noli de Castro

Elected as vice-president in May 2004. Despite having served as a senator, Mr de Castro is a former television broadcaster, and this constituted his chief appeal to the electorate. If Ms Macapagal Arroyo were to be forced out of office, Mr de Castro would become president.

Fidel Ramos

A former president and retired general, Mr Ramos continues to play the role of elder statesman. His influence has been crucial in encouraging the new administration to implement its reform agenda, and he provided vital support to the president in the shakiest days of the political crisis in early July 2005. However, he has since called for the president to step down before the end of her term in 2007.

Joe de Venecia

The speaker of the House of Representatives and co-chairman of a pro-administration party, Lakas ng Edsa-National Union of Christian Muslim Democrats (Lakas), Mr de Venecia's support for the administration has been vital to its survival. He supports reform of the constitution in order to create a unicameral, parliamentary-style republic.

Joseph Estrada

The former president, elected in May 1998 for a six-year term with strong popular backing. Deposed in January 2001 after the collapse of his impeachment trial in the Senate, he remains under arrest on charges of perjury and economic plunder. Despite this, he remains a key rallying point for the opposition.

Panfilo Lacson

A former police chief in the Estrada administration, Mr Lacson insisted on mounting a separate presidential bid to that of Fernando Poe, Jr in the 2004 presidential election, thus splitting the opposition vote and handing victory to Ms Macapagal Arroyo. Mr Lacson is surrounded by accusations that the Presidential Anti-Crime Commission was responsible for the murder of 11 criminals while under this leadership. As a senator, Mr Lacson remains a leading opponent of the adminis-tration, and has been vocal in calling for Ms Macapagal Arroyo to resign.

Philippines 13


Organised labour has little power in the Philippines. In mid-2005, 12% or 1.9m formal sector workers in the Philippines were members of a trade union. This represents a big fall since the 1970s and is mainly the result of high levels of unemployment in the economy, and the fact that most workers work in small or medium-sized enterprises, which are hard to unionise.

International relations and defence

A continuing foreign policy priority has been the strengthening of relations with fellow members of the Association of South-East Asian Nations, or ASEAN (see Regional overview: Membership of organisations). Membership of ASEAN gives the Philippines a regional identity independent of relations with the US. Another reason for Philippine participation in a regional body is to counterbalance China, which is seen as a threat, notably in the dispute over the Spratly Islands in the South China Sea.

The US has maintained a special relationship, both political and economic, with the Philippines since the latter's independence in 1946. The US admini-stration has on a number of occasions played a pivotal role in domestic political affairs, inducing Mr Marcos to leave the country in February 1986 and backing the Aquino administration against coup attempts (on one occasion with military aircraft). The Philippines was once home to two of the most important US military bases outside US territory, the naval facility at Subic Bay and the nearby air base at Clark Field. The non-renewal of the lease on the military bases when it expired in 1991 was the most open sign of the Philippines' emerging "Asian" identity.

However, the US "war on terror" and the Philippines' own problems with Muslim insurgents have led to a closer military relationship between the US and the Philippines over the past few years. The US has awarded the Philippines Major Non-NATO Ally status, and US troops and hardware arrived in 2002 to support the campaign against Abu Sayyaf. The US has continued to assist the Philippines militarily, despite a period of cool relations following the decision by the Philippine government in mid-2004 to pull its troops out of Iraq in order to save the life of a Filipino hostage held by militants in that country. The US remains an important source of private investment in the Philippines, reflecting links forged during the colonial period and the early decades of independence; it has by far the largest Filipino community outside the Philippines; and its culture remains the dominant foreign influence within the Philippines.

Weak trade unions

Relations with the US

14 Philippines


Security risk in the Philippines

Armed conflict

Armed conflict is a regular and disturbing feature of the domestic political scene in the Philippines. Over the years, several groups of armed rebels have been active in the large southern island of Mindanao, seeking the creation of an independent state on the island. The two principal secessionist movements are the Moro National Liberation Front (MNLF) and the Moro Islamic Liberation Front (MILF). (Moro is the term traditionally used to describe the Muslim population of the southern islands of the Philippines.) The Philippine military has been battling with the rebels for nearly three decades, although a peace agreement was signed with the MNLF in 1996. A separate ceasefire was reached with the MILF in August 2001, but armed conflict has continued. Negotiations for a permanent settlement are continuing, but may take some time to bear fruit. The military has also fought pitched battles against yet another Mindanao rebel group, Abu Sayyaf. A small extremist Islamist organisation, Abu Sayyaf claims to be fighting for an independent Muslim state, but in fact appears more interested in kidnapping tourists and local residents for ransom. Abu Sayyaf is famously brutal: more than a few of its kidnap victims have been beheaded. Some members of the group have reportedly been trained at camps in Afghanistan run by Osama bin Laden's al-Qaida terrorist network. The Philippine military intensified its campaign against Abu Sayyaf after an American tourist was killed in mid-2001, and the campaign has received backing in the form of both hardware and personnel from the US as part of its war against terrorism. This involvement has enhanced the Philippine military's ability to flush out Abu Sayyaf in the difficult terrain of the rebel group's island base, Basilan, but could be counterproductive if it is perceived as anti-Muslim and so provokes terrorist acts in other parts of Mindanao. This area of the Philippines is clearly unsafe, for foreigners as well as local residents. The Muslim insurgency, however, is far removed from the political and business centre of Manila, the capital. Investors who avoid the disputed regions are unlikely to be affected significantly by the secessionist movements and the military's attempts to subdue them. However, the bombings on February 14th 2005 in Manila indicated that the war in the south could spill over into more central regions of the archipelago from time to time. The challenge from the communist guerrilla movement, the New People's Army (NPA), is much reduced but not defunct. The NPA's activities are essentially confined to attacking the security forces and local political leaders, but are more widely spread, notably in Luzon, and thus are closer to the country's economic hub. Peace negotiations with the NPA are currently not on the agenda, given the organisation's insistence that foreign countries such as the US first remove it from their lists of terrorist organisations. Externally, the Philippines faces no serious threat. The government maintains its territorial claim to some of the Spratly Islands, but has reached a modus vivendi with China over the issue. There is currently little likelihood of armed conflict between the two countries.

Philippines 15


Civil unrest

Large public demonstrations in the Philippines are commonplace; indeed, the country's so-called People's Power movement has brought down two governments in the past 15 years, most recently in January 2001. Such protests are not particularly violent, but are disruptive to the normal functioning of business in the capital. Violence is not, however, uncommon. The run-up to the May 2004 presidential and congressional elections was characterised by protests and a total of around 150 election-related deaths. Opponents of the government who believe that the president, Gloria Macapagal Arroyo, did not win re-election fairly may continue to protest on the streets. Protests over economic issues are common, and demon-strations against the US military presence in support of the campaign against Abu Sayyaf are also likely to persist until the withdrawal of US troops.

Crime

Street crime is a serious problem, particularly in metropolitan Manila. According to official statistics, the incidence of crime in 2003 was 103.2 per 100,000 population, or 52.6 per 100,000 in the case of "index crimes" (serious crimes, such as murder, physical injury, rape, robbery and theft). This was well below the recorded peak of 313.6 per 100,000 in 1984. The crime rate in the National Capital Region is much higher than the national average, at 192.1 per 100,000 population, or 93.2 per 100,000 in the case of index crimes. The authorities acknowledge that 18 murders, on average, are committed in the country every day, with a further 11 homicides a day that are not classified as murder. Kidnappings, rapes and drug-related crimes are also frequent. The high level of crime is a major reason that foreign investors shun the Philippines, and is a factor in the failure of tourism to take off. The problem is made worse by the apparent complicity of some police officials in criminal enterprises.

Organised crime

Violent drug-trafficking organisations are well established in the Philippines, and the narcotic trade is massive. The huge sums to be earned in the drug trade attract politicians, law enforcement officials and leading business figures, and undermine attempts to reduce official corruption. The government has created a new National Anti-Crime Commission and has designated an "anti-crime czar", but they have had few successes so far. Organised crime is not confined to drugs, however; it also encompasses gambling, prostitution, kidnapping, smuggling and extortion. Organised criminal gangs are believed to launder money through a network of local banks. The Philippines was originally cited by the Financial Action Task Force (FATF, an international policy body) as "non-co-operative" in anti-money-laundering efforts. Following the introduction of legislation against money-laundering by the Philippine government in 2003, in early 2005 the FATF dropped the Philippines from its blacklist.

Kidnapping

Kidnapping is rampant in the Philippines, and is carried out by a wide range of groups: Islamist insurgents in the southern islands, sophisticated drug gangs throughout the country and smaller groups of bandits. It is a major concern for companies in the Philippines, including foreign firms, and the affluent Chinese business community has been a prime target. In addition, Abu Sayyaf has kid-napped dozens of local residents and tourists, ostensibly for political reasons. When

16 Philippines


ransoms are not forthcoming, Abu Sayyaf, like other kidnap gangs, has been prepared to carry out its threat to execute hostages. It is widely suspected locally that members of the security forces co-operate with kidnap gangs to extort ransoms. In late 2003 Ms Macapagal Arroyo lifted a moratorium on the use of the death penalty, following the kidnapping and murder of an executive at a US soft-drinks firm, Coca-Cola. However, no executions took place before Ms Macapagal Arroyo banned the death penalty in June 2006.

Terrorism

Terrorism is a serious concern, although it is mainly confined to the southern islands. Abu Sayyaf carries out bombings, kidnappings and murders that clearly qualify as terrorist acts. The group is included on the US State Department's list of known terrorist organisations. Abu Sayyaf claims that some of its members have been trained by the al-Qaida network in Afghanistan, although the group seems motivated less by religious or political fervour than by financial gain from its kidnappings. The southern Philippines, nonetheless, is now widely regarded as a significant breeding ground for terrorists, with its large population of alienated, impoverished Muslim youth.

Resources and infrastructure

Population

The Philippines had an estimated population of 87.9m in 2005. The rate of population growth has been slowing in recent decades (according to national sources), from an average of 3% per year in the 1960s to 2.1% in the 1990s. This reflects two trends: a fall in the birth rate and a fall in the death rate as infant mortality rates have declined. Thus the crude birth rate fell from 46 per 1,000 in 1960 to 30 per 1,000 in 2000 (when the last census was held) as family plan-ning became more widely accepted. Once the government gave its backing to birth control, the percentage of married women of reproductive age practising contraception rose, reaching a peak of 51% in 1995, and stood at 49.3% in 2004, according to the 2004 Family Planning Survey published by the National Statistics Office. Life expectancy at birth rose from 53 years in 1960 to 70.4 years in 2003, according to the Human Development Report 2005 published by the UN Development Programme (UNDP), as the infant mortality rate fell from 60 deaths in the first year of life per 1,000 live births in 1970 to 27 in 2003. The comparatively high rate of population growth means that the Philippines has a young population, with 36% under the age of 15 in 2003.

Population density is high in metropolitan Manila and neighbouring areas of central Luzon, whereas Mindanao, Negros and the other southern islands are sparsely populated. There have been two significant trends in population movement in the last 40 years. First, the proportion of the population living in rural areas has decreased, from 70% in 1960 to 48% in 2000, whereas the urban population grew by just under 4% per year on average during the period. The second trend is migration to the agricultural frontier areas in Mindanao, despite the unrest in that region. Competition from migrants for land has significantly contributed to the conflict in the region

Population growth has slowed

Philippines 17


There has also been substantial migration out of the Philippines, permanent and also temporary (in the form of overseas employment under contract), which has held down both the population resident in the Philippines and the rate of unemployment. This migration has been facilitated by the population's familiarity with the English language and its comparatively high standard of education. Registered permanent emigration peaked at 66,390 in 1993, but fell to only 40,507 in 1999, before recovering to 57,720 in 2002 and 55,137 in 2003; the US was by far the leading destination, accounting for around two-thirds of total numbers. Overseas employment represents an important outlet for excess labour, and is a major source of income for Philippine households. The number of workers employed overseas each year fluctuates with conditions in host countries, but stood at 933,588 in 2004. The Middle East has traditionally been the leading destination for contract workers, with openings in both construction work and private services, but East and South-east Asia have grown in significance as destinations. A recent agreement with Japan will provide more employment opportunities for Filipino care workers in Japan.

Education

Education standards are fairly high. In the 2003/04 school year, 88.8% of child-ren of the relevant age were enrolled in primary schools and 59.2% in second-ary schools, according to data published by the Department of Education. Tertiary education is also developing rapidly: in the 2002/03 academic year, 2.76m students were enrolled in higher education institutions, up from 1.9m in 1994/95. However, the situation is not as good as these figures indicate. Although the government claimed that 93.4% of the population was literate in 2003, in reality a significant proportion of the population is believed to be functionally illiterate (14.2% in 1994, according to the most recent government figures). This is because, although there has been near-universal enrolment at primary-school level for more than two decades, the high drop-out rate means that one-third of all pupils do not complete their primary-level education. A similar proportion of secondary-school students fail to complete secondary-level education.

The national figures also conceal the familiar disparity between Manila and the poorer provinces: in Manila, the cohort survival rate (pupils completing their schooling as a proportion of the total intake) in elementary schools was 79.4% in 2002/03, compared with 48.1% in the Autonomous Region of Muslim Mindanao (although the latter figure was a significant improvement compared with 34% in 2001/02). Overall education standards have come under pressure owing to underinvestment, as the sector has fallen victim to the squeeze on government spending. The situation in primary education has been com-pounded by the fall in the state's proportional contribution to primary-education costs, whereas the state's contribution to tertiary education has risen. Consequently, enrolment figures for 2002/03 show a significant decline compared with 2001/02, when 97% of children of primary-school age and 73.4% of those of secondary-school age were enrolled in school.

Emigration and overseas employment

High enrolment rates, but low completions

18 Philippines


Health

Healthcare provision is inadequate. UNDP data show that the Philippines had only 58 doctors per 100,000 people in 2000. To some extent, as in the case of education, this reflects budgetary constraints. Spending on healthcare was equivalent to only 3.2% of GDP in 2003, with the private sector accounting for 56% of total healthcare spending. However, the situation is exacerbated by the skewed geographical distribution of healthcare facilities. A disproportionate number of doctors are located in the National Capital Region, and the poor road infrastructure in the rural areas of the poorer provinces limits the access of a large section of the population to such facilities as do exist. Moreover, the provision of healthcare is being undermined by the departure of doctors and nurses to work overseas.

Natural resources and the environment

The Philippines is one of the largest island groups in the world, numbering more than 7,100 islands and extending 1,851 km north to south and 1,107 km east to west. The topography is varied and includes two mountain ranges in Luzon and several volcanoes, 21 of them active.

The climate is tropical, with some variation in the extent and duration of the dry season. In the western provinces of Luzon, Mindoro, Negros and Palawan (the western rim) there are two pronounced seasons: dry from November to April and wet for the rest of the year. Other regions have rainfall more or less evenly distributed throughout the year. All are exposed to typhoons, which occur most frequently across the middle latitudes of the country. Southern Mindanao is almost typhoon-free.

The area under crops expanded markedly in the 1970s and reached 12.3m ha in 1979/80, mainly as a result of the clearing of virgin forest, particularly in Mindanao, where more than one-half of the commercial acreage is located. Bureau of Agricultural Statistics data show that the national cropland area had risen to 11.9m ha by 2003, but land availability is now a serious constraint in Luzon and some parts of the Visayas. Forests were in the past one of the main resources, but they have been rapidly depleted.

The Philippines has extensive fishing resources, both marine and inland, with the largest area of developed estuarine fishponds in South-east Asia and an exclusive fishing zone of 1.9m sq km. Although neither freshwater fishponds nor most of the marine waters have been fully developed, the productivity of some resources has been deteriorating as rising demand and the use of destructive methods of exploitation have resulted in overfishing. Few coral reefs remain in good condition, and the mangrove area has halved since the late 1970s.

Mineral resources are widely scattered throughout the islands, but around one-quarter of the land area has not been surveyed. At end-1996 there were estimated reserves of 4.8m tonnes of copper, 1.1m tonnes of nickel, 36,667

A large island group

Fishing

Minerals

Philippines 19


tonnes of chromite, 226,852 tonnes of gold and 484,696 tonnes of iron. The picture is mixed for energy resources. There are large deposits of coal and lignite, with proven reserves of 369m tonnes, of which close to 40% are on Semirara Island, and potential reserves are estimated at 1.6bn tonnes. Commercial deposits of oil off Palawan Island are small and have proved technically difficult to exploit and operate. Reserves of gas in the Malampaya field in the same region are substantial, estimated at 2.8trn-3.5trn cu ft (other gas reserves are estimated at 1.8trn cu ft), and are now being exploited. Geothermal resources are large and, as yet, not fully developed.

The Philippines is at significant risk from tropical storms, which can severely disrupt business operations; an average of around 20 storms hit the country each year. Typically, they are more frequent and severe in the northern islands. Volcanic eruptions can be extremely disruptive: the eruption of Mount Pinatubo in 1991 caused massive damage to a wide area of Luzon north of the capital and closed Manila airport for a period.

Transport, communications and the Internet

The transport infrastructure is inadequate, having suffered from decades of underinvestment. During the 1990s some of the most serious shortcomings began to be tackled, and a number of infrastructure projects are currently under way, but development has been concentrated in economic hubs.

The system is essentially bimodal, with roads carrying 60% of freight and 80% of passenger traffic, and water 40% of freight and 10% of passenger traffic. Air transport is oriented towards carrying passengers on journeys between islands. The rail network is minimal.

The road network covered 201,834 km at end-2000, of which two-thirds were feeder and village roads. Less than one-half of the network is all-weather, an important consideration in view of the climate, and only 21% of all roads are paved with concrete or asphalt. In August 2005, 28,252 km of roads were classed as "national roads", of which 63% were paved with concrete or asphalt. The condition of the feeder roads is generally poor, the result of substandard construction, inadequate maintenance and use by overloaded vehicles. Bridges are often weak, if not altogether absent, and some remote areas have few access roads. The upgrading of the North Luzon highway was completed in February 2005; the upgrading of the South Luzon expressway is due to begin in the second half of the year.

The railway network is being gradually extended. The construction of the North Rail from Malolos, Bulacan, to Caloocan, began in October 2005 and is being partly funded by the Chinese government. In addition, there is a modern, elevated rail system in Manila, which is currently being expanded within the metropolitan area.

Given the geography of the Philippines, shipping services and port facilities are of critical importance. In all there are close to 1,500 ports in operation, but six�Manila, Cebu, Iloilo, Cagayan de Oro, Zamboanga and Davao�handle over 80%

Risk from natural disasters

Transport

20 Philippines


of public port traffic. The inter-island fleet is old, safety regulations are poor and maritime navigational aids, in particular lighthouses, are inadequate.

There are 87 national airports (with paved runways), of which eight�Manila, Cebu, Davao, Subic, Clark, Laoag, Zamboanga and General Santos�are international. The provision of domestic services has been improving as the aviation sector has been liberalised and new airlines have entered operation. However, after excessive capital spending resulted in a financial crisis at the privatised national carrier, Philippine Airlines (PAL), in 1998, the domestic route network was sharply cut back.

The telecommunications system used to be inadequate and unreliable, and telephone density stood at only 1 per 100 people in the mid-1980s. The deregulation of the sector in 1993 transformed the situation. Presidential decrees mandated interconnections between networks and required that international gateway operators and mobile telephone companies install telephone systems in urban and rural areas. The changes ended the monopoly enjoyed by the Philippine Long Distance Telephone Company (PLDT). As PLDT installed new lines and other operators entered the field, telephone density rose, reaching 9.1 per 100 people in 1998, according to the National Telecommunications Commission. However, many installed lines are not in use�fixed-line density fell to 7.8 per 100 people in 2004�owing to the vibrancy of the mobile-phone market. This figure refers to installed lines; subscribed fixed-line density was only 4.2 per 100 people in 2004. Mobile-phone ownership has been expanding rapidly in recent years, with 32.94m subscribers at end-2004, according to the commission.

There were an estimated 7.8m Internet users as of March 2005, according to Internet World Statistics, a market research company, but ownership of personal computers is limited to wealthy urban households. The e-commerce market in the Philippines is therefore small. Although the passage of the Electronic Commerce Act in July 2000 should enhance growth in this sector, lax enforcement and the inadequacy of protection for intellectual property rights remain severe constraints.

Under the autocratic rule of Ferdinand Marcos, the mass media, with the exception of a few small-circulation and often short-lived newspapers, were controlled by interests close to the president, and press censorship was exercised by the government. Now that the sector has opened up again there is a multiplicity of newspapers�475 in 2000�and the Philippine press is a byword for freewheeling comment and speculation. There were 957 broadcasting radio stations in 2004, both commercial and non-commercial, of which 369 broadcast on AM wavebands and 583 on FM, and five on shortwave. There were 97 television broadcast stations in 2003.

Communications

Philippines 21


Energy provision

The Philippines depends to a fairly high degree on foreign energy sources, but since the oil price rises of the 1970s the government has sought to bring down the deficit in national supply. The contribution of domestic energy sources has been rising, reflecting investment in geothermal and hydroelectric capacity and the availability of a wider range of non-conventional sources. This trend was reinforced with the start-up of gas production from the Malampaya reserves, off Palawan, in October 2001. Domestic oil is not expected to make a significant contribution, and domestic coal production will continue to be supplemented by imports.

Power generation was previously a state preserve, but the private sector has been brought in over the past decade to remedy shortfalls in supply and capital. When Fidel Ramos became president in 1992 the Luzon grid (on which Manila depends) had a supply deficit of 1,000 mw. This was because a plan for 620 mw in nuclear capacity to come on stream in 1986 had lapsed. The Ramos administration launched a fast-track programme of electricity expansion, which eliminated the power shortage by end-1993. At end-2003 power-generating capacity stood at 14,700 mw, up from 6,949 mw at end-1992. Much of the increase came from plants built under build-operate-transfer (BOT) contracts, and the use of such arrangements, as well as of build-own-operate (BOO) agreements, has become common, being used also for the development of capacity that utilises gas from the Malampaya field. The greatest long-term potential for expansion in power-generation capacity lies in geothermal energy. Geothermal power generation on a commercial scale began in 1979, and capacity in 2002, at 1,931 mw, was second only to that of the US. The latest development plan of the Department of Energy envisages additional capacity of 990 mw by 2011.

The liberalisation of the energy sector took another, more far-reaching, step forward in 2001 with the passage of legislation to privatise the state-owned utility, the National Power Corporation (Napocor). Even so, attempts to sell off Napocor have stumbled, and a major policy challenge for the new government elected in May 2004 is to make progress on the sell-off of both generating and transmission assets. Several generating assets were sold off in late 2004, but progress since then has been slow.

The economy

Economic structure

Reflecting its varied resource endowment, both physical and human, the economy is diversified. In 2005, the agricultural sector accounted for 14.3% of GDP, the industry sector 32.3%, and the services sector 53.4%. The informal sector is large, particularly in the towns, where over one-half of the population now lives.

Energy supply and usage

22 Philippines


The economy is marked by great disparities: in ownership of assets, in income, in levels of technology in production and in the geographical concentration of activity. The National Capital Region (NCR), centred on Manila, contains 13% of the population and generates more than one-third of GDP. Income per head in 2004 in the NCR, the richest region, was 11.4 times that in the poorest region, the Autonomous Region of Muslim Mindanao (see Regional trends). A wide gap also exists on the human development measure (which takes into account other indicators), with the index score for Sulu, one of the Muslim provinces, at just over one-half of the national average in 2000 (the time of the last national census) and only around two-fifths that of the NCR. An even greater disparity is evident nationwide between the richest and poorest households. In 2000 the richest 10% of the population had an income 23 times that of the poorest 10%. Those living in poverty were estimated at 34% of the population in the same year, whereas the poverty rate in the NCR was only 7.6%.

Economic policy

The major economic policy requirement in the Philippines is to raise the level of budget revenue on a sustainable basis. The low ratio of tax revenue to GDP�around 15% in most years�has meant that the government has never invested adequately in physical and social infrastructure, generating serious bottlenecks in mobilising the Philippines' considerable resources. The situation has been exacerbated by the primacy accorded to achieving fiscal equilibrium, with dev-elopment spending in particular suffering as a result of the revenue shortfalls.

Progress was made under the presidency of Fidel Ramos from 1992 to 1998, with a small budget surplus registered each year in 1994-97. However, after a steady narrowing of the surplus, the budget was back in the red in 1998 to the tune of 1.8% of GDP. The deficit then gradually increased, reaching a peak of 5.4% of GDP in 2002. The primary reason for the reversal was the onset of the Asian economic crisis in 1997-98. This had an immediate and severe impact on the budget. The depreciation of the peso and the steep rise in interest rates pushed up the cost of servicing the government's debt, just as the slowing of economic growth and the onset of recession in 1998 hit tax revenue.

Budget targets and results (P bn)

2005 2006 Target Actual TargetRevenue 783.2 795.7 928.1Expenditure 963.2 942.5 1,053.0

Balance -180 -146.8 -124.9

Source: Department of Finance.

The government began reining in the deficit in 2003, and the budget deficit has fallen in each of the last three years, reaching a low of 2.7% of GDP in 2005. The government has now set itself the ambitious, although achievable, target of eliminating the deficit by 2008. The government hopes to achieve a balanced budget through the introduction of a number of new taxes, including raising

Income disparities

The fiscal priority: enhancing revenue

Progress in the mid-1990s is soon reversed

The deficit edges down as the government focus on the issue

Philippines 23


excise taxes on alcohol and tobacco, and a bill in January 2005 providing financial incentives to revenue-collection agencies to collect more tax. However, the most important of the government's measures to raise tax collection is legislation expanding value-added tax (VAT). The act, which came into force in July 2005, provides for the elimination of a number of VAT exemptions, and gives the president the power to vary the rate of VAT from 10% to 12% if the previous year's budget deficit has exceeded 1.5% of GDP. A further provision temporarily raises corporate income tax from 32% to 35% for three years (2006-09), after which the rate falls back to 30%.

In the first half of 2006 there were signs that the new taxes were having their desired impact, after the budget deficit fell to P31.5bn (US$599m). This compares with a deficit of P67.5bn in the first half of 2005 and a government target of P90.4bn.

Economic performance

The other economic policy priority, pursued since the administration of Corazon Aquino (1986�92), has been the restructuring and liberalisation of the Philippine economy. The core purpose is to remove the structural constraints that have distorted the development, and depressed the growth, of an economy that at the end of the 1950s had been the most industrialised in South-east Asia. The constraints had their origin in the rentier economy of the colonial period and the persistent and high level of protectionism in the decades since independence. The major strands of the liberalisation programme are:

• the elimination of monopolies;

• the opening of restricted or banned sectors to foreign investment;

• the privatisation, wholly or in part, of all government corporate holdings and such core services as are appropriate;

• the easing or lifting of tariff and non-tariff barriers; and

• a simplification and widening of the tax system in order to yield enhanced tax receipts.

To varying degrees, all of these policies challenge entrenched interests, which find strong protection in Congress. Nevertheless, major structural reforms were introduced during the Aquino and Ramos administrations. They were supple-mented by the opening of another closed sector, retail trade, and by further bank liberalisation, during the presidency of Joseph Estrada (1998-2001). Within months of coming to power the current president, Gloria Macapagal Arroyo, secured congressional approval for the long-mooted liberalisation of the power sector, including as its major component the privatisation of the electricity utility, the National Power Corporation (Napocor).

However, little progress on the Napocor sell-off has since been made. By the end of 2005, only 11% of Napocor's generating capacity had been sold off. The current target of selling off 70% of generating assets by mid-2007 is unlikely to be realised, but it is reasonable to assume that this figure will be attained before 2010. Other proposals aired during the Estrada administration�lifting the ban

A sustained restructuring and liberalisation of the economy

24 Philippines


on foreign ownership of land and easing restrictions on foreign involvement in the media, education and utilities�remain on the agenda, but progress will be slow for domestic political reasons.

Main economic policy developments

June 2001

The power sector is liberalised with the passage of the Electricity Power Industry Reform Act, which provides for the privatisation of the state utility.

December 2002

The special-purpose asset vehicle law is passed, which encourages financial institutions to dispose of non-performing assets.

November 2003

Political pressures and the need to raise revenue lead the government to increase import tariffs on 464 manufactured goods from 3-10% to 5-15%. The new rates are to last until 2007.

December 2004

The Supreme Court reverses its earlier ruling on foreign investment in mining, potentially paving the way for large-scale investments.

January 2005

The government assumes P200bn (US$3.57bn) of the debts of the state-owned National Power Corporation (Napocor) in order to facilitate the privatisation of the indebted power utility.

May 2005

An act is passed eliminating the number of items that are exempt from value-added tax (VAT), while the president is also given the power to vary the rate of VAT from 10% to 12%.

April 2006

The government signs into law an extension of the special-purpose asset vehicle law.

A key policy change on the monetary side has been the switch to inflation targeting by the Bangko Sentral ng Pilipinas (BSP, the central bank) at the start of 2001. It had traditionally set interest rates to meet monetary targets monitored by the IMF, and with an eye to countering sharp fluctuations in the peso's value and providing some degree of support when it was depreciating rapidly.

The switch to a policy of inflation targeting has been broadly successful. In the four years since the adoption of inflationary targeting, the rate of inflation has averaged 5%, which is below the average of the previous five years, although this success may be at least partly the result of a general decline in global inflationary pressures during the same period. Moreover, although interest rates were increased three times in 2005, they are still well below the level immediately preceding the adoption of an inflation-targeting regime.

After a long period of falling interest rates, the BSP was forced to raise interest rates three times in 2005, in the face of rising inflation and higher interest rates

BSP switches to inflation targeting

Rates begin to move upwards again

Philippines 25


in the US. However, interest rates have been kept on hold since the last rate rise in October 2005, when the overnight borrowing and lending rates were increased to 7.5% and 9.75% respectively. Although the rate of inflation remains uncomfortably high, reaching 6.7% year on year in June 2006, it is on a downward trend, after peaking at 8.6% in December 2004 and averaging 7.6% in 2005. This should enable the central bank to refrain from any immediate increases in interest rates.

Regional trends

There is a wide disparity in wealth between different regions. The National Capital Region (NCR, which include Manila) accounts for more than one-third of the economy's output, and its GDP per head is nearly three times the national average. In 2004, the latest year for which statistics are available, only two other regions�the Cordillera Administrative Region, and Northern Mindanao�recorded a level of income per head above the national average, at P73,787 (US$1,317). Income per head in the Autonomous Region of Muslim Mindanao was less than one-quarter of the national average, reflecting the concentration of manufacturing activity in the Manila area. However, growth points have been developing in other regions�notably in Southern Tagalog, where industrial parks have been the focus for much investment, both domestic and foreign, in recent years.

Gross domestic product by region, 2004 (at current prices unless otherwise indicated)

Total (P bn) % of national total% real change,

2004/1999 GDP per head (P)Luzon National Capital Region 1,720.4 35.6 27.6 158,798Cordillera Administrative Region 107.7 2.2 14.4 73,787Ilocos 138.3 2.9 20.2 30,882Cagayan Valley 96.5 2.0 16.7 31,963Central Luzon 383.1 7.9 21.1 42,566Calabarzona 555.4 11.5 � 51,356Mimaropaa 98.9 2.0 � 39,142Bicol 126.5 2.6 26.5 25,272Visayas Western Visayas 320.3 6.6 26.9 48,939Central Visayas 339.5 7.0 28.2 54,746Eastern Visayas 117.6 2.4 21.0 30,566

Mindanao Zamboanga Peninsula 110.3 2.3 17.3 36,076Northern Mindanao 224.7 4.7 57.1 59,265Davao Region 219.6 4.6 -9.4 55,115Soccsksargenb 162.0 3.4 67.6 45,064Caraga 43.5 0.9 -18.8 27,750Autonomous Region of Muslim Mindanao 62.1 1.3 67.7 13,968

Source: National Statistical Co-ordination Board.

There are wide regional disparities in wealth

26 Philippines


Economic sectors

Agriculture

Although agriculture ranks higher than manufacturing in terms of employment, its share of GDP has been diminishing for decades because of its slow rate of output growth. Agricultural exports, which once constituted virtually the whole of the country's exports, now account for less than 4% of foreign earnings. Although there has been some diversification in agricultural crops in the past half- century, the sector remains dominated by two traditional crops, rice (wholly for domestic consumption) and coconuts (the Philippines accounts for nearly one-half of the world's crop). Trends in their output have a significant impact on inflation (in the case of rice) and on rural incomes (particularly in the case of coconuts).

Rice is cultivated on an area of 4m ha (2003 data), and is mainly grown in typhoon-prone central Luzon. Coconuts are grown on an area of 3.2m ha, more than one-half of which is in Mindanao. In both cases production is pre-dominantly small-scale. Under favourable weather conditions the Philippines has been self-sufficient in the food staple, rice, since the late 1970s, reflecting a switch to higher-yield strains. In contrast to rice output, which has generally been rising in the past decade, output of coconuts was falling until 1995. This reflected the rapid ageing of trees and felling for construction purposes, as logging of conventional forest was restricted. The government then imple-mented a major replanting and rehabilitation programme with World Bank support, which began to pay off from the mid-1990s.

The El Niño-induced drought caused the rice harvest to fall by 24% in 1998 to 8.6m tonnes, which was accompanied by a 6.6% fall in coconut output in the same year to 12.8m tonnes. In 1999 the rice crop more than made up for its fall the year before, with a rebound to 11.8m tonnes, and has risen steadily since, aided by good weather in 2001 and better availability of inputs. In 2003 rice output reached a record 13.5m tonnes, up by 1.7% year on year, and a further 7.4% increase to 14.5m tonnes was achieved in 2004. Coconut production began its rebound in 2000, and in 2004 output reached 14.4m tonnes, compared with the 1997 harvest of 13.7m tonnes.

Sugar was once a major export crop, but output has fallen as the preferential market in the US has shrunk, and producers have switched to higher-value crops and fish farming. In the case of another traditional export crop, coffee, the rise in domestic demand has in most recent years eliminated supplies for export. By contrast, bananas and pineapples have become significant export crops since the 1970s, reflecting investment by US companies; mangoes have become significant since the 1990s. All livestock production is for domestic consumption. The Philippines is self-sufficient in pork and poultry, but needs to import beef and dairy products.

Rice and coconuts are the main crops

Philippines 27


Land ownership

A major constraint on economic growth

One of the fundamental reasons for the failure of the Philippine economy to take off along with similar economies in East Asia is the distribution of land�or rather the failure to redistribute it. As the rise in the area under cultivation has failed to keep pace with population growth, the average farm size has fallen: the 2002 census of agriculture carried out by the National Statistics Office showed that the average farm size in the Philippines was just 2.04 ha. A small number of landlords own a disproportionately large share of land. The result is deep-rooted poverty that affects around one-half of the rural population. Since the first years of independence there have been attempts at land reform, which initially took the form of allocating virgin land for settlement as well as partitioning some large estates. The scope for the former was soon exhausted. A programme was introduced under the presidency of Ferdinand Marcos to convert share tenancies in land planted to rice or maize. Corazon Aquino initiated a much more extensive programme of redistribution, the Comprehensive Agrarian Reform Programme, covering all agricultural land (above a retention limit of 5 ha per landowner and 3 ha per direct heir) over a ten-year period. The beneficiaries were the farmers or "regular farm workers" on the land. About 55% of existing agricultural land was covered. However, there was a significant exclusion: corporate landholdings were deemed to comply with the programme through a transfer of stock, rather than land, and so landowners could use incorporation as a means of avoiding the break-up of their estates. The underlying problems remained the inadequacy of back-up services for a new generation of small, poor farmers and the absence of political will to transfer so fundamental an asset. Lawsuits and obstruction by entrenched interests, as well as cuts in funding for landowner compensation, have caused the programme to fall far behind schedule. Completion is not expected before 2008�ten years behind target.

Forestry is now a marginal sector, as a result of resource depletion over a long period. By the early 1990s its contribution to GDP was already less than 0.5%, and officially recorded export earnings from forestry products were only US$33.9m in 2004. However, there is a high level of illegal logging activity, particularly in remote areas of Mindanao.

Fishing is an important sector, employing 1.4m people in October 2003 (mostly at near-subsistence level) and providing an important and generally growing source of foreign earnings. However, although commercial fishing and fish farming have grown over the past decade, subsistence fishing has declined, depressing output growth in the sector. This reflects the overfishing of inshore waters as the commercial fleet encroaches within this area. Meanwhile, the coral reef has suffered serious damage from dynamiting and other destructive fishing practices. Foreign fleets are also depleting Philippine waters.

Forestry resources are disappearing

Fishing

28 Philippines


Mining and semi-processing

Mining output has risen in recent years, and accounted for 1.7% of GDP in 2005. The prospects for the sector became considerably brighter following decision by the Supreme Court in December 2004 to revoke its earlier ruling that foreign investment in the mining sector was unconstitutional. However, the outlook for the sector remains uncertain, and this is best demonstrated by the continuing saga of the controversial mine on Rapu-Rapu island. In July 2006 the govern-ment allowed the mine to be reopened on a trial basis. When it first opened in 2005, the Rapu-Rapu mine, with big reserves of gold, silver, copper and zinc, was the country's first foreign-run mine in nearly 40 years. But within months it was ordered to shut down after twice spilling cyanide into local waterways. The leaks, in a country with a history of pollution disasters caused by careless miners, provoked an outcry. Archbishop Angel Lagdameo, president of the Catholic Bishops' Conference, called for a �struggle� against all mining.

Manufacturing

The manufacturing sector is the single most important production sector in the economy, accounting for around 24% of GDP in 2005. The sector developed rapidly during the 1950s and 1960s�essentially for import substitution, a process aided by high levels of protection for domestic industry. There was also marked growth in industries assembling consumer goods, which were initially heavily dependent on imported components. The government launched a programme in the early 1980s to develop the intermediate and heavy industrial base. A copper smelter, a chemicals complex, a phosphate fertiliser plant and a low-range diesel engine factory were set up by groups with government participation, and the cement industry was expanded. Nevertheless, the structure of manufacturing is still heavily weighted towards the production of consumer goods. It also remains oriented towards the domestic market despite the development since the 1970s of labour-intensive export manufacturing, in particular of electronics and automotive parts.

The expansion of the export manufacturing sector was stimulated by the creation of export-processing zones (EPZs), where companies were granted incentives in addition to the tax and duty exemptions more widely offered to manufacturing. The first such zone was set up at Mariveles, in Bataan. Other zones have been developed on Mactan Island near Cebu city, at Baguio, north-east of Manila, and at Cavite, south of Manila. Two newcomers were the Subic Special Economic and Freeport Zone, at the former US naval base along Subic Bay on the main island of Luzon, and Clark, at the former air force base in the central Luzon province of Pampanga. Many other industrial parks and zones exist all over the country. More than 1m people were employed in such zones in 2005, according to the Philippine Economic Zones Authority, producing exports of US$32bn in that year. However, the government's plans to bring the public finances into balance by 2008 include a bill rationalising (and thereby reducing) the fiscal incentives that are available in these special zones and parks.

The export-processing and special economic zones

Philippines 29


In the long term, the prospects for the sector remain uncertain. The Philippines will continue to attract investment geared to crossborder production within the Association of South-East Asian Nations (ASEAN), and it should continue to benefit from the "hollowing out" of manufacturing industry in Japan and Taiwan. However, the Philippines faces strong, and growing, competition from lower-cost producers, notably mainland China, and there is a concern that the Philippines will lose out as even more labour-intensive manufacturing capacity moves to the mainland.

Detailed official statistics on manufacturing do not cover the important contrib-ution of small enterprises. These are numerous, and are an important source of employment. Manufacturing establishments employing more than 20 workers numbered 7,451 in 1999 (the latest data available), providing employment for 1.1m people. By contrast, manufacturing establishments employing fewer than 20 workers numbered 117,377, and provided employment for 456,448 people.

Construction

During 1993-97 construction output rose by nearly 10% per year. Growth was dynamic despite the sluggishness of government capital spending, which was offset by the contribution of the private sector in financing improvements in physical infrastructure. However, the sector went into sharp decline in 1998, owing to the sharp rise in interest rates in the wake of the regional financial crisis and the broader downturn in investment spending. Although the sector has recovered over the last two years, the value of construction activity remains well below the peak reached during the construction boom in 1996-97.

Financial services

The financial sector is underdeveloped compared with that of other countries in the region, and the inadequacy of the local capital market is a major reason for the country's low propensity to invest. The ratio of total assets of the banking system to GNP is the lowest in East Asia, and individual commercial banks are small compared with those in other countries.

In the past decade, the government has attempted to promote the development of financial services by liberalising the sector: the 44-year ban preventing foreign banks (other than the four already present) from operating in the Philippines was lifted in 1995; full operating licences are now being granted to foreign insurance companies in line with World Trade Organisation membership commitments; and legislation in 1997 eased restrictions on foreign investment in finance companies and investment houses.

The Philippines has a large number of commercial banks (42 in 2005), varying widely in size, from the major banks with assets of more than P300bn (US$5.7bn) to small, frequently family-controlled operations. Two banks, the Land Bank of the Philippines and the Development Bank of the Philippines, are government-owned, and the government has a residual stake (through its pension funds) in the Philippine National Bank (PNB), after it sold a 33.5%

A significant informal sector

The construction sector remains generally sluggish

30 Philippines


tranche of its 45% equity in August 2005. The state also owns a small Islamic bank, the Al-Amanah Islamic Investment Bank, which serves Muslim areas in the south of the Philippines.

Assets of the top ten commercial banks, 2005 (P bn; year-end)

Metrobank 586.5Bank of the Philippine Islands 530.0

Equitable PCI Bank 326.2Land Bank of the Philippines 310.9

Banco de Oro 234.0Philippine National Bank 224.4Development Bank of the Philippines 210.6

Citibank 198.7Rizal Commercial Banking Corporation 189.3

Allied Banking 138.4Total assets of commercial banks 4,144.2

Source: Press reports.

For 44 years, until 1995, only four foreign banks were permitted to operate branches in the Philippines. The US-based Citibank and Bank of America, together with Hongkong & Shanghai Bank and Standard Chartered (both of which are now headquartered in the UK). Following the lifting of the ban, operating licences were granted to ten other foreign banks, mainly from the Asia-Pacific region. These banks have concentrated on wholesale corporate services. It was originally envisaged that a further ten licences would be issued after a transitional period of three to five years. This target was abandoned, with the Bangko Sentral ng Pilipinas (the central bank) favouring more consolidation among domestic commercial banks before other foreign banks were allowed to enter. However, the entry of foreign banks was liberalised in the General Banking Law of 2000, which raised the maximum foreign ownership level of banks to 40% of voting stock. In addition, in certain conditions the central bank can allow a foreign bank to own 100% of a domestic bank. In 2005 a total of 18 foreign banks were operating in the country, but only one, Citibank, ranked among the top ten in terms of assets.

The general trend towards merger and consolidation was reinforced in the wake of the 1997-98 regional crisis when higher capitalisation was demanded of all banks. The quality of banks� asset portfolios has also gradually improved, after their sharp deterioration in 1997-98. The Special-Purpose Assets Vehicle (SPAV) bill, which was passed in December 2002, provided tax incentives on the purchase by asset management companies of non-performing assets (both loans and foreclosed property). By March 2006 the ratio of commercial banks� non-performing loans (NPLs) to total loans was down to 8%, compared with 19.4% at the end of 2001. A two-year extension of the act, introduced in April 2006, is expected to stimulate another marked fall in the ratio, approaching its pre-crisis level of 5%.

The biggest investment house is PDCP Bank, formerly known as the Private Development Corporation, followed by the Bank of the Philippine Islands Investment Corporation (formerly the Ayala Investment Corporation). The

Philippines 31


government-owned Development Bank of the Philippines is an important source of investment for agriculture and small- and medium-scale industry. In addition, there is an offshore banking and foreign-currency deposit system. Offshore banking licences are available only to foreign banks, but all commer-cial banks are permitted to operate foreign-currency deposit units.

The Philippines Stock Exchange (PSE) received a double boost in the early and mid-1990s from the general international interest in emerging markets and the programme of investment liberalisation and privatisation. The market capital-isation of the stockmarket rose from only P353bn at end-1992 to P2.12trn (US$80.9bn) by end-1996. However, it remained both small and highly vulnerable to trends in world equity markets and nervousness about the domestic political climate. Thus in 1997 the main PHISIX index fell by 41% over the year and market capitalisation was nearly halved. The index continued to fall, reaching a seven-year low of 1,082 in September 1998.

New highs were reached in June 1999, when the PHISIX index hit 2,487 at the end of the month. However, falling confidence in the administration of Joseph Estrada, which was not offset by the relative resilience of the economy in 2000, served to push down the index once more, so that it dipped below 1,450 in mid-January 2001, when Mr Estrada was ousted as president. Residual political uncertainty and the deterioration in demand for emerging-market equities pushed the index down even further, and it stood at just above 1,200 just before the September 11th terrorist attacks. Thereafter the PHISIX index fell along with other world markets, ending October 2001 at just 993. By the end of 2001 it had recovered to 1,168, buoyed by unexpectedly good GDP results. The PHISIX index rallied to a high of 1,470 in February 2002, but continuing bouts of bearish sentiment, relating to the trial of Mr Estrada and the security problems in the south of the country, took their toll, and the index finished the year at 1,018.

A hesitant recovery was stalled by the attempted coup in July 2003 and political concerns in advance of the 2004 elections, but the index rallied to end 2003 at 1,442 as the incumbent president, Gloria Macapagal Arroyo, announced her candidacy in the presidential election. The index ended 2004 at 1,823 in response to investor relief following Ms Macapagal Arroyo's victory in the May election, and also in a reflection of a very good year for economic growth and of the government's new-found determination to address the public finances. In early 2005 a long period of wrangling in Congress over the VAT bill took its toll on the market, but from April 2005 onwards the index was on a rising trend, reflecting progress on fiscal stabilisation, strong GDP growth as well as overall trends in emerging markets. It ended the year at 2,096. The rise in the index (renamed PSEi) continued throughout the first four months of 2006, hitting an all-time high of 2,589 on May 8th, but then weakened owing to fears of further rises in US interest rates and a broader downturn in emerging markets. On August 4th 2006 the index closed at 2,362.

Regulation of the equities market is governed by the Securities Act, which was passed in 2000. This tightened the definition of insider trading, required full disclosure by listed companies, set a one-year deadline for the demutualisation of the PSE (effected in August 2001) and enhanced the powers of the regulatory

32 Philippines


body, the Securities and Exchange Commission (SEC). However, the quality of regulation will continue to be undermined by the pervasive personal networks active in this sector, which deter new entrants, keeping the equity market small and making it an inadequate means of mobilising domestic savings. Much more also needs to be done to strengthen public listing requirements to im-prove corporate governance.

Other services

The retail sector was, for many decades, closed to foreign participation. This was nominally to protect small corner shops from foreign competition, but the ban acted to keep the bulk of retail trade small-scale, much of it in the informal sector. The 2000 Census of Philippine Business and Industry showed that in 1999 the Philippines had 298,764 retail outlets (excluding retail trade in motor vehicles), employing 1.2m people. However, a trend was established in the late 1980s and 1990s for the development of large shopping complexes, many of them in the vicinity of Manila and geared towards the higher incomes in this region.

Tourism is an important sector, the potential of which is largely untapped. The major constraints are: the concentration of first-class hotel accommodation in the capital, whereas capacity in areas offering a more varied tourist experience is limited; inadequate domestic transport links; and the Philippines' poor image in terms of security, which has been greatly exacerbated by the targeting of tourists by the Abu Sayyaf guerrilla group.

Tourism arrivals reached 2.2m visitors in 1997 (including overseas Filipinos on home visits). However, the regional economic crisis of 1997-98 led to a downturn in arrivals, which remained below their 1997 peak until 2004, when 2.3m visitors arrived in the Philippines. The number of arrivals increased again in 2005 to reach 2.6m visitors. The US, South Korea and Japan are the leading sources of foreign visitors; in 2005 the US accounted for 528,000 visitors (20.1% of the total), while South Korea and Japan accounted for 489,000 (18.6%) and 415,000 (15.8%) respectively. Arrivals from China still make up only a small proportion of the total, but they are, however, the fastest-growing category.

The external sector

Trade in goods

Until the regional economic and financial crisis of 1997-98, external trade had been in constant deficit, reflecting the country's heavy dependence on the foreign supply of both capital goods and intermediates, including oil. In the peak growth period of 1996-97 the deficit was equivalent to around 13% of GDP, and exports covered only about two-thirds of imports. As the economy contracted in 1998 import demand plummeted, falling by 19% in US dollar terms and virtually eliminating the trade deficit, which stood at just US$28m in balance-of-payments terms in that year, compared with US$11.1bn in 1997. The

The retail sector

Tourism

A statistical revision reveals a large deficit

Philippines 33


pick-up in the economy in 1999 left import spending stagnant, so that the 16% surge in export earnings produced an unprecedented surplus of US$5bn on merchandise trade. The rate of export growth eased to 9% in 2000, but imports continued to rise strongly (increasing by more than 14%), with the result that the surplus on the merchandise trade account fell back to US$3.8bn in 2000. The trade balance fell back into a small deficit of US$743m in 2001, as exports declined steeply and imports fell less sharply, before returning to a surplus of US$407m in 2002.

The trade deficit averaged US$6.2bn in 2003-05, reaching a peak of US$7.5bn in 2005. The deteriorating trade balance during this period reflects strong growth in imports, and modest export growth. Since 2003, imports, supported by strong consumption growth (which has been fuelled by booming remittances from overseas Filipino workers), and rising world oil prices, have experienced strong growth. The performance of exports, despite a slight upturn in 2004 caused by an increase in demand for electronics, has been disappointing.

In 2005 electronics accounted for two-thirds of total merchandise exports. Demand for electronics, however, is increasingly volatile, and has been the main cause of the fluctuation in the trade balance over the past five years. The end of the dotcom bubble in 2001, for example, saw the value of electronic exports fall by 19.2%, contributing to a 16.2% fall in the value of total exports. The recovery in demand for electronics in 2004, when the total value of elect-ronic exports grew by 10.2%, was the main factor behind the 9.6% growth in the total value of exports during the period. Electronics grew by a disappointing 2.5% in 2005, contributing to only modest total export growth of just 3.8% in that year. Sluggish electronic export growth in 2005 raised fears that China's emergence as a major exporter of electronics products could crowd out the electronics sector in the Philippines. However, electronics exports experienced a strong recovery in the first half of 2006, growing by 13.5% year on year in the first five months, with total exports also enjoying healthy growth of 15.9%.

Invisibles and the current account

The Philippines has recorded a current-account surplus in every year since 1998. The peak year for the current account was 1999, when the surplus reached 9.5% of GDP as exports recovered in the wake of the regional financial crisis. The surplus, however, narrowed to just 1.9% of GDP in 2001, during a difficult period for electronic exports, and 1.7% of GDP in 2003 in large part as a result of the regional economic slowdown, caused by the outbreak of SARS (Severe Acute Respiratory Syndrome), which led to lower export demand. In 2004 and 2005 the current-account surplus widened, mainly as a result of the improving global economy, which boosted demand for exports from the Philippines.

The main reason, however, that the Philippines has been able to run a current-account surplus in every year since 1998 has been the high level of remittances from overseas Filipino workers (OFWs). Remittances have averaged US$7.3bn since 1997, reaching a peak of US$10.7bn in 2005. Tourism also makes a useful contribution: the national presentation of balance-of-payments data shows that the travel account made a net contribution to the current-account surplus

A structural surplus

Electronics account for two-thirds of total exports

34 Philippines


of US$851m in 2005. By far the most important outflow on invisibles is interest, arising from the Philippines' substantial stock of external borrowing. Transfers other than workers' remittances make a minor positive contribution to the invisibles account, but the official component has changed little in most recent years, as the Philippines' middle-income status renders it ineligible for much in the way of grant funding.

The sizeable surplus on the current account in 1999-2000 temporarily removed a major funding requirement from the economy, but the fall in the current-account surplus and the increase in principal repayments on external debt has left the Philippines with a large funding requirement, which reached US$5.8bn in 2004 (the most recent year for which World Bank data are available). The Philippines is likely to maintain a large financing requirement until significant progress is made on paring back the country's large stock of foreign borrowing.

Capital flows and foreign debt

Between 1997 and 2000 there was a marked deterioration in the financial account balance, which fell to a deficit of US$4bn in 2000, compared with a surplus of US$11.1bn in 1996. The deficit in 2000 was sufficient to offset the record surplus on the current account, and helped to push the overall payments balance into deficit to the tune of US$376m (according to IMF balance-of-payments data). Payments moved back into surplus in 2001, but small deficits were once again recorded in 2002-03. In 2004 an increase in portfolio outflows pushed the overall balance of payments into a deficit of US$1.59bn, amid con-tinuing concerns about the sustainability of the country's public debt position. However, a pick-up in both foreign and portfolio investment enabled the Philippines to record a financial account surplus of US$860m in 2005.

Direct investment inflows have been relatively low given the size of the economy and the guarantees enshrined in the constitution, and averaged just US$1.1bn in the period 1999-2005. However, political instability, the country's struggle to compete with China in the area of manufactured exports and concern about the possibility of a fiscal crisis reduced direct investment inflows to just US$347m in 2003 and US$469m in 2004. According to data from the Bangko Sentral ng Pilipinas (BSP, the central bank), inflows recovered slightly in 2005 to reach US$1.1bn. (Portfolio investment flows, which are inherently more volatile, have reflected international and regional economic developments�such as the regional financial crisis in 1997-98�trends in the interest differential on peso assets and foreign perceptions of political risk.) It is clear that the financial account lies at the heart of the weakness of the Philippine balance of payments, fully offsetting the structural surplus on the current account built up as a result of the large number of OFWs.

The Philippines' large financing requirement in the past has traditionally been met mainly by borrowing, from both official and private sources, and by aid. Foreign borrowing continues to be used to finance the budget deficit, to build up reserves and as a mechanism to improve the maturity and reduce the cost of foreign debt. According to World Bank statistics, foreign debt rose from US$24.4bn at end-1984 to US$60.6bn at end-2004 (the latest year for which the

A long-term fall in short-term liabilities

A weaker financial account

Philippines 35


Bank publishes data). For most of this period the maturity profile of the debt was shifting away from short-term debt; as a proportion of total debt, short-term debt fell from an average of 37.6% in 1983-85 to 8.3% in 2004.

The Philippines has consistently met its obligations on foreign debt since 1993. The debt/GDP ratio is high, at 70% at end-2004; this compared with a ratio of 53% at end-1996, before the regional financial crisis. The Philippines is not in imminent danger of default, but the risk of a payments crisis cannot be dis-counted. The foreign portion of the public debt stock stood at P1.81trn (US$32.3bn) at end-2004, up from P1.65trn at end-2003, and debt interest payments, whether on foreign or domestic public debt, now consume around one-third of the government's budget. The near certainty of continuing budget deficits over the next few years means that the government will continue to need to tap international markets. Moreover, as exports of goods and services continue to grow relatively sluggishly, the debt-service ratio (debt-service payments due as a percentage of the value of exports of goods and services) will remain high. In 2004, the most recent year for which actual data are provided by the World Bank, the debt-service ratio was 19.9%.

Foreign reserves and the exchange rate

Foreign-exchange reserves steadied to US$12bn-14bn in 1999-2001 following a sharp fall during the regional financial crisis of 1997-98, and remained around this level until early 2005. The maintenance of this level of reserves reflects the role of the surplus on the current account in keeping the overall balance of payments in near-balance in recent years. IMF figures show that reserves (excluding gold) had risen to a record level of US$18.2bn at end-June 2006. The Philippines' foreign-exchange reserves are equivalent to nearly five months of import cover.

Over the long term the peso has depreciated against the US dollar. However, this depreciation has tended to be realised through sharp one-off corrections after periods when the steadiness of the peso against the dollar has produced an appreciation in real terms as a result of the large inflation differential. A radical correction occurred during the regional economic crisis. After the peso was floated in July 1997, it depreciated by 34% against the US dollar within six months, ending the year at P39.98:US$1. The peso experienced a further large-scale depreciation during the period of slower growth caused by the bursting of the dotcom bubble in 2000-01, when the peso depreciated by 32% against the US currency between January 2000 and August 2001.

The peso remains vulnerable to bouts of political instability. For example, the attempted coup in July 2003 led to a period of weakness and the announce-ment that a film star would contest the 2004 presidential election brought the peso down. Since mid-2005, the peso has been relative strong against the dollar. Owing largely to the improving fiscal situation, as well as global concerns about the future outlook for the dollar, the peso has appreciated by over 8% against the dollar in the 12 months since July 2005. By August 5th, the peso was trading at P51.5:US$1.

Debt repayment risk

The peso suffers from bouts of weakness

36 Philippines


Regional overview

Membership of organisations

The Association of South-East Asian Nations (ASEAN) was established in 1967. The five original members were Indonesia, Malaysia, the Philippines, Singapore and Thailand. Brunei joined in 1984, as did Vietnam in 1995, Laos and Myanmar in 1997 and, most recently, Cambodia in 1999.

ASEAN summit meetings, which bring together the heads of government of member states, must now be held every three years. The most recent took place in Malaysia in December 2005. Informal summits of heads of governments are also held. In addition, the foreign and economic affairs ministers of member countries meet annually. Joint meetings of foreign and economic affairs ministers are held before each ASEAN summit. There is also a standing committee (consisting of the members' accredited ambassadors to the host country), which usually meets every two months. There is a permanent secretariat, based in the Indonesian capital, Jakarta, and a number of committees.

The organisation started with some grand objectives, but has failed to deliver in most areas, with the exception of tariff reform. Early hopes that ASEAN could engineer a regional economic development strategy�with particular countries concentrating on particular industries�were soon dashed. In 1977 the Basic Agreement on the Establishment of ASEAN Preferential Tariffs was concluded, but a decade later only about 5% of trade between the association's members was covered by this system. (Members had been permitted to exclude "sensitive" sectors, a let-out clause that a subsequent agreement in 1987 curtailed only slightly.)

Plans for a proper ASEAN Free-Trade Area (AFTA) were unveiled in 1992, with the aim of achieving it by 2008. A common effective preferential tariff (CEPT) scheme was applied in 1993, providing for the gradual reduction of tariffs on intra-ASEAN trade in certain goods over a number of years. Again, however, member states could exclude sensitive items, limiting progress. A new AFTA programme, covering a wider range of products, was launched in 1994. During the mid-1990s the timescale for implementing the programme was steadily tightened, with the aim of reducing tariffs on most goods to below 5% by 2000. A limited AFTA, between the original six members of ASEAN and involving a reduction of tariffs on intra-ASEAN trade to between zero and 5%, came into operation on January 1st 2002. (Countries joining recently have been allowed more time.) The momentum for change has been maintained in recent years. An ASEAN finance ministers' meeting in September 2004 agreed to abolish tariffs in 11 industrial sectors by 2012.

Before the recent acceleration in tariff reform, ASEAN's slow progress towards AFTA had encouraged some of its members, notably Singapore, to opt instead for bilateral trade pacts. But ASEAN's hopes of further multilateral deals have not been extinguished. In December 2004 ASEAN and China signed a major trade deal, which aims to eliminate most tariffs on trade between ASEAN and China by 2010 (2015 for the less developed members of ASEAN). Tariffs will not go completely: countries will be able to designate a number of sectors as

Association of South-East Asian Nations (ASEAN)

Philippines 37


sensitive, and the greatest liberalisation is therefore likely to occur in areas where Chinese and ASEAN trade is complementary.

The 1997-98 regional financial crisis exposed ASEAN's failings in other areas in a brutal fashion. The organisation was unable to stop the regional currency devaluations or alleviate the subsequent economic hardship. A Statement on Bold Measures, issued at end-1998, was exactly the opposite of what the title implied. Unfolding events in Indonesia then moved the focus on to the organisation's security plans. ASEAN members' commitment to the principle of non-interference in the internal affairs of other member countries complicated the response to the crisis in East Timor in 1999. (Some members did eventually participate in the multinational force that intervened in East Timor, but not under ASEAN auspices.)

The non-interference principle has also enabled the ruling military junta in Myanmar to escape strong criticism from the governments of other ASEAN countries. However, in July 2005 Myanmar gave in to international and regional pressure and agreed to forgo its turn to chair the association, thus sparing ASEAN embarrassment in its relations with the US and the EU. In another sign that the policy of non-interference in domestic issues is becoming more flexible, in August 2005 the Indonesian government asked ASEAN countries to provide representatives to help monitor progress on the restoration of peace in the province of Aceh, in northern Sumatra. Further, in December 2005 it was announced that ASEAN was to send an envoy to meet not only Myanmar's ruling generals but also the opposition leader, Aung San Suu Kyi, whose National League for Democracy won elections in 1990 but was denied power by the junta. In the event the envoy, Syed Hamid of Malaysia, was not allowed to see Aung San Suu Kyi, and it appears that ASEAN's patience with Myanmar's glacial progress on political reform is running out. Myanmar is increasingly being seen as a serious impediment to ASEAN's attempts to raise its profile and increase its credibility.

APEC started life as a forum for informal discussion between six members of the Association of South-East Asian Nations (ASEAN), Brunei, Indonesia, Malaysia, the Philippines, Thailand and Singapore, and their six dialogue partners in the Pacific, Australia, Canada, Japan, New Zealand, South Korea and the US. In 1991 China, Hong Kong and Taiwan became members, followed by Mexico and Papua New Guinea in 1993, and Chile in 1994. Peru, Russia and Vietnam joined in 1998. APEC describes itself as �the primary vehicle for promoting open trade and practical economic co-operation� in the region, with the goal of advancing �Asia-Pacific economic dynamism and sense of community�.

APEC has had a permanent secretariat since 1992, and also runs four permanent committees�on budget and managerial issues, on trade and investment, on economic trends generally, and on economic and technical co-operation. In addition, there are 11 working groups�on agricultural technical co-operation, energy, fisheries, human resources, industrial science and technology, marine resource co-operation, small and medium-sized enterprises, telecommunications, tourism, trade promotion and transport. There is also an

Asia-Pacific Economic Co-operation (APEC) forum

38 Philippines


APEC business advisory council (ABAC), which includes up to three senior private-sector representatives from each member country. APEC as a whole has its headquarters in Singapore, while ABAC is based in the Philippines. APEC�s main business is done at annual meetings of member states� ministers of foreign affairs and economic affairs, which are followed by informal gatherings of members� heads of state. Every other ministerial meeting is held in a South-east Asian country. The chairmanship of APEC rotates on a yearly basis.

During the 1990s APEC�s star first waxed brighter and then started to wane. The high point was probably reached in 1994, when members agreed a timetable for the liberalisation of trade across the region: the ambitious aim was to eliminate all trade barriers by 2020, and then to extend reciprocal concessions to non-members. Since then APEC has appeared to lose momentum and effectiveness. APEC�s response to the Asian regional financial crisis in 1997-98 lacked substance, and subsequent meetings provided other distractions from the trade liberalisation theme: the East Timor crisis in 1999, information technology in 2000 and security issues in 2001. Discussion returned to trade relations in 2002 and 2003, and it was agreed in a very general way to proceed towards greater trade and investment liberalisation. These commitments were reiterated at the November 2004 meeting, held in the Chilean capital, Santiago. The most recent APEC meeting, held in Busan, South Korea, in November 2005, was marred by demonstrations by South Korean workers and farmers against liberalisation of global trade, particularly that in agricultural goods. The meeting itself was also characterised by growing tensions on trade issues. The conclusion to be drawn from recent meetings is that APEC is now more an informal talking shop than a serious regional reformer.

APEC's main problem is that it has no enforcement mechanism and cannot compel its members to take action. As a result, many of the statements issued at the end of meetings are arguably only of academic interest. They also disguise the fact that on some of the issues, particularly trade liberalisation, there are deep divisions among APEC members themselves. This undercuts the authority of the group's call for progress on greater trade liberalisation at the World Trade Organisation (WTO). Although APEC aims to promote regional free trade, it has arguably been more successful in providing a forum for bilateral free-trade agreements (FTAs). At the South Korea meeting, for example, a new deal between Chile and China was signed, and preparatory arrangements for bilateral FTAs between China and New Zealand, Chile and Japan, Canada and Japan, and South Korea and Peru�among others�were started.

Philippines 39


Appendices

Sources of information

Bangko Sentral ng Pilipinas (BSP), Selected Philippine Economic Indicators, Manila

National Statistical Co-ordination Board (NSCB), Philippines Statistical Yearbook, Manila

National Statistics Office (NSO), Monthly Bulletin of Statistics, Manila

Bank for International Settlements, International Banking and Financial Market Developments (quarterly)

Food and Agriculture Organisation, Quarterly Bulletin of Statistics, Rome

IMF, International Financial Statistics (monthly)

International Finance Corporation, Emerging Stockmarkets Factbook (annual)

International Institute for Strategic Studies, The Military Balance (annual), London

OECD, Geographical Distribution of Financial Flows to Aid Recipients (annual)

World Bank, Global Development Finance (annual)

World Bank, World Development Report (annual)

World Bureau of Metal Statistics, World Metal Statistics Yearbook

Arsenio M Balisacan and Hal Hill (eds), The Philippine Economy: Development, Policies and Challenges, Oxford University Press, New York, 2003

Eva Lotta Hedman and John T Sidel (eds), Philippines Politics and Society in the Twentieth Century, Colonial Legacies and Post-colonial Trajectories, Routledge, London, 2000

Peter Krinks, The Economy of the Philippines: Elites, Inequalities and Economic Restructuring, RoutledgeCurzon, London, 2002

National Economic Development Agency, Medium-term Philippine Development Plan 2004-2010, Manila, 2004

World Bank, Philippines: From Crisis to Opportunity, World Bank, Washington DC, 1999

Bangko Sentral ng Pilipinas (the central bank): www.bsp.gov.ph

Department of Finance: www.dof.gov.ph

National Statistical Co-ordination Board: www.nscb.gov.ph

National Statistical Office: www.census.gov.ph

National statistical sources

International statistical sources

Select bibliography and websites

40 Philippines


Reference tables Population ('000; censual year, May)

1970 1980 1990 1995 2000Total 36,685 48,098 60,703 68,617 76,504 Luzon 19,688 26,081 33,358 38,250 42,823 Mindanao 7,964 10,905 14,298 16,205 18,134 Visayas 9,032 11,113 13,042 14,158 15,528 National Capital Region 3,967 5,926 7,948 9,454 9,933By sex Male 18,250 24,129 30,443 34,464 38,524Female 18,434 23,970 30,116 33,970 37,980By age (%) 0-14 years n/a n/a 39.6 38.5 37.015-64 years n/a n/a 56.9 58.4 59.265 years & over n/a n/a 3.5 3.1 3.8

Sources: National Statistics Office (NSO), Monthly Bulletin of Statistics; National Statistical Co-ordination Board (NSCB),

Philippines Statistical Yearbook.

Labour force ('000 unless otherwise indicated; Oct)

2001 2002 2003 2004 2005

Labour force 33,354 33,674 35,120 35,629 35,496

% of labour force 9.8 10.2 10.2 10.9 7.4

No. employed 30,085 30,251 31,553 31,741 32,876

% of employed 16.6 15.3 15.8 16.9 21.2

Underemployed 5,000 4,627 4,989 5,364 6,970

No. unemployed 3,269 3,423 3,567 3,888 2,620a

a Change in classification method: those without work who are currently available for work or seeking work

Source: NSCB.

Transport statistics 2001 2002 2003 2004 2005Vehicles Motor vehicles registered ('000) 3,866 4,188 4,292 4,761 5,060 Cars ('000) 730 750 739 798 759 Rail Passengers ('000) 319 265 240 242 n/a Express freight (tonnes) 1,686 1,700a 1,931 2,000a n/a Metro Manila Light Rail Transit passengers (m) 102 107 107 97 105 Metro Rail Transit passengers (m) 90 102 113 123 129 Ports Total cargo handled (m tonnes) 147.9 149.5 146.7 157.4 n/a Total passenger traffic (m) 43.7 49.1 51.7 53.0 n/a Air Total domestic passenger traffic ('000) 19,423 20,207 18,312 23,696 24,671

a Rounded figure.

Source: NSCB.

Philippines 41


Energy consumption by source (m barrels oil equivalent)

2000 2001 2002 2003 2004Indigenous 113.3 113.0 127.6 139.2 145.1 Oil 0.3 0.3 1.3 0.1 0.1 Coal 4.4 3.8 3.8 6.8 8.8 Gas 0.0 1.5 11.2 17.1 15.8 Hydroelectricity 13.5 12.3 12.1 13.5 14.8 Geothermal 20.1 18.0 17.7 16.8 17.7 Non-conventional (bagasse, etc) 75.1 77.1 79.0 80.3 83.7 Condensate � � 2.5 4.6 4.1

Imported 137.6 135.5 129.9 139.0 137.6 Oil 113.3 112.6 103.8 117.7 115.0 Coal 24.3 22.9 26.1 21.3 22.6

Total 250.9 248.5 257.5 278.2 282.6

Source: NSCB.

Outstanding public-sector debt (P bn; end-period)

2001 2002 2003 2004 2005National government 2,384.9 2,815.5 3,355.1 3,812.0 3,888.2

Domestic 1,247.7 1,471.2 1,703.8 2,001.2 2,164.3Foreign 1,137.2 1,344.3 1,651.3 1,810.7 1,723.9

Total public-sector debt 3,850.2 4,369.1 5,074.0 5,297.6 5,063.9

Sources: Bureau of the Treasury; Bangko Sentral ng Pilipinas (BSP).

Money supply (P bn unless otherwise indicated; end-period)

2001 2002 2003 2004 2005

Money (M1) incl others 392.3 478.5 519.8 567.7 620.3

% change, year on year 0.4 22.0 8.6 9.2 9.3

Quasi-money 1,746.8 1,883.1 1,926.9 2,121.6 2,242.0

Money (M2) 2,139.1 2,361.6 2,446.7 2,689.4 2,862.3

% change, year on year 3.6 10.4 3.6 9.9 6.4

Source: BSP.

Interest rates (%; period averages unless otherwise indicated)

2001 2002 2003 2004 2005Lending interest rate 12.4 9.1 9.5 10.1 10.2Deposit interest rate 8.7 4.6 5.2 6.2 5.6Money-market interest rate 9.7 5.5 5.9 7.3 6.2

Long-term bond yield 15.8 12.0 11.4 13.5 11.6

Source: BSP.

42 Philippines


Gross domestic product (market prices)

2001 2002 2003 2004 2005Total (US$ bn) At current prices 71.2 76.8 79.6 86.7 98.4Total (P bn) At current prices 3,631.5 3,963.9 4,316.4 4,858.8 5,418.8At constant (1985) prices 990.0 1,034.1 1,085.1 1,152.2 1,209.5 % change, year on year 1.8 4.4 4.9 6.2 5.0Per head (P) At current prices 44,629 47,760 51,009 56,340 61,678At constant (1985) prices 12,167 12,460 12,823 13,360 13,766 % change, year on year -0.3 2.4 2.9 4.2 3.0

Source: NSCB.

Nominal gross domestic product by expenditure (P bn at current prices where series are indicated; otherwise % of total)

2001 2002 2003 2004 2005Private consumption 2,565.0 2,751.0 2,988.2 3,344.2 3,773.1 70.6 69.4 69.2 68.8 69.6Government consumption 444.8 456.9 477.4 492.1 525.7 12.2 11.5 11.1 10.1 9.7Gross fixed investment 651.3 698.1 726.9 784.0 808.0 17.9 17.6 16.8 16.1 14.9

Stockbuilding 37.8 2.1 -0.3 31.9 12.5 1.0 0.1 0.0 0.7 0.2

Exports of goods & services 1,785.2 1,991.3 2,142.0 2,470.7 2,564.4 49.2 50.2 49.6 50.8 47.3Imports of goods & services 1,899.4 2,010.5 2,398.4 2,659.0 2,816.1 52.3 50.7 55.6 54.7 52.0GDP 3,631.5 3,963.9 4,316.4 4,858.8 5,418.8

Source: NSCB.

Real gross domestic product by industry (P m at constant 1985 prices where series are indicated; otherwise % change year on year)

2001 2002 2003 2004 2005Agriculture, forestry & fishing 199,589 207,480 215,273 226,612 230,762 3.7 4.0 3.8 5.3 1.8Industry 336,471 349,508 363,486 380,542 399,076 -2.5 3.9 4.0 4.7 4.9Services 453,982 477,105 506,313 545,019 579,635 4.3 5.1 6.1 7.6 6.4GDP 990,042 1,034,093 1,085,071 1,152,174 1,209,472 1.8 4.5 4.9 6.2 5.0

Source: NSCB.

Philippines 43


Prices and earnings (% change, year on year)

2001 2002 2003 2004 2005Consumer prices (av) 6.8 3.0 3.5 6.0 7.6Average nominal wages 8.6 12.0 0.0 3.6 5.0

Average real wages -1.4 6.4 -3.8 -0.2 1.3Unit labour costs -1.7 9.3 -7.6 -2.6 4.0

Source: NSO.

Production of major crops ('000 tonnes unless otherwise indicated)

2000 2001 2002 2003 2004Rice 12,389 12,955 13,271 13,500 14,497Maize, unshelled 4,511 4,525 4,319 4,616 5,413Coconuts (m tonnes) 13 13 14 14 14

Sugar 1,620 1,805 n/a n/a 2,340Bananas 4,156 5,059 5,275 5,369 5,631

Pineapples 1,524 1,618 1,639 1,698 1,760Mangoes 855 879 956 1,006 968

Coffee 117 112 107 106 103Rubber 186 264 268 274 311Tobacco 50 48 50 53 48

Abaca 78 73 63 70 75

Sources: Bureau of Agricultural Statistics; Sugar Regulatory Administration.

Fishing production ('000 tonnes)

2000 2001 2002 2003 2004Commercial fishing 947 977 1,042 1,110 1,128

Aquaculture 1,101 1,221 1,338 1,455 1,717Municipal & sustenance fishing 946 970 989 1,055 1,081

Total 2,993 3,167 3,370 3,619 3,926

Source: Bureau of Agricultural Statistics.

Minerals production ('000 tonnes unless otherwise indicated)

2001 2002 2003 2004 2005Gold (tonnes) 34 36 39 36 38

Silver (tonnes) 31 9 10 9 18Nickel 17 28 20 17 42

Copper (refined) 139 144 171 175 172Chromite 28 28 22 26 39Coal 1,230 1,646 2,029 2,727 3,163

Crude oil ('000 barrels) 475 2,021 149 139 n/aNatural gas (m cu ft) 4,951 62,205 94,803 87,557 n/a

Note. Gold output figures provided by various sources differ markedly.

Sources: World Bureau of Metal Statistics, World Metal Statistics Yearbook; NSCB.

44 Philippines


Manufacturing production (% volume change, year on year)

2001 2002 2003 2004 2005Food 0.9 0.9 0.0 -6.6 12.6Beverages -9.9 -12.3 -1.4 19.5 1.2

Tobacco -9.5 5.9 -51.7 -23.7 -16.5Textiles -7.6 20.1 17.6 -2.5 13.6Garments & footwear -4.6 -4.7 -15.5 -30.7 4.2

Wood & products 6.5 -9.2 62.5 0.9 -44.8Furniture & fixtures -14.2 -3.3 1.7 28.7 53.9

Paper & products -23.2 -14.1 -7.3 11.4 3.8Chemicals -12.4 -14.1 -7.2 3.0 7.4Petroleum products -2.4 -19.1 5.7 -21.5 8.0

Rubber products -21.3 -5.0 14.0 27.5 6.8Non-metallic mineral products -13.8 24.2 -4.6 2.6 0.8

Basic metals -8.7 -9.7 97.4 -16.8 -21.1Fabricated metal products 13.6 15.0 -6.0 3.2 4.8

Electrical machinery -15.7 1.6 -16.6 12.5 -4.8Non-electrical machinery 33.4 -17.6 17.5 0.7 -47.2Transport equipment -4.6 3.4 -5.3 5.8 16.0

Total incl others -5.6 -6.1 0.0 1.0 2.1

Source: BSP.

Private construction 2001 2002 2003 2004 2005Building permits (no.) Total 77,857 91,471 95,890 105,425 102,240Residential 52,980 63,516 66,308 73,749 71,301Value (P m) 68,200 85,917 82,213 100,496 93,606National Capital Region 24,313 38,985 31,602 37,554 29,329 Residential 28,534 36,377 42,083 50,710 51,455

Source: NSCB.

Philippines Stock Exchange indicators 2001 2002 2003 2004 2005Market capitalisation (P bn; year-end) 2,105 2,058 2,940 4,736 5,924Composite index (year-end) 1,168 1,018 1,442 1,823 2,096No. of companies listed 232 235 234 233 237

Total turnover (P bn) 159.6 319.5 290.7 205.7 383.5

Sources: International Finance Corporation, Emerging Stockmarkets Review; BSP; World Federation of Exchanges.

Philippines 45


Visitor arrivals by country of residence ('000)

2001 2002 2003 2004 2005US 392 395 388 478 528South Korea 208 288 304 379 489

Japan 344 342 328 382 415Overseas Filipinos 99 84 100 104 125Taiwan 85 103 93 115 123

Hong Kong 134 156 140 162 107Total incl others 1,797 1,933 1,907 2,291 2,623

Source: Department of Tourism.

Main composition of trade (US$ m; fob-cif)

2001 2002 2003 2004 2005Exports fob Electronic products 21,615 24,322 24,168 26,644 27,304Garments 2,403 2,391 2,265 2,171 2,150Coconut oil 418 353 505 578 657Petroleum products 242 353 536 380 586Total exports incl others 32,128 35,133 36,036 39,598 40,975Imports cif Capital goods 11,438 13,529 15,014 15,372 15,829Mineral fuels 3,372 3,273 3,761 4,715 6,276Manufactured goods 3,072 3,118 3,241 3,490 3,757Chemicals 2,515 2,555 2,878 3,182 3,277Total imports incl others 31,337 36,211 39,502 42,345 46,964

Source: NSO.

Key commodity exports ('000 tonnes unless otherwise indicated)

2001 2002 2003 2004 2005Bananas 1,601 1,685 1,829 1,785 2,023

Coconut oil 1,418 945 1,186 959 1,152Copra meal & cake 753 385 508 364 430

Sugar 57 89 138 230 223Pineapples (canned) 206 186 197 208 209Gold ('000 oz) 786 848 1,856 152 150

Lumber ('000 cu metres) 105 91 120 126 130Desiccated coconut 80 107 107 106 126

Copper metal 157 143 167 159 114Fresh & preserved fish 77 83 93 82 67Copper concentrates 58 46 36 27 55

Source: NSCB.

46 Philippines


Main trading partners (% of total)

2001 2002 2003 2004 2005Exports fob to: US 28.0 24.7 20.2 18.2 20.7Japan 15.7 15.1 16.0 20.2 17.4Hong Kong 4.9 6.7 8.6 7.9 10.4China 2.5 3.9 6.0 6.7 9.9Imports cif from: Japan 21.2 20.0 19.3 18.1 19.6US 20.5 20.1 18.8 19.5 15.6Singapore 6.6 6.4 6.4 8.1 9.2China 3.1 3.5 4.6 6.3 6.3

Source: IMF, Direction of Trade Statistics.

Balance of payments, national series (US$ m)

2001 2002 2003 2004 2005Goods: exports fob 31,243 34,377 35,339 38,748 40,231

Goods: imports fob -31,986 -33,970 -40,640 -44,507 -47,777Trade balance -743 407 -5,301 -5,759 -7,546Services: credit 3,148 3,055 3,349 4,050 4,462Services: debit -5,198 -4,072 -5,162 -5,613 -5,858

Income: credit 7,152 7,946 3,344 3,636 3,937Income: debit -3,483 -3,456 -3,567 -3,497 -4,044Current transfers: credit 517 594 8,940 9,670 11,706

Current transfers: debit -70 -91 -228 -263 -303Current-account balance 1,323 4,383 1,375 2,224 2,354Direct investment in Philippines 989 1,792 347 469 1,132Direct investment abroad 160 -59 -197 -412 -150Inward portfolio investment (incl bonds) -325 7,681 1,019 997 1,571

Outward portfolio investment -603 -807 -812 -457 -449Other investment assets 809 -18,639 -15,313 -14,034 -13,165

Other investment liabilities -1,525 7,761 9,611 11,600 7,911Financial balance -495 -2,271 -5,345 -1,837 -3,150Capital account nie credit 0 44 74 12 2Capital account nie debit 0 -52 -36 -24 -21Capital account nie balance 0 -8 38 -12 -19Net errors & omissions -749 -1,312 -2,629 -271 -2,075Overall balance 1,280 3,649 -375 295 -110Financing (� indicates inflow) Movement of reserves -2,060 -4,223 -11 -629 -673Use of IMF credit & loans 730 346 313 0 0

Source: BSP.

Philippines 47


External debt, World Bank series (US$ m unless otherwise indicated; debt stocks as at year-end)

2000 2001 2002 2003 2004Public medium- & long-term 33,739 29,210 32,324 36,033 35,564Private medium- & long-term 17,033 21,090 20,342 19,066 19,184

Total medium- & long-term debt 50,772 50,301 52,666 55,099 54,748 Official creditors 19,885 17,773 19,175 21,004 20,819 Bilateral 12,678 11,068 12,208 13,703 13,750 Multilateral 7,207 6,705 6,966 7,302 7,069 Private creditors 30,888 32,528 33,491 34,095 33,929Short-term debt 5,495 6,000 5,559 6,179 5,046

Interest arrears 0 0 0 0 0Use of IMF credit 2,032 1,952 1,686 1,197 756

Total external debt 58,299 58,253 59,911 62,476 60,550Principal repayments 4,055 5,953 7,058 7,339 7,850Interest payments 3,004 3,410 3,143 2,856 3,719 Short-term debt 442 279 165 132 200Total debt service 7,060 9,363 10,201 10,194 11,570Ratios (%) Total external debt/GDP 76.8 81.8 78.0 78.5 69.8Debt-service ratio, paida 12.8 19.6 19.3 19.3 19.9

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank.

Net official development assistancea (US$ m unless otherwise indicated)

2000 2001 2002 2003 2004Japan 304.5 298.2 318 528.8 211.4US 75.5 83 78.6 55.3 79.5

Germany 23.3 19.1 14.5 27.8 39.1Australia 35.1 32.2 31.7 32.1 33.6EU 27.6 25.4 20.5 17.6 17.8

Netherlands 10 20.6 25.9 16.3 16.9Spain 6.3 9.9 19 25.8 14.1

Canada 9.9 14.4 15.6 15.6 12.4Asian Development Bank 22.3 18.7 0.2 -8.6 -14.9Total incl others 577.5 573.7 552.2 736.9 462.8

a Disbursements by OECD and OPEC members and multilateral agencies. Official development assistance is defined as grants and loans, with at least a 25% grant element, administered with the aim of promoting economic or social development.

Source: OECD, Development Assistance Committee, Geographical Distribution of Financial Flows to Aid Recipients.

Foreign reserves (US$ m; end-period)

2001 2002 2003 2004 2005Total reserves incl gold 15,692 16,365 17,063 16,228 18,494

Total international reserves excl gold 13,476 13,329 13,655 13,116 15,926Gold, national valuation 2,216 3,036 3,408 3,112 2,568

Source: BSP.

48 Philippines


Exchange rates (P per unit of currency unless otherwise indicated; annual averages)

2001 2002 2003 2004 2005US$ 51.0 51.6 40.9 56.0 55.1£ 73.4 77.3 66.8 102.6 100.2

� 45.7 48.8 46.3 69.7 68.6Ps 51.0 16.8 14.1 19.2 19.0

Rmb 6.2 6.2 4.9 6.8 6.7¥ 0.4 0.4 0.4 0.5 0.5

Source: BSP.

Editors: Gareth Leather (editor); Kilbinder Dosanjh (consulting editor) Editorial closing date: August 8th 2006 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected]

philippines - international university of japan · december 25th (christmas day); december 30th...

Documents