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The Philippines, a country of some 80 million people, is strategically located at the heart of Southeast Asia. Situated between Taiwan, China and Hong Kong in the North, Singapore, Malaysia and Thailand in the West, the Pacific Ocean in the east and Borneo in the South, this archipelagic nation is composed of 7,107 islands.
The Philippine Archipelago is one of the largest island groups in the world and is divided into three major areas that correspond broadly to the ethnicity of the human population. These three groups are Luzon in the north with a total area of 104,687.80 sq. km.; the Visayas in the central region, 57,201.92 sq. km.; and Mindanao in the south, occupying a further 94,630.10 sq. km.
This island chain stretches more than 1500 km from north to south and more than 1000 km from west to east. Less than 400 of the islands are permanently inhabited.
The majority of the people are of Indo-Malay descent although in many cases mixed with Chinese and Spanish ancestry. Many Filipinos take Spanish and derived Spanish family names. In most cases their name relates to the estate to which their ancestors were indentured.
Around 40% of the population lives in urban areas of which 13% of the total population lives in Metro Manila alone. Manila accounts for over a third of the country's GDP.
91.5 percent of the population are of Christian Malay descent, almost 5 percent are Muslim Malay and live predominantly in the south, close to 1 percent are ethnic Chinese, and a further 3 percent are otherwise categorized and are mainly from upland tribal groups.
In recent years there has been a rapid shift from an agricultural based economy to a service economy - much of which however is within government services. There are moves afoot at the political level to reduce and rationalize the myriad levels of government activity but equally there are entrenched political interests opposed to any fundamental change. It is hard to see such reform emerging under the present constitutional system unless there is a massive shift to federalism and an empowerment of resources to finance local decision-making and to make it accountable.
The service sector now accounts for some 43% of GDP while agriculture - which remains the largest employer in rural areas - has been reduced to some 19%. Manufacturing now accounts for a further 24% and is the most important sector in terms of foreign exchange earned through exports. Inwards remittances from overseas workers also play a big part in ensuring adequate international reserves.
The earliest human inhabitants of the islands that subsequently became known as the Philippines are believed to be the Negritos (also known as the Aeta) who arrived some 30,000 years ago having crossed via a land bridge from the Asian mainland. They clashed with other immigrant waves from Borneo and Sumatra, who also made their way across then-existing land bridges. Subsequently, people of Malay stock came from the south in successive waves, the earliest by land bridges and later in boats called balangays. The Malays dominated the lowlands where they settled in scattered communities of kinship, which became known as barangays and which were ruled by local chieftains known as datus.
Permanent Spanish occupation followed in 1565 and the country was then named "Filipinas" after then King Philip II of Spain. By 1571 the entire country aside from the Islamic Sulu archipelago was under Spanish control - often exerted via Mexico and without the knowledge of the administration in Madrid. At first the interest of the Spanish was more strategic than commercial and they viewed their control of the Philippines as no more than a stepping-stone to the rich Spice Islands of Indonesia.
Following Admiral Dewey's defeat of the Spanish fleet in Manila Bay, the United States occupied the Philippines. Spain ceded the islands to the United States under the terms of the Treaty of Paris (December 10, 1898), which ended the war. The United States continued as the colonial master of the Philippines during most of the first half of the 20th Century.
As a result of the Japanese occupation during World War II, the guerrilla warfare that followed, and the battles leading to liberation, the country suffered great damage and a complete organizational breakdown. Despite the shaken state of the country, the United States and the Philippines decided to move forward with plans for independence. On July 4, 1946, the Philippine Islands became the independent Republic of the Philippines, in accordance with the terms of the Tydings-McDuffie Act. In 1962, the official Independence Day was changed from July 4 to June 12, which commemorates the date of independence from Spain as originally declared by General Aguinaldo back in 1898.
After the Second Word War, the Philippines enjoyed one of the most prosperous economies in Asia. It was proud of a per capita GDP that was second only to Japan within the Asian region.
Yet the economic miracle that swept through Asia during the 1960s and 70s, for the most part, swept past the Philippines leaving it untouched. The reasons for the failure of the Philippines to grasp the opportunity to transform economically are complex. At risk of oversimplification, it could be argued that whereas elsewhere in Asia, political emancipation followed economic emancipation, the Philippines was already a "democracy" albeit one that had more in common with the political society of eighteenth century Europe than a modern post war democratic state. The political elite controlled the country and shared power and the spoils of power (and largely still do so). In these circumstances, fundamental economic reform never really had a chance.
In 1972, President Ferdinand E. Marcos (1965-86) declared martial law, citing growing lawlessness and open rebellion by the communist rebels as justification. Marcos governed from 1973 until mid-1981 in accordance with the transitory provisions of a new constitution that replaced the commonwealth constitution of 1935. He suppressed democratic institutions and restricted civil liberties during the martial law period, ruling largely by decree and popular referenda. The government began a process of political normalization during 1978-81, culminating in the reelection of President Marcos to a 6-year term that would have ended in 1987. The Marcos' government's respect for human rights remained low despite the end of martial law on January 17, 1981. His government retained its wide arrest and detention powers. Corruption and favoritism contributed to a serious decline in economic growth and development.
The assassination of opposition leader Benigno (Ninoy) Aquino upon his return to the Philippines in 1983, after a long period of exile, coalesced popular dissatisfaction with Marcos and set in motion a succession of events that culminated in a snap presidential election in February 1986. The opposition united under Aquino's widow, Corazon Aquino, and Salvador Laurel, head of the United Nationalist Democratic Organization (UNIDO). The election was marred by widespread electoral fraud on the part of Marcos and his supporters and an uprising followed. Marcos was forced to flee the Philippines in the face of a peaceful civilian-military uprising now known as EDSA 1 that ousted him and installed Corazon Aquino as president on February 25, 1986.
It was under the presidency of Fidel Ramos, the first Protestant to hold the office, who was elected as the 12th President of the Philippines in 1992 that the economy began to transform. During the early years of the last decade, the Philippines belatedly started to realize its potential and was spoken of by many as being Asia's next "tiger" economy.
While Ramos put the country on a path of economic growth, the results were uneven and many - indeed most - remained untouched by the success of government policies aimed at encouraging manufacturing investment. Ramos' vice-president was a former local film star and college dropout, one Joseph Estrada. Estrada had actually stood as part of the opposition ticket in the 1992 race but under the Philippines constitution, the President and Vice President are separately elected and not part of a joint ticket. Under Ramos, Estrada had served as Chairman of the PACC anti-crime commission.
Joseph Estrada won the 1998 election and took office on June 30 of that year. Following his election, President Estrada formed the LAMP party out of a tri-partite alliance that had helped him get elected. Some members of former President Ramos's Lakas Party defected to LAMP. President Estrada publicly declared that the battles against poverty and corruption would be his highest priority. Unfortunately, things did not turn out as optimists had hoped and during the Estrada period the country again went into decline.
Present Political Environment
President Macapagal-Arroyo, the transitional president who came to power in January 2001 after former President Estrada "vacated" Malacañang Palace, is coming to the close of her three-year transitional term. Elections will take place for a new President, as well as for other branches of government in May 2004.
The administration of her predecessor, President "Erap" Estrada was marked as a period in which the foreign business community was to all intents and purpose shut out from the consultative process. Famed for his mistresses and his nocturnal drinking habits, the Philippines was governed by a cabal of Estrada cronies known as the "midnight cabinet" - his drinking buddies. It was a period in which statesmanship and statecraft were consigned to the slagheap.
This is the legacy that the hard-working, US-educated economist inherited.
Her first State of the Nation address delivered in July 2001 outlined her vision for her administration with goals set in a ten-year time frame. Obviously during the three-year transition rule, she could do no more than lay the foundations. She called on all segments of society to put aside political bickering and unite behind the national agenda.
Her vision (some call it her "wish-list") called for massive new investment to pump prime the economy, to create new jobs and to eliminate poverty within ten years: Reduced to a one-liner her vision was for "jobs, education, home ownership as well as food on every table."
Unfortunately, her call to unity has not been heeded and, among the political core of society, she has remained a controversial figure throughout her presidency. Faced with such disunity, on December 30 2002 while vacationing in Baguio City she announced with much surprise to all that she would not seek re-election in 2004 and that she would pass the mantle to others to complete her vision. However, this announcement did not stop the politicking and the harassment she has received from known supporters of Estrada who have used their money and influence to destabilize the administration.
Undoubtedly, her tenure in Malacañang has been the antithesis of her predecessor. She is known by all to be a hard-working president who, indeed, has sought to push through her reform program at every opportunity. She is intelligent, articulate and can handle herself with ease on the world stage. In many respects she represents the presidential ideal. However, she sits atop a political minefield in which she is often thwarted by vested interests who resist change at every turn and she works within a constitution which - framed in the aftermath of the martial law period - places unusual constraints on presidential powers.
It is a truism to repeat that in the course of an average lifetime, the Philippines has gone from a position as one of the most affluent of Asian countries to being one of the poorest. For that, the larger part of the blame can be placed on the Marcos years and the martial law period that not only saw the looting of the national treasury but also brought back corruption and nepotism as part of the way of life that exists until today. But there are other factors too. In part it is a legacy of the post-Marcos (1987) Constitution, which both reduced presidential powers and abandoned a two-party political system in favour of a multi-party one. It can also be blamed on the Filipino attribute to "forgive and forget." An attribute that is admirable in many ways yet which in the murky world of politics, is a liability and a millstone around the neck of any genuine reformists.
The Philippines is one of Asia's oldest democracies and the Filipino people have a long tradition of being outspoken and politically active. This free-wheeling democratic tradition can sometimes appear quite distinctive from the ordered political process in many other Asian countries, yet it is an essential part of the vibrancy of the Philippines to allow the free exchange and flow of ideas.
It is certainly true that the recent history of the Philippines has been marked by several periods of turbulence. Much of this turbulence can be directly traced to the Marcos period and the politicization of the military forces that occurred during that time. The present (1987) Constitution enshrines the principle that these forces - both the military and the police - are subject to the control and direction of a civilian commander in chief. This is the President of the Philippines.
Unfortunately a small group of former and present military personnel have not accepted this principle and continue to cause local disturbances. The verdict remains out on the root cause of the coup attempt of July 27 2003, however it came at a time during which the administration of President Arroyo was starting to bite into the vested interests that had controlled much of the wealth and political power for a long period of time. Many of these people were aligned with the Marcos family and with former President Joseph Estrada who, himself, is on trial for plunder - a charge which carries the death penalty. Yet to the amazement of many foreigners, he is allowed a benign form of detention in a hospital "cell" from which he continues to entertain his friends, give interviews to journalists and conduct broadcasts (and even visit his mother at her home in Metro Manila). His treatment has been contrasted with that of two former Korean presidents, Chun Doo-hwan and Rho Tae-woo who appeared in court in Seoul in prison garb and in chains for lesser crimes.
In fact the government of President Gloria Macapagal-Arroyo has enjoyed wide support from a cross section of local society including the business community, the national police and the armed forces. Increasingly, government officials are being subjected to lifestyle checks to ensure that their assets are in keeping with their positions. Significant progress has been made in the recovery of ill-gotten assets and their redistribution to the most needy sections of society. Progress has also been made in the battle against corruption and government inefficiency during her term.
Recent decisions relating to the redistribution of the funds from the taxes levied on the poorest farmers during the Marcos era as well as the recovery of part of the assets plundered from the country by Marcos could make a significant impact on poverty reduction in the Philippines if they are actually distributed as intended. At this stage however, while the first battle has been won, the war is far from over and the result remains indeterminate.
The present administration has made a major effort to cut the "red tape" by simplifying government procedures and setting time limits on government transactions. In many agencies the number of steps required to obtain government permits has already been reduced significantly. However the results so far are patchy and standards of service in many government agencies remain far from ideal. "Fixers" are still required in most dealings with government. Certainly, there is fear that with a less vigilant administration there will be a roll-back of any improvement.
Importantly, the Department of Labor and the National Labor Relations Commission remains antagonistic towards foreigners and foreign companies and is cited by many companies as a deterrent to investing in the Philippines.
Among the changes introduced by the Arroyo administration is the government purchase system. Government procurement has been simplified and the procurement process made more transparent. A new procurement law, Republic Act 9184 came into force in January 2003 although the enforcement rules are still being drafted. Much of the procurement process has been placed online with buyers able to compare prices offered by vendors.
The government has also set in place various feedback mechanisms making use of internet and cellphone technologies to encourage the public to report corrupt or errant government officials. The government is committed to the investigation and prosecution of government officials found to be involved in corrupt activities.
Despite the progress made on many fronts, it has yet to make any real impact on most foreign-owned operations in the Philippines. There remains a wide gulf between government rhetoric, which emphasizes the level playing field, and local practice, which is to protect local interests.
The export-manufacturing sector is heavily reliant on both the United States and the Japanese markets and indeed, during a period of shrinking foreign direct investment, those two countries remain the most significant foreign investors into the Philippines.
Yet both these economies have been sluggish. As a result, Philippines manufactured exports - much of which comes from the electronics sector - are not growing as intended. Exports currently make up around 40% of GDP with electronics accounting for two-thirds of this total. Earlier the government had forecast an export growth for 2003 of around 5% but based on the performance so far, is unlikely to meet this target. The prediction now is for a 3% growth target.
Update No: 003 - (01/04/04)
Tuesday April 6 is the day that everyone is waiting for in the Philippines. Not because it is the last work day before the long Easter break, rather it is the day on which the next presidential poll forecasts will be released by the Social Weather Station (SWS)-the pre-eminent survey organization in the Philippines. With the actual election scheduled for May 10, this latest survey assumes especial significance.
Back in January of this year, the SWS poll showed movie actor Fernando Poe Junior (FPJ) with a commanding lead over the incumbent president, Gloria Macapagal-Arroyo (GMA) in a six-way race. One month later the same poll showed the two candidates as being neck and neck.
Already one of those earlier judged as qualified to run by the Commission on Elections (Comelec) has been disqualified (Eddie Gil) and the presidential field is now down to five. All five have vowed to stay in the race until the bitter end-but then again, what would you expect them to say?
If the most recent Social Weather Station (SWS) poll is to be believed then GMA has the support of 31.8 percent of voters, FPJ 30.5 percent, Former Education Secretary, Raul Roco 17.9 percent, Former Police Chief, Panfilo Lacson 11.4 percent, Evangelist Eddie Villanueva 1.8 percent and Eddie Gil 0.0 percent. Gil is now out of the race so he will not appear in the next survey--not that that will make any difference considering his poor showing. 6.6 percent of voters have no first choice. The 1.3 percent difference between GMA and FPJ is considered to be statistically insignificant.
The poll result surprised many as in the previous survey, undertaken in January; FPJ was well ahead with overall a 37.5 percent voter preference as compared to 28.7 percent for GMA. Within the space of a month, President Arroyo's voter preference had shot up by almost 11 percent while that of FPJ had declined by more than 19 percent. However in absolute terms, Senator Lacson's preference among voters had increased by almost 36 percent. One caveat must be made to this result-it took place at a time in which FPJ's citizenship was being questioned by the Supreme Court. The Court has now decided in his favour and it will only be in the next poll (see above) where we will be able to tell whether this factor had any bearing on his level of support.
Can FPJ Win the Presidency?
The one fact known is that as of this moment, FPJ and President Arroyo appear to be in a statistical tie and both are pulling out all the stops. Of course the removal of either Raul Roco from the race (his votes would be expected to go predominantly to GMA) or Ping Lacson (whose votes are predicted to divide 60:40 in favour of Poe:GMA) could significantly upset the equation.
The second known fact is that contrary to the expectations of his supporters who were earlier predicting a national landslide for their candidate, FPJ has not so far pulled further ahead of the field. Analysts point out that at this stage of the 1998 presidential race, Estrada, another former movie actor who brought the country to the brink of ruin and is now under arrest awaiting trial on plunder charges) was already commanding more than 40 percent of the predicted vote. On the basis of current survey results, the election could go either way.
The polls suggest that FPJ could certainly carry the day but it will likely be a very close race. He stands a better chance, the cleaner the election is perceived to be. The recent "stacking" of the Comelec by two new commissioners known to be close to President Arroyo, and appointed the day before the Congressional term expired (thereby preventing the Congressional Commission on Appointments from scrutinizing the proposed appointees) has worried many people and again called into question presidential impartiality. That one of the appointees is a former Comelec employee who had been earlier implicated in a dagdag-bawas operation in Mindanao has given rise to even greater concern among many and particularly those in the opposition groups. And then of course there is the issue of the return to manual vote counting and the junking of the automated polling system. Few people think this election will be any cleaner than the previous one. Indeed many people, fearing a return of an Estrada-type presidency, believe that this coming election may be among the most controversial in recent memory.
When it comes to predications, about the only prediction that can be made at this stage with any degree of certainty is that the outcome of the election will see either the return of the incumbent, President Gloria Macapagal-Arroyo for a full six-year term or that the presidency will pass to the principle opposition candidate - FPJ. Any other outcome appears remote at this time, despite the obvious merits of the other candidates-they simply cannot command the same level of resources needed to win elections in this country.
With the Estrada experience so fresh in people's memory, the business community generally fears that a Poe presidency will mean a return to the excesses of the Estrada years, where the country was essentially governed by the "midnight cabinet" consisting of Estrada's drinking buddies while the government of the country slid into chaos. Opponents of FPJ, believe that the only reason he is standing for the presidency is to get his friend, Estrada, out of gaol. Certainly many of those who surround him, including the Marcos clan, are doing so in the belief that his victory will signal a restoration of the old guard whose favourite pastime was the plunder of the national treasury.
Yet, GMA-the Harvard trained economist and acknowledged workaholic has not been embraced by the electorate and is facing an uphill battle to be returned to office. Frankly, to most people she is seen as a competent economic manager but has failed to show real leadership and has been seen to vacillate on a number of important policy matters in some cases reversing her position in a matter of days. Her constant shift of priorities and policies has left business in a state of uncertainty.
De Castro Appears a Show-In for the Vice Presidency
The vice-presidential race appears to be less of a problem to predict. The Administration candidate, Noli de Castro, appears to be headed for a landslide victory over the opposition candidate, Senator Loren Legada. Both are former TV show hosts who made the jump from media into politics. In fact in a country where 80 percent of the votes are in the hands of the impoverished class, policy goals and debate of issues play no part in a candidates campaign strategy. Rather it is all about entertainment and the buying of votes.
Legada it should be noted was-until the end of last year-a senator with the government party before she switched sides to the opposition for no other reason than it gave her a better chance at the vice-presidency. Her self-serving behaviour was so blatant that even ordinary Filipinos were shocked by it and she has not performed as well as expected in the surveys. Perhaps her days in politics may be numbered.
There is no getting around the fact that the outlook for business is uncertain for the months ahead but that is not to say that business will not prosper. The danger is not to business per se-whether there is a Harvard trained economist in Malacañang or a movie actor who got his degree at the University of Hard Knocks the policies of government towards the business community are unlikely to change much (at least in the short-term).
Rather the danger to business comes more from the broader uncertainty that has surrounded the whole political process in the Philippines. The knock-on effect of course is the damage done to the economy and especially the currency. No doubt the treasury departments of corporations will be earning their salaries in the week's ahead hedging their bets on where the peso is likely to head in the short to medium term.
Will this instability reach its zenith at the election and will there then be an end to "divisive politics" once it is all over? Probably, whatever the outcome of the election, there will be some semblance of a return to normalcy-but "normalcy Filipino style." The incoming Congress is unlikely to be as benign towards the poor and under-privileged as politicians make themselves out to be during the election campaign. Both FPJ and GMA have started out with reform agendas but GMA has already learned the political price that has to be paid for trying to change the status quo in this country too quickly; FPJ may still have to learn that lesson. If he really is the idealist his publicists are painting him to be, he may not be inclined to stay the course.
Nevertheless with the next presidential election six years down the track, the agenda will change. Reforms will come, but at a pace that does not upset the status quo. The country may again be more inclined to internationalise the economy but in this area change will not come overnight either, and each concession made to foreign interests will be on the basis of barter for Filipino interests.
But the real gain for the business community will be the end to the uncertainty of the past three years and a return to a longer-term focus. If the country can indeed get through the first 100 days of the new presidency-whomsoever is brought to power-without major damage to the country, then the outlook will be decidedly brighter than it has been for some time.
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