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PHILIPPINES


 

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 77,076 71,400 74,700 42
         
GNI per capita
 US $ 1,020 1,050 1,040 133
Ranking is given out of 208 nations - (data from the World Bank)

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Area (sq.km) 
300,000

Population 
84,619,974

Capital
Manila

Currency 
Philippine peso (PHP) 

President 
Gloria
Macapagal-Arroyo
 


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Background:
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.

Philippines History
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 Outlook
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.

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Update No: 005 - (01/06/04)

A Messy and Violent Election

"I have a tough time understanding a mindset where a government position as small as mayor or vice-mayor is worth the lives of other people."
"We are appalled at the incidence of violence and fraud. These contravene certain claims that the elections were generally peaceful and without violence."
- Reported statements by overseas poll observers.

It was a messy and unacceptably violent election but as the dust settles from the Philippines polls (held on 10 May) there is no evidence to indicate that it was massively flawed. True, far too many voters names were missing from the lists prepared by the Commission on Elections (Comelec). And there were plenty of reports of ballot box snatching, vote buying and other anomalies. But there is nothing to indicate a widespread, coordinated attempt to 'fix' the result. That is not to say the Opposition won't try and find such evidence. They are now offering rewards for anyone who can produce instances of major poll fraud. It seems the old Philippine political maxim of 'we didn't lose we were cheated' is alive and well. 
The outcome is much as pollsters predicted - a win for President Macapagal-Arroyo and an expectation of six more years of a slow but steady growth. But she appears to have won by a margin that was not as wide as the pre-election surveys had predicted it might be.
How has she done it? After all she was well behind Poe in the opinion polls at the start of the campaign. Many viewed her as cold and aloof and were angered by her decision to go back on an earlier pledge not to stand in the 2004 election. During her watch the country has been beset by law and order problems and an under-performing economy.
But her opponents clearly underestimated her. She was a hardworking campaigner with a cleverly formulated policy platform focused on providing services and jobs for the rural and urban poor. She learned as she progressed and her K4 coalition was able to field a full slate of candidates for local and national positions. Of course she had the advantage of incumbency. By sharp contrast Mr. Poe seemed to do everything wrong. His KNP coalition was riven by internal squabbles and never fielded candidates for all congressional and local positions. His refusal to debate policies alienated many in the business community while his relationship with the media deteriorated throughout the campaign. And he and presidential candidate Panfilo Lacson failed to forge an alliance that might have given the Opposition a better shot at the polls. The view of the KNP seemed to be that the movie star appeal of Poe would be enough to capture the votes of the masses allowing him to stroll into Malacañang. It appears they were badly wrong. 

Can the Past be Now Set Aside for the Sake of the Country?
While Mrs. Arroyo will retain the presidency, she will do so with a relatively slim margin. That means the political rancor that has dogged her government over the past three years is likely to continue unless she can bring some key opponents on board her new administration. To that end she has made reconciliation overtures to Senator Panfilo Lacson who has reportedly accepted them. Whether any other Opposition members are willing to bury the hatchet remains to be seen.
Arroyo though has one trump card. She is likely to have a significant majority in the Senate which should help her in passing many of the reform measures that were log-jammed during the last Congress.
And with a popular mandate, albeit a small one, she may feel more confident to take a bolder and more aggressive approach to the presidency and to policy making than she has in the past.
As of the time of writing, the two chambers of the Philippines Congress continue to be at loggerheads as to how they are going to go about examining the certificates of canvass in order to declare the presidential and vice presidential poll. Under the Filipino Constitution while congressional seats and those of lower level elected positions can be declared by the COMELEC, it falls on Congress to declare the winners of the presidential and vice presidential race. (As of 28 May the two chambers had finally reached a compromise and the canvassing of votes by Congress will now proceed in the first week of June with the new administration being sworn in on 30 June.)
Both leading contenders for the presidential slot, incumbent President Gloria Macapagal-Arroyo and her main challenger, move actor Fernando Poe Junior have already "declared" themselves the winners - or at least claimed victory and some of the more diehard supporters of the main opposition candidate have threatened a further uprising should the election be "stolen" from them. It will take at least a week for Congress to consider the result and declare the winners. The rest of the country will have to wait and see what happens then.

Yes, But Who Won the Popular Vote?
Who actually won insofar as achieving the greatest number of votes, is actually difficult to say and it depends on which story you believe. The general view, as expressed by poll-watcher Namfrel and others is that the elections were "generally fair and credible" and that to the extent that there was skullduggery in the manipulation of voters lists or voting results, it was confined to the local level.
This is also the version of the poll that most of the press and the business community has happily accepted. However there are others - and credible sources at that - who hold firmly to the view that FPJ did indeed win the popular vote and that the delays in the transmission of the election tallies and in the proclamations was due to the desire (need?) on the part of the present administration to alter the results in several key areas to show a win for GMA. The best that can be said is that many people hold some reservations as to the claim of a GMA win but are rather glad that she appears to have done so - unless of course you are part of the Poe team.
The sad part of it all of course is that this is an election that the Philippines should never have had, at least not in its present form. Had GMA stood by her earlier declaration not to run for the presidency, then she could have made a graceful exit and earned the thanks and respect of the nation. That she did not do so is partly the fault of the opposition, and especially those supporting former President Joseph Estrada as well as the Cojuangco family and others. They simply would not (or could not) call a halt to the politicking, even after GMA had signaled her intention to put country first and had called on others to do the same.
Had she stuck to her guns, Poe would have likely shunned the contest and stuck to what he knows best - making movies (and as it turns out, he would have been wise to have done so). Then probably it would have been a contest between Raul Roco for the administration and Panfilo Lacson for the opposition and very likely Lacson would have garnered the popular vote and be in line for the presidency.
The fact is that the opposition shot itself in the foot in allowing personal animosities to get in the way of a rational decision to have "Ping" Lacson as its standard bearer. Certainly the Philippines would have then been set for a period of more austere government, which might be just what the country needs. Whether he would have turned into a Filipino version of Lee Kuan-yew is something that is now only in the realm of conjecture.
As it is, the country appears set for six more years of President Gloria Macapagal-Arroyo which is probably going to be better than six years of Ronnie Poe but many see it as the lesser of two evils rather than the best possible chance for the country.
Rumors continue to persist regarding the possibility of a coup attempt by the military and/or of civil unrest by the losing side. The business community is putting on a brave face of "business as usual" but beneath the veneer is a decided element of nervousness as to how events in coming weeks will pan out. Investors will continue to sit on the sidelines until the direction of government is clear.
President Arroyo is fortunate in that she appears to have been given a "second chance" to prove herself. But she will need to be seen to be living up to the high promises and standards she set for herself early on in her interim presidency and which many fear she has since abandoned. If she can regain the trust and confidence of the broader community.
As for Poe, we suspect that he wishes the whole thing would go away. Clearly he is not one who likes to lose but equally, deep down in his heart he must know that the presidency was not for him.

The Economy Has Performed Better than Expected
The agriculture sector, which makes up roughly one fifth of the Philippines total economic output posted strong year-on-year growth of 8.16 percent in the first quarter of 2004, the best quarterly performance in the last 15 years. In the same period last year agricultural output grew 3.43 percent and was up 5.6 percent in the fourth quarter of 2003. Agriculture Secretary Luis Lorenzo attributed the strong growth to the use of improved seeds and better farm technology. The robust performance puts the country on track to exceed its full year growth target of four percent.
Remittances from overseas Filipino workers in March 2004 rose by 10 percent year-on-year to reach US$705 million, according to the central bank. This brought the first quarter remittances to US$1.9 billion, or 4.3 percent higher than the US$1.8 billion in the same quarter last year. The favorable first quarter performance provides a comfortable buffer to the projected 3 percent growth of remittances for the whole of 2004. In fact, the last two months of the quarter each yielded almost 10 percent annual growth in remittances. 
The growth in remittances during the first quarter was attributed to the weaker peso allowing a higher conversion value of foreign exchange remittances; seasonal remittances in time for school enrollment; and an increase in the deployment of Filipino workers abroad from the same quarter a year ago. People took advantage of the weak peso to send in funds to relatives.
As a result of these favorable factors, the domestic economy in the first quarter registered its strongest performance since 2001 despite political tensions and security threats surrounding the May elections. Real gross domestic product (GDP), or the value of goods and services produced by the country based on 1985 prices, expanded by 6.4% in the first quarter, faster than the 4.8% growth posted a year ago, the National Statistical Coordination Board (NSCB) reported yesterday. The upsurge was also higher than what analysts and the government expected. Earlier, the government said the economy would grow by at least 5 percent in the first quarter. Analysts, meanwhile, had been forecasting a growth rate of between 4.3 percent and 5.5 percent.
There is always a down side. The bad news is that inflation seems to be on the rise and is expected to come in within the range of 4.2-4.5 percent in May brought about by rising oil prices and heavy consumer spending in advance of the May 10 election. Nevertheless the Central Bank, in a statement at the end of the month said it would, despite the trend of rising consumer prices, stick to its full-year inflation target of 4.0 - 5.0 percent, saying its pre-emptive response to inflationary threats helped cushion the impact of recent oil price increases. 

Security Threat Remains High
While poll related violence is likely to recede and the incoming government is expected to continue, if not strengthen its "law and order" stance, the Philippines remains vulnerable to attack from terrorist groups and vigilance continues to be the order of the day.

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