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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)

Books on The Philippines

REPUBLICAN REFERENCE

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: 004 - (29/04/04)

President Macapagal-Arroyo Pull Ahead in Presidential Race
If the latest voter preference surveys are indeed correct (and the various pollsters all show similar trends) then increasingly it is looking as though President Macapagal-Arroyo will be returned to office for a full six-year term on May 10. However that outcome is not yet a certainty and there could be an upset victory for the opposition, more likely if the various opposition groups can unite. That option however seems increasingly unlikely. A fractious opposition is delivering the election to the present administration.
The latest worrisome fact to surface is that Comelec has said it has doubts about its own voters list. This maybe is the most accurate list ever produced as one Comelec official has claimed but that speaks more about previous inaccuracies than anything else. By all estimates there should be around 39 million people on the list. The fact that there are 43 million seems to suggest that someone, somewhere has got their arithmetic wrong. Since around 50 percent of the population of the Philippines is of voting age does this mean that the population is 8 million higher than previously thought? NAMFREL has cast doubts on the veracity of the polling list and will no doubt be doubly cautious in watching for signs of fraud.
Whoever wins on May 10 there is unlikely to be much of a honeymoon period. The problems facing the country are too great to allow any margin for error. While the administration has been quick to point out the improving business and investment climate, there is no reason to get too excited just yet.
To put things in context, the Philippines - together with Indonesia - still appears to be bringing up the rear as far as economic growth rates within Asia are concerned. The latest IMF projections suggest that global growth will pick up this year finally shucking off the lingering effects of the 2000 downturn. Within Asia an average growth rate of 6 percent is forecast with China leading the pack followed by Thailand and Vietnam. The Philippines is forecast to come in at 4.5 percent - which given all the turmoil is not a bad result but it hardly suggests that the country is really moving ahead.
With 3,000 of the best and brightest leaving the country everyday, job creation has to be the highest priority of the new government - jobs that will create long-term employment and industry for the Philippines that is. And that means that these jobs will have to be created by the private sector. This in turn will rely on new investment. Here again the government will need to reverse the trend of the past four years that has seen a marked decline in investment into industry and especially FDI. In dollar terms the country in 2003 received only around 23 percent of the investment that came in during 1999. The latest figures for the 1Q 2004 suggest an upswing - but the upswing is so massive it strains credibility. If it is the start of a trend then it is encouraging news indeed but as any statistician will tell you, you really need three points on the graph to determine whether a trend is underway and so we will have to wait a while longer.
With job creation comes the basis of wealth creation and with it an end to the interminable cycle of poverty that plagues much of the Philippines.
There is a proposal by Senator Pimentel to develop a new Social Contract between the private sector and government so that business could make long term investment decisions with a degree of certainty. The idea is a noble one but is it feasible? Can government stand aside from cronyism and provide the private sector - including the foreign investors that it professes to need - with a truly level playing field. 
A challenge has been given. Is the business sector ready to pick up the gauntlet and negotiate a genuine compact with government that will finally see this country emulate the rest of Asia in moving towards a modern nation state? It is worth thinking about.

SWS Confirms that GMA is Gaining Momentum.
The latest SWS Opinion Survey conducted during the period April 10 - 17 (during and after the Easter break) confirms the trend earlier reported - that voter preference for the incumbent President Gloria Macapagal-Arroyo is increasing while support for FPJ continues to slide. The new survey suggests that GMA is finally pulling away from FPJ.
The departure of Mr. Roco for the United States appears to have been a key factor in gaining the lead. Mr. Roco lost 7 points as compared to the previous survey. President Arroyo gained four points while the ranks of the undecided voters climbed three points. Both SWS and Pulse Asia put the undecided at around 10 percent of all voters, which is far greater than the difference between the two leading contenders. The survey lead of GMA over FPJ is 4.5 percent with a 3 percent margin of error. At this stage therefore President Arroyo cannot claim that her lead is a safe one.
The percentage of voters supporting FPJ, Lacson and Villaneuva has not changed significantly from the previous survey although Mr. Lacson has moved into third place as a result of the drastic decline in support for Mr. Roco.
GMA's lead over FPJ has strengthened to +30 in the Visayas, from +22 in March. In Mindanao it has swung to a +7 lead from a -7 deficit previously. FPJ maintains a lead of +12 in Luzon South of Metro Manila, from +13 previously. Luzon North (+2 for FPJ) and Metro Manila (+1 for GMA) are more or less tied.
An interesting observation made by the SWS pollsters is that voters are continuing to exercise their right to choose a mix of candidates from opposing parties and are not following any specific party slate. This suggests that the voting public may be more discerning than many politicians and analysts give them credit for.
Voter surveys are coming thick and fast at the moment. A further poll conducted last week and commissioned by the Manila Standard had President Arroyo at 36.9 per cent of the vote with Mr. Poe reduced to 26.4 percent. This poll was conducted by a group, NFO Trends, that is the same survey group used by Pulse Asia and SWS to conduct their field enquiries.
In the Vice Presidential race, Senator Loren Legarda-Leviste is narrowing the lead of Senator Noli de Casto. In this latest survey Mr. de Castro has a 44 percent voter support, Ms. Legarda 35 percent- a lead of 9 points. Herminio Aquino (Promdi) is the preferred choice of 6 percent of voters and Mr. Pajo (independent), 0.6 percent. In the March poll Mr. de Castro held a lead of 14 points while in February his lead was 28 points. Fourteen percent of voters are undecided regarding their choice for vice president.
With regard to the Senate race where 12 slots are available, it appears likely that 6 candidates will be elected from the pro-administration K4 slate and a further 6 from the opposition KNP ticket. Should GMA win the election this will provide her administration with a slight advantage in terms of Senate numbers. Mr. Bong Revilla (k4) continues to maintain his lead with 43 percent of voter support.
The first twelve are the same as in the March survey except that they now include Gordon and Madrigal, in place of Barbers and Biazon.

Election Violence
According to the Philippines National Police, 71 people have been killed in election-related violence since December, surpassing the number of dead in the last general elections in 1998. In the 1998 presidential campaign, a total of 64 people were killed and 157 others wounded, the police report said. A Philippine National Police spokesman said 132 people were killed in mid-term elections in 2001, while 303 others were wounded. 

Conflicting Signals on Foreign Investment.
According to a government statement released last week and reported in the media, foreign investment in the Philippine government's preferred sectors skyrocketed in the first three months of 2004 from the same period last year. Total foreign investment in the priority sectors and special economic zones hit 118 billion pesos (2.12 billion dollars) in the quarter, up from 6.12 billion pesos in 2003 while local investments in the same sectors grew by 140 percent to nearly 12 billion pesos in the same period. The electricity, gas and water supply sectors received the bulk of the investment, amounting to 107 billion pesos, the statement added. 
The latest figures came from sources within Malacañang Palace and have yet to be released by the Board of Investments.
Foreign Direct Investment (FDI) into the Philippines has been steadily falling in recent years. Even when measured in pesos the amount received in 2003 was a scant 32 percent of the level of investment recorded in 1999. In dollar terms the drop has been even more dramatic. One US dollar converted to 39.089 pesos in 1989 (yearly average) while in 2003 the same dollar would yield 54.2033 pesos.
The Switzerland-based International Management Development (IMD) recently surveyed a number of Asian countries and reported that the Philippines continued to lose its competitive edge in attracting foreign investments. In 2003 it slid from its previous ranking of 18th to 22nd place out of 30 countries included in the survey. By contrast, countries such as Malaysia and Thailand continue to leap ahead. Last year Malaysia came in at 4th place while Thailand was in the 10th slot. In 1999, Malaysia was ranked 9th place while Thailand occupied the 16th place in terms of attracting foreign investments.
The IMF, in its latest survey, sees a pick up in Asian growth rates for 2004 with the average exceeding 6 percent across the region. Yet Indonesia and the Philippines will continue to bring up the rear with a performance of around 4.5 percent expected for both economies. In the case of the Philippines, political uncertainties and fears of the burgeoning government debt are largely to blame. To the political uncertainties has now to be added the interventionist attitude of the country's Supreme Court (SC) with many fearing that the justices are creating a precedent whereby anyone with a commercial grievance can bypass normal commercial dispute resolution and take their claim to the highest court.
Chief Justice Hilario G. Davide, Jr., felt it necessary to calm investors fears last week when he said that foreign investors should be encouraged, instead of being disheartened, by recent Supreme Court decisions nullifying onerous contracts between the government and foreign corporations. "Indeed, corporations doing business in the Philippines should not fear judicial oversight of its actions because it is not an arbitrary power and it is a necessity in creating a sound business climate founded on the rule of law," Mr. Davide said. 
Mr. Davide assured the business community that it would be made fully aware of SC decisions that have an impact on business through court reporting or through "chamber to chamber" dialogues. He said the Philippines is aware that mercantile values are best accomplished when the government practices a level playing field and advocates the sanctity of contractual relationships in an atmosphere of transparency and accountability. 
Yet the fears of the business community remain. Congress too feels the need to assuage investor concerns with the Senate proposing a new "Magna Carta for Business" (Senate Bill No. 2277). The planned Magna Carta hopes to respond to the concerns of the business community by clearly spelling out the rights and obligations of business and the kind of protection that Government will accord it. It is envisioned to be the social and legal compact between Government and business with oversight given to a specially created Presidential Commission for Business Concerns (PCBC) under the Office of the 
President.

The Financial Markets
As business fear of a Poe win in the presidential race recedes, Manila's financial markets have started to recover and economic and political forecasts have started to sound more upbeat. A surge in remittances, usual at this time of year and ahead of the new school year in June has also helped prop up the peso, which by the last week of April had hit a three-month high of PhP55.54. Further gains are expected ahead of the May 10 poll.
The Philippines composite stock index has also recovered and as of the time of writing had passed the 1,590 - its highest level since March 2001. The local index has gained more than 10 percent this year.

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