Books on The Philippines
Philippine peso (PHP)
Update No: 010 - (02/11/04)
This month has not been a particularly good one for the
Philippines internationally. There have been some rather salutary reminders
about how far the country has fallen from grace. On the domestic side however,
there are tentative signs that the government reform programme may be finally
starting to bite.
On the international front, first came the report from the World Economic Forum.
That report suggested that over the past twelve months the Philippines has
slipped 10 notches in the global competitiveness stakes and now ranks 76th out
of 104 countries surveyed.
Secondly came the Transparency International Report. That placed the Philippines
in position 102 out of 146 countries. Last year we were 92 out of a list of 133
A number of commentators in the Philippines have expressed indignation about
such surveys and Malacañang adopted its usual dismissive approach - "What
does a group of foreigners in London, Berlin or Washington for that matter know
about what is happening here in the Philippines? But that approach is
self-serving and really begs the issue. Even a cursory glance at TIs methodology
would show that their data is obtained within the country and largely from local
What matters is perception, perception, and perception. And the perception
throughout the world is that the Philippines is falling further behind others in
the development race. If nothing else, it reinforces the need for the government
and Congress to try harder to repair the damage that has been done to the
The pervasiveness of corruption has been identified as one of the major issues
preventing the Philippines from moving forward economically, and especially in
attracting new foreign investment. While the government claims (with some
justification) that it is waging a battle against corrupt officials through
lifestyle checks on senior officials, so far only minor level civil servants
have been caught in the net. For some time now, the business community and
non-governmental organizations have been urging government to go after the
"big fish" - that section of the community that considers itself to be
above the law in order to restore investment confidence that the government
really means business. Critics of the present administration correctly point out
that other Asian countries have made significant inroads into their battle
against corruption by gaoling a few public figures caught with their hands in
the till - or in receiving illegal kick-backs during the course of their work.
In this regard, perhaps the tide is finally turning- but it will take some time
before the actions resulting from present policy initiatives start to bite. Only
then will international agencies reassess their opinion of the country.
Meanwhile, the Philippines should not be written off just yet. The government is
starting to make headway in the anti-corruption battle and the Congress does
appear to realize the need to pass the financial reform measures - even if it
will not give the government all that it asks for.
Philippine competitiveness falls
It is the season of the survey. The first to appear on the scene was the
World Economic Forum's (WEF) Global Competitiveness Survey and it contained some
bad news for the government. Over the past 12 months, the Philippines has
slipped 10 notches in the 2004-2005 Growth Competitiveness Index (GCI) and now
ranks 76th out of 104 countries surveyed.
The Philippines, which ranked 66th in the 2003-2004 survey, saw its standing
slip due to perceived declines in the quality of its macroeconomic environment,
the state of its public institutions and its technological readiness. The local
business environment was also another source of grief, with the WEF's Business
Competitiveness Index (BCI) placing the Philippines 70th, down five notches from
65th the previous year.
In its competitiveness survey, the WEF said "Countries showing the largest
drops in rankings in 2004 - Bolivia, the Dominican Republic, Pakistan, Peru,
Philippines, Poland, Vietnam, to name some - have witnessed significant
deteriorations in one or more areas tracked by the Index."
The GCI gauges the ability of the world's economies to achieve sustained
economic growth over the medium- to long-term. It is composed of three
"pillars" which are widely accepted as being crucial to economic
· The quality of the macroeconomic environment;
· The state of the country's public institutions; and
· Its technological readiness (given the increasing importance of technology in
the development process)
The Philippines also suffered a huge drop with respect to the strength of its
public institutions, with the country slipping to 99th place from last year's
Transparency International survey on global corruption
The Berlin-based group, Transparency International has published its latest
Corruption Perceptions Index based on various independent country surveys. The
Corruption Perceptions Index 2004 charts levels of corruption in 145 countries.
Seven out of ten countries score less than 5 out of a clean score of 10, while
five out of ten developing countries score less than 3 out of 10.
Transparency International, founded in 1993, is considered by many to be the
leading international non-governmental organisation devoted solely to curbing
corruption. TI currently has close to 90 national chapters around the world
Within Asia, Singapore - at 5th place is considered to be the least corrupt
society while Bangladesh, alongside Haiti, is ranked equal last at 145 as the
most corrupt country. The Philippines comes in this year at position 102.
Last year the Philippines occupied position Number 92 - alongside Pakistan - and
remained ahead of Vietnam, Papua New Guinea, Indonesia, Myanmar and (of course)
Bangladesh in last spot.
Rankings in the two survey years are not directly comparable because of the
greater number of countries surveyed in 2004 as compared to 2003. Nevertheless
we can gauge in some measure how the Philippines is faring by comparing it to
other Asian countries as well as its peer group.
Leaving aside the newly emerging CIS economies of Central Asia, this year the
Philippines ranked as the sixth most corrupt country in Asia - ahead of Vietnam,
Pakistan, Indonesia, Myanmar and Bangladesh. Last year the Philippines was also
in 6th bottom place but the other five last year included Papua New Guinea in
place of Pakistan. As a percentile, last year the Philippines scored 0.316 while
this year its percentile score was 0.301. (The lower the percentile score, the
worse the average rank.)
This latest report was only made public on 20 October and so far there has been
little by way of public comment. We may expect the government to shrug its
shoulders as it has done in the past when bad news hits. In reality, the survey
result is cold comfort for the government since the Philippines has now steadily
slipped in terms of global corruption perceptions throughout the Arroyo
presidency. While the government will claim with some justification that
progress is being made (see below), it is the pace of progress that is worrisome
and the gulf that often exists between public policy as reflected in legislation
that is on the books and the practical implementation of that public policy.
Clearly much remains to be achieved.
Philippines remains on FATF watch-list
The third item of bad news is that the Philippines is still considered a
safe-haven for money laundering. Following its most recent review, the
international money-laundering watchdog Financial Action Task Force (FATF), has
decided that the Philippines should remain on the blacklist of countries
considered to be havens for "dirty money." According to the local
interagency Anti-Money Laundering Council (AMLC), the Philippine agency
responsible for enforcement of the anti-money laundering law, the decision was
not unexpected since the country has yet to mount a successful prosecution of
any person suspected of money laundering activities.
The council, however, now faces a major test case with its investigation of
Armed Forces Major General Carlos F. Garcia (see below), who has been accused of
amassing ill-gotten wealth and using this to buy properties and open several
The anti-money laundering law, passed in 2001, originally gave the council
authority to freeze suspected accounts. However this was amended by the
Philippine Congress last year. Now, the AMLC can investigate suspicious
transactions but cannot go after dirty accounts. It has to submit a draft
application for a freeze order to government lawyers, which will then be filed
at the appellate court. It takes the court two to three days to issue a freeze
order. As a result Major-general Garcia (see below) was able to empty many of
his accounts before a court decision freezing them came into effect.
The very model of a modern major general
For the last month, a single issue has dominated the local press - that of
the former Comptroller of the Armed Forces of the Philippines (AFP) Major
General Carlos Garcia who is to be court-martialed for his alleged unexplained
wealth. The case against Gen. Garcia came about as a result of the action by
United States Immigration authorities, who stopped one of the General's sons as
he was about to enter the USA late last year with $100,000 in cash in his bags
and which he had not declared. The problem was further compounded by the
general's wife who, by all accounts, acted somewhat bombastically when
confronted by US officials ("Do you know who I am?" - Yes, they did
and they didn't care it seems) and in a later affidavit explained that the funds
in question were "legitimate" contributions (i.e. bribes) from
grateful contractors of the armed forces. Further investigation by the US
authorities showed that the family had a US$1.42 million bank account and
several properties in the United States. This information was then passed to the
Philippines authorities. All of this, on a basic salary of Php36,000 a month
Garcia has also had assets in the Philippines frozen - but not all of them. His
family successfully emptied a number of his (more than 40) local accounts before
a court freeze came into effect. Garcia is to be charged with violating
Articles96 of the Articles of War for conduct unbecoming an officer and a
gentleman and Article 95 for fraud against the government. The local press has
been quick to point out that as the comptroller of the AFP, Garcia has a pivotal
role to play in uncovering the web of graft and corruption which many believe to
exist throughout the military and that became ingrained in the system during the
Marcos years. General Garcia retires on 18 November and the public is expecting
that the AFP will act with all due speed in his prosecution.
Garcia also faces civil charges before the Office of the Ombudsman for
dishonesty, gross misconduct and conduct prejudicial to the service. As this
report was being finalized, the latest news is that all forty local accounts had
been emptied of funds and all on the same day before the court-ordered freeze on
those accounts came into effect.
There is the some small measure of hope that this time around, tough action will
meet the tough words we have been hearing from senior government officials for
so long. If General Garcia is successfully prosecuted it will be a
"first" in the Philippines - and which should make future efforts to
clean up corruption in high places that much easier. The bonus for government is
that it might, at long last, put the country's military back in place under
First of government tax reform measures appears set for approval
The Philippines House of Representatives has finally passed the bill
increasing the tax on alcohol and tobacco products. Dubbed the "sin
tax" bill, it was introduced originally during the life of the last
Congress but remained inactive. Since her return to office in June 2004,
President Arroyo has considered passage of the bill one of her key objectives in
her tax reform programme.
By an overwhelming vote by the majority, House Bill No. 3174 was approved on
third and final reading without any amendments.
This means that the bill retains its salient features:
· A 20 percent increase in the tax on alcohol and tobacco products next year;
· A 3 percent increase in 2006;
· A further 3 percent increase in 2007; and
· The retention of the present multi-tier tax structure of these
Earlier, local and international tobacco companies had sought to strike a
last-minute compromise deal that removed the multi-tier structure and against
claims that the government proposals were discriminatory against smaller players
in the market.
Passage of the "sin" tax bill has been considered the most urgent by
international creditors and international credit rating agencies. The increase
in "sin" taxes is one of eight revenue measures the Arroyo government
is proposing to help avert a financial meltdown.
"The bill will now be transmitted to the Senate. According to official
statements, the government is on track to see final passage of this bill by
Fiscal incentives to be restricted to 10 industries
The government has identified 10 industries that, in the future, would enjoy
special fiscal incentives available under the rationalized Investment Priorities
Plan (IPP). A reduction in the number of industries eligible under the scheme is
part of the remedy prescribed for reducing the problem of foregone revenue.
Under the revised Medium Term Philippines Development Plan (MTPDP), those
industries able to enjoy incentives will be: information technology (IT) and
IT-enabled services, automotive, electronics, mining, healthcare, tourism,
shipbuilding, fashion, garments, jewelry and agribusiness.
Companies within those 10 sectors will be able to obtain an income tax holiday
on new investments of between 4 and 6 years and will be able to obtain duty-free
privileges when importing capital goods. The new programme will be legislated in
a new bill being prepared for Congress by the Board of Investments. Aside from
reducing the number of industries covered by the IPP, the new bill will provide
for a review of the applicable sectors every three years rather than annually as
at the present time. If the revised bill can pass Congress this year the new
measures will take effect from the beginning of 2005. The new bill also provides
for safeguards to ensure that companies are not able to claim IPP coverage
twice. In the past there have been instances where some IPP-covered companies
close down immediately before their coverage expires and then register a new
company to enjoy the same privileges.
Aside from the BOI Bill, the Department of Finance has also submitted two other
draft bills to the Congress. One of these lifts the value-added tax exemption
for a number of products and services while the other seeks the cancellation of
tax and duty-free incentives under various industry specific laws.
As of 29 October 2004, the exchange rate of the peso to the US dollar stood
at 56.351- and had spent the month trading in the narrow range between 56.3 and
56.4. Against the British Pound the rate stood at 103.0829 and against the Euro
the rate was 71.7855. Generally most currencies appreciated against the peso
during the month of October.
During October, the peso hit an all-time low of 56.45 against the US dollar
before easing back. The dip was prompted by ongoing concern at the inflationary
effects of the recent increase in oil prices as well as weaker regional currency
According to Central Bank governor, Rafael Buenaventura, the continued strength
of overseas remittances in the run-up to the Christmas holiday season is
expected to contain any further weakening of the peso and there are prospects
for a mild appreciation in coming weeks. At worst the currency is expected to
trade flat in coming weeks.
Japan, Philippines open FTA talks
Delegates from Japan and the Philippines started their fifth round of
negotiations recently for a new economic partnership, Kyodo News.
The closed-door talks, which are hoped to culminate in the signing of a free
trade agreement covering goods, services and investment between the two
countries may finally see a breakthrough, some informed officials said, although
a lot still depends on what compromise each side is willing to make.
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