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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
 

Update No: 012 - (10/01/05)

President Gloria Macapagal-Arroyo's sojourn at Malacañang Palace was finally legitimised when she won a fresh six-year mandate at the May 2004 presidential polls over popular actor Fernando Poe Jr (FPJ). The actor's untimely death from a stroke in December caused a renewed bout of tension, since many feared that his high-profile funeral would be used by the opposition to foment fresh unrest against the government. Many within the opposition ranks, especially some of the more radical groups, still believe that the election result was rigged and that FPJ was the rightful winner. Intelligence reports circulating following the actor's death also suggested that some people would try to use the highly emotive funeral atmosphere to provoke an uprising.
It did not happen that way and while the funeral crowd was indeed huge, the event passed without incident. Nevertheless the tension was palpable especially within the ranks of the highly politicised military and among officials at Malacañang Palace. For the moment however, the president continues to receive the support of the top military and police generals - some claim that this is only by promising them lucrative posts in government after their mandatory age of retirement from the service. If ever the top generals are asked the question, their predictable answer is that "the president is in control."
Nevertheless the Philippines has ended the year 2004 with a much welcomed return to political normalcy after the hiatus of recent years. Her mandate at the polls - and hence legitimacy in office - has defused much of the tension surrounding the manner in which she came to the presidency. Her more challenging task now is on the economic side, with much expectation that she will finally use her mandate, assert her authority and take the "giant strides" needed to open up the economy, balance the books and cure the chronic fiscal deficit, which economists have warned could infect the private sector's finances within two years, if the pace of reform is too slow.
There are many who remain perplexed at the seeming unwillingness of the president to take tough decisions and assert her authority, especially over Congress. Many commentators believe that during the first six months of her new presidency, Mrs. Arroyo squandered much of the political goodwill she had upon winning a new term of office. Much criticised has been her penchant to make political appointments rather than appointments on merit and her erratic decision-making process. It will be recalled that she took a bold step in declaring a fiscal crisis in September only to recant it and claim the crisis was over when the cost of borrowing went up as a result of her earlier pronouncement.
In particular, despite the need for urgent fiscal reform, Congress only passed one of the eight new revenue measures last year and although there is still hope of action when Congress resumes, the pace of reform is excruciatingly slow. By 2010, the government seeks to balance its books and eliminate its annual deficit amounting to around 4 per cent of the gross domestic product (GDP) at present.
Yet, in spite of her failure to institute any major economic reform in her four-year stint at the seat of power, President Arroyo still enjoys the support of the business community and the Philippine media. 
While the Philippines was spared from the giant tsunamis that wrought destruction in the islands of Indian Ocean at the close of the year, four typhoons unusually late in the year had earlier battered eastern Luzon and parts of Visayas, causing massive loss of life as well as damage to livelihood and property. It is estimated that the damages from these typhoons dented the GDP growth in the fourth quarter by around 0.5 percentage point. 
Amid the lingering political tension, the fiscal crisis and the natural disasters in the last quarter, the economy still found room to expand by 6 per cent in 2004, thanks to favourable weather conditions that boosted agriculture and fisheries in the first three quarters of the year, continuous expansion of the services sector and the late surge of dollar remittances from abroad.
If the same conditions persist, the economy will most likely grow by 5 per cent in 2005, despite the expected slowdown in the economies of most industrialised countries and of China.

Year in Review - 2004
According to a presidential spokesman, the year 2004 was a "challenging year" and one where the president's attempt at bold reform "faced resistance, frustration and disenchantment." "The president exercised strong leadership in 2004 at the expense of her own popularity in order to commit the nation to a long-term vision of stability and growth," he said. 
Following her win in the May election, the president introduced her 10-point development agenda, which was further given flesh in the 2004-2010 Medium Term Philippine Development Plan. Among the major concepts within the economic plan are that of a balanced budget, education for all, automated elections, better transport infrastructure, an end to local hostilities, a healing of the political wounds, electricity for all, opportunities for livelihood and jobs, decongestion of Metro Manila, and the Subic-Clark alliance as a future growth corridor. 
These are all noble objectives but it is the public sector debt that has seized the attention of most people in the immediate term. Unless the runaway debt problem of government and public sector agencies can be reigned in - much of it resulting from a misallocation of resources and cross subsidizations especially in the energy sector (plus a decline in revenue collection relative to GDP), the government will have precious little to spend on new programmes. 
Early into her new term and faced with a Congress that appeared to have overlooked the sense of urgency of fiscal reform, the president declared a state of fiscal crisis. She did so after news that the consolidated public sector debt had reached more than 130 per cent of the gross domestic product (GDP), - something that the World Bank considered to be a cause for alarm.
The declaration of a fiscal crisis finally created a sense of urgency among lawmakers in the passage of critical revenue reforms aimed at increasing taxes. However, early resolve quickly dissipated and by the end of the year only one of the eight reform bills submitted - the Sin Tax Bill - had been passed by the end of 2004. Yet there is still hope that other reforms will be enacted early this year.
The final official figures on growth rates for 2004 will not be released until February 2005; however, GDP growth in 2004 most likely exceeded the government forecasts. The economy actually expanded by 6.5 per cent in the first three quarters of the year, a figure that surpassed the official government target of 4.9 to 5.8 per cent for the whole year.
The high inflation rate, which dampened consumer spending, and the onslaught of four typhoons in Luzon in the fourth quarter will likely pull down the full-year GDP growth to around 6 per cent in 2004, early estimates suggest. Still, this is considerably better than the 4.7 per cent growth registered in 2003.
Gross national product (GNP) which includes factor income from abroad, posted a 6.2 per cent growth in the first 9 months, dragged down by a moderate 3.2 per cent increase in national factor income from abroad (NFIA), a figure that reflects the earnings of Filipino enterprises and individuals in other countries.
Personal consumption expenditure (PCE) was particularly impressive last year, growing by 5.9 per cent in the first three quarters. Due to government's austerity measures, public spending was down by 1.9 per cent yet private spending remained buoyant.
In the January-to-September period, the agriculture, fishery and forestry sector expanded by 6.7 per cent; the industry sector, 5.2 per cent; and the services sector, 7.3 per cent. These all put in a better return than in 2003.
Among the subsectors indices, the fastest growth was noted in forestry, at 42 per cent; transportation, communication and storage, 10.8 per cent; construction, 10.5 per cent; finance, 8.9 per cent; trade, 7.1 per cent; private services, 6.7 per cent; agriculture and fishery, 6.5 per cent; and mining and quarrying, 6.2 per cent. For one, the number of building permits issued in the second quarter of 2004 rose 18 per cent over the previous year while the total value of construction was up 25 per cent.
The latest data shows that approved foreign direct investments (FDI) surged 322 per cent year-on-year to P148.2 billion (US$2.6 billion) as of September 2004, mainly because of the new projects in the energy sector. The Department of Labour and Employment reported that the incidence of industrial action fell to its lowest level in nearly three decades last year. According to the Department of Tourism, tourist arrivals grew by nearly a fourth to 1.861 million in the first 10 months of 2004, due to the influx of inter-regional travellers from all continents. 
The National Statistical Coordination Board (NSCB) has also noted improved figures for employment, cement production, car sales, mobile phone sales, electricity sales, tourist arrivals, hotel occupancy, revenues of restaurants, sales of appliances, and OFW remittances.
Volume of production was up 9 per cent in October, indicating increased demand for the holidays. A regional economist from the University of Asia and the Pacific estimated that the country's 27 largest urban markets, worth around P1 trillion (US$20 billion) annually, saw their net sales grow by 10 per cent or P10 billion (US$2 billion) in 2004. 
In Metro Manila, electricity consumption was up by 5.7 per cent in September, led by the pickup in demand from commercial and industrial users. However, electricity rates became more expensive, rising 89 centavos per kilowatt-hour, as the government tried to help the National Power Corp reduce its losses by P32 billion annually.
Gross international reserves stood at close to US$16 billion by the end of 2004, which is a healthy indicator, according to the Bangko Sentral ng Pilipinas. The budget deficit reached P197 billion, accounting for 3.8 per cent of the GDP in 2004, down from 4.6 per cent in 2003. The country's external debt was estimated at US$55.6 billion as of September 2004.
Bilateral trade grew 8.9 per cent year-on-year to US$66.54 billion in the first 10 months of 2004, with exports rising 8.9 per cent to US$32.643 billion and imports going up 8.8 per cent to US$33.9 billion. The country incurred a US$1.257-billion trade deficit in the ten-month period. 
The peso settled at around 56 to the dollar. Economists said there is enough room for the local currency to further depreciate against the greenback to help exporters. However, the peso devaluation over the past decade, amounting to half of its original value, weighed on the banking sector, whose non-performing loan ratio remained high at 14.2 per cent as of October.
An important trade development is that the market bloc of China, Hong Kong and Taiwan has overtaken the United States, Japan and Europe as the top destinations for Philippine products.
Four notable developments in 2004 are expected to continue making the headlines in 2005. The government took over the modern Passenger Terminal 3 of the Ninoy Aquino International Airport, hoping that the facility, built by a German construction firm, would be finally opened in six months.

The watchlist
In early December, the Supreme Court took the unusual step of reversing an earlier decision and affirmed the legality of the 1995 Mining Act, which allows foreigners to participate in the local mining industry with one hundred per cent equity. The government has also made some progress in the privatisation of its power generation assets, with the successful bidding of the Masinloc power plant, one of the country's largest generating assets to be put on the blocks.
Finally, at the end of the year Manila and Tokyo reached a free trade agreement that will allow Filipino and Japanese traders to exchange a wide range of products, from fruits to electronics, at reduced tariff rates and that would facilitate the entry of more Filipino workers, particularly nurses, to Japan. On the downside, local "entertainers" seeking to work in Japan will, in future, be subject to more stringent standards as part of efforts to clamp down on the international trafficking of women. 
Growth would have been a lot faster in 2004, if not for the major risks faced by the Philippine economy, including the grave fiscal deficit, the political instability that emanated from the May elections, the slow pace of economic reforms, and the escalation of crude oil prices in the world market that eventually pushed consumer prices by at least 3 percentage points.
Inflation is on the rise. Consumer price inflation has been increasing for several months now and hit 7.9 per cent in December. It averaged 5.5 per cent for the whole of 2004. This weighed hard on the poor and the jobless and could yet translate into further unrest especially as the increased prices of electricity and fuel costs have a ripple effect throughout the economy as a whole. The National Statistics Office reported that as of October, the unemployed represented 11 per cent of the labour force. Another 17 per cent was underemployed.

Political Outlook
After winning the May 2004 presidential election, President Arroyo has established her right to her throne, which had been contested during the three years that she stayed in Malacañang Palace as an appointed president.
This fact has been instrumental in settling the country even though some elements of the opposition appear to remain in denial over the result and claim that the election was "stolen" from them. For the most part however, the country is returned to move on. Her win has been accepted by the military leadership and even by the formal opposition parties comprised mostly of allies of former President Joseph Estrada and the former presidential aspirant Fernando Poe Jr., - since deceased.
Mr. Estrada, however, remains a political force to reckon with, especially after he threatened a new uprising during Mr. Poe's wake in December. Fortunately for the country this proved to be no more than wishful thinking.
The president's attempt early in her second term to revamp the Department of National Defence is not proceeding as fast as initially expected following cautionary warnings that such moves could antagonise important elements within the military. Nevertheless revelations of plunder and malfeasance by senior military officers and the subsequent arrest of several senior military figures has reduced the ability of the military to resist change where it can be shown to lead to greater transparency. 
Against domestic terrorism, the administration did a pretty good job against terrorists, particularly the Muslim extremist group Abu Sayyaf. Incidence of bombings and fighting in the southern regions of Mindanao was minimal in 2004. The government also re-opened peace negotiations with the Moro Islamic Liberation Front. Peace talks with the communist rebel group National Democratic Front were less successful.
Crime incidents in the country fell 8 per cent in 2004. In particular, police cases of kidnap-for-ransom went down by 70 per cent to 28 in 2004 from 77 in 2003. This helped improve the image of the Philippines as a tourist destination.
What would cause political divisiveness in 2005 is the government's renewed attempt to amend the Constitution to facilitate the shift in the form of government from presidential to parliamentary. This hot political issue would persist in the minds of the opposition, wishing to take advantage of the president's dipping popularity rating.
However, any attempt to destabilize the political situation would not draw support from the public at this point. A more serious threat is the deterioration of public finances and the high consumer prices which could be used as grounds to unseat any president.
A common prescription is that the government should accelerate the pace of social and economic reforms. The president should be cautioned against making promises that she can't keep, particularly those pertaining to food, jobs and shelter.
Overall, the situation is expected to improve in 2005, compared to 2004 and the preceding years. However, with the expected increase in tourist arrivals, foreigners are advised to observe caution and restraint in public areas.

Economic Outlook
The projected slowdown in demand for electronics and the volatile oil prices in the world market will exert downward pressures on the country's GDP growth in 2005. Domestic demand, however, is expected to support economic activities in the short term and may offset a two-percent cutback in exports growth.
Although the head of the National Economic and Development Authority is optimistic that the GDP would match its 6 per cent growth last year, economists point to a list of internal and external threats to growth this year.
Among the external threats are the high oil prices that impact on inflation and the expected slump in global demand. On the internal side, the threats are the government's weak fiscal situation and the El Nino dry spell that affects agricultural productivity.
For one, the Manila-based multilateral lender Asian Development Bank (ADB) said the winding down of the global electronics cycle, weaker growth in industrial countries, and China's economic slowdown would result in lower economic growth for Asia in 2005.
Economists also predicted that the country's semiconductor exports, which account for more than half of the total, would not be able to sustain its double-digit growth in the past.
Even economic managers predicted that the growth of the export sector would slow from around 10 per cent in 2004 to 8.2 per cent in 2005, due to the slowdown in demand from industrial countries and the removal of quotas in the garments industry.
The abolition of the global quota system under the 30-year-old Multi Fiber Agreement (MFA) in January is expected to expose more than 100,000 garments workers in the Philippines to the stiff competition from China, where wages are much lower.
Optimistic is the word for the government's growth target for 2005 at 5.3 to 6.3 per cent. The ADB and the World Bank have more conservative forecasts, at 4.7 per cent and 4.5 per cent, respectively. At the most, the GDP would grow by 5.0 per cent and the gross national product (GNP) by 5.5 per cent in 2005. 
The growth of the dollar remittances sent home by overseas Filipino workers, worth around US$10 billion annually, is not expected to reach double-digits this year. 
Economists from the University of Asia and the Pacific predicted that personal consumption expenditure will grow by only 4.5 per cent in 2005; government consumption, 0.5 per cent; and capital formation, 9 per cent. 
Agriculture is seen growing 3.5 per cent in 2005; industry, 4.8 per cent; and services, 6.2 per cent. Services will continue to carry the bulk of economic growth in 2005 as investments in telecommunication and information technology (IT) increase.
Mining and quarrying is expected to grow by 15 per cent in 2005, following the Supreme Court ruling that allowed foreign investors into the local sector. 
Inflation rate is forecast to remain high at 7 per cent in the first quarter but would settle at an average of 5.5 to 6 per cent in 2005 while the bellwether 91-day Treasury bill rate would breach 8 per cent this year. The peso is seen trading at 57 to the US dollar late in the year.
With the passage of the Sin Tax bill, the government hopes to bring its budget deficit to only 3.6 per cent of the GDP in 2005, down from 3.8 per cent in 2004. Multilateral lenders pointed out that addressing the fiscal problem is essential to achieving a sustained and accelerated pace of growth for the Philippines. 
The government has admitted that "if the fiscal problem is not addressed, growth will be considerably lower on account of a severe erosion of investor confidence. This could lead eventually to balance of payment difficulties, as well as to deep cuts in government spending if the government is forced to continue with its target to achieve fiscal balance by 2010 but in the face of lower than expected revenue growth. 
The current account balance is seen at US$1.134 billion or 1.2 per cent of GDP in 2005 and the gross international reserves stand at present at US$16 billion. 
The information and communication technology sector as well as outsourcing operations (and particularly business process outsourcing) is expected to drive much of the growth in services this year. This sector includes contact centres, medical and legal transcription, animation, backroom operations, accounting and design.
Top performers in the past two years are expected to remain buoyant in 2005. These include beverage, logistics, education, food services, IT services, pharmaceutical, telecommunication, media, packaging, parts services and electronics. In particular, it is the back office services that create the highest value-added jobs and which therefore the government is seeking to foster. In this regard, the Philippines can take comfort from the fact that recent surveys show that the Philippines is more competitive as an outsourcing destination than India and that the competitive gap is widening.
In its new investment priority plan, the government wants to offer a more competitive incentives package to the following sectors: IT-related industries, BPO/contact centres, tourism, fashion garment, jewellery, medical services/healthcare/wellness, electronics, automotive, agribusiness/mariculture, and shipbuilding.
Local economists have identified the new sunrise industries for 2005 as health, wellness and beauty services for tourists; retirement homes; and even fashion design. All of these of course produce jobs but have minimal impact on investment and asset creation.
Then of course there is the revitalized mining sector to take into account. The opening up of the mining industry once again to foreign investment after the uncertainty of recent years, has the potential to change the entire growth paradigm of the Philippines. The government believes that the Philippines can absorb up to US$2 billion a year into this sector alone with much of the investment going into remote provincial regions thereby acting as a major growth incentive throughout the country as a whole and providing jobs in remote areas. Furthermore experience has shown that investment into mining has a relatively high multiplier effect through the economy as a whole.
Even without taking the mining industry into account (with projects admittedly having a relatively long gestation period, new foreign investments are seen to grow at a single-digit level, ranging from 6.6 to 6.8 per cent in 2005, even without any major reforms. At present, the Philippines maintains barriers to foreign investment in many sectors but these barriers are being dismantled and that is a major unsung achievement of the administration. In fact, President Arroyo has recently signed Executive Order No. 389 that blocks or restricts the entry of foreign investments in 35 major sectors. 
The Sixth Regular Foreign Investment Negative List (FINL) under Republic Act No. 7042, otherwise known as the Foreign Investment Act of 1991, does not allow any foreign equity at in mass media except recording, in the practice of any profession (including law and accountancy), retail trade enterprises with paid up capital of less than US$2.5 million, cooperatives, private security agencies, small scale mining, utilisation of marine resources, operation of cockpits, manufacture of nuclear, biological, chemical, and radiological weapons and anti-personnel mines, and the manufacture of firecrackers and pyrotechnic devices.
In its 2005 Index of Economic Freedom, the Heritage Foundation rated the Philippines as a mostly unfree economy, ranking 90th among 161 countries. It said among the drawbacks in investing in the Philippines are worsening social and political stability, inadequate infrastructure, antiquated labour legislation, high tax rates and bureaucratic corruption.
The ADB has a different concern: the challenge for the Philippines and the rest of East Asia, according to the ADB, is to sustain robust growth at a time when US interest rates and domestic inflation rates are on an upward path. 
"Against this emerging global and regional economic backdrop, an appropriate policy response should have three key components: tighter fiscal and monetary policies, greater exchange rate flexibility, and structural reforms to create an environment conducive for a sustained increase in domestic demand, especially private investment in countries where it has been subdued since 1997," the bank said.

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