For current reports go to EASY FINDER




In-depth Business Intelligence

Key Economic Data 
  2003 2002 2001 Ranking(2003)
Millions of US $ 80,574 77,076 71,400 43
GNI per capita
 US $ 1,080 1,020 1,050 135
Ranking is given out of 208 nations - (data from the World Bank)

Books on The Philippines


Area ( 



Philippine peso (PHP) 



Update No: 019 - (01/08/05)

One maxim you learn to live by in the Philippines is to "expect the unexpected." Last month we were cataloguing the achievements of the Arroyo presidency one year into her second term. The accomplishments we concluded were considerable and the Philippines were set to make the leap to one of the emerging tigers.

In July it all fell apart.

End of the "dream team"
The mass resignation of key members of President Arroyo's economic team in early July was an unexpected development and one that has plunged the country into a deep political crisis. It has polarised the nation and has far-reaching implications.

What prompted the resignation of key economic officials - what we had termed a "dream team" - is still a matter of conjencture but three factors may have been at work. Firstly, following the announcement by President Arroyo that she was sending her controversial husband overseas (the First gentleman has been rumoured for a long time to be peddling influence and a source of corruption in government) it was widely expected that she would follow that up by removing from public office the close friends of the First Gentleman who held their office through political patronage and not on the basis of merit. That did not happen. Secondly, Malacanang Palace was rumoured to have been involved in the decision of the Supreme Court to delay the implementation of the Expanded Value Added Tax Law (E-VAT), the cornerstone of the government's reform agenda, because it was widely perceived to be an unpopular move and the president did not want to see her popularity further eroded. Finally there was opposition from many in Cabinet to a proposal by some of the president's key advisors to divert scarce public funds into a media blitz extolling the virtues of the president and her achievements. Which of these was the tipping point or whether it was a combination of all three, we simply do not know.

In total 13 members of her Cabinet submitted irrevocable letters of resignation and called on the president to resign. These included Finance Secretary Cesar Purisima and Trade and Industry Secretary Juan B. Santos as well as Education Secretary Florencio Abad, Budget Secretary Emilia Boncodin, Agrarian Reform Secretary Rene Villa, Social Welfare Secretary Corazon Soliman, Presidential Adviser for the Peace Process Teresita Deles, Customs Commissioner Alberto Lina, Bureau of Internal Revenue Commissioner Guillermo Parayno, and National Anti-Poverty Commission chief Imelda Nicolas. 

"The longer the president stays in office under a cloud of doubt and mistrust, and with her style of decision-making, the greater the damage on the economy and the more vulnerable the fragile political situation becomes to extremists seeking to undermine our democratic life," Secretary Purisima said. 

"The President can be part of the solution to this crisis by making the supreme sacrifice for God and country to voluntarily relinquish her office and allow her constitutional successor, the vice-president to assume the presidency," Purisima said. "Resignation is a legitimate constitutional option for effecting leadership change. Given the crisis in the presidency, this is the least destructive and least painful option that can simply restore normalcy and eventually bring us prosperity."

At one point during the crisis week, it is believed that the president was close to acceding to demands that she step down but she was saved at the 11th hour by former President Fidel Ramos who encouraged her to stay on temporarily while the legislature convenes as a constituent assembly and drafts a new constitution that would bring about a federal parliamentary system of government with the president reduced to a figurehead role.

Over the following weekend, the influential Catholic Bishops Conference of the Philippines issued a statement that fell short of seeking a resignation from the president, although it did not rule out that possibility. Rather, in commenting on the president's apology for her lapse in judgement in telephoning controversial Comelec commissioner Garcillano during the 2004 election, the bishops noted that "beyond apology is accountability."

By contrast, the protestant National Council of Churches of the Philippines, representing 13 million constituents, took a stronger stand and called for the resignation of President Arroyo. The statement says that her admission [of the phone call] does not allay people's doubts about the honesty and genuineness of the election results, and that she will forever be hounded by questions about her moral ascendancy and the legitimacy of her presidency.

Buoyed by the statement from former President Ramos and from the Catholic bishops in particular, the president had a change of heart and chose to tough it out. 

For many, the key issue is that of accountability, much of the focus of press attention continues to be on the need to answer charges relating to election rigging and the involvement of the First Family in accepting kickbacks from the illegal numbers game "jueteng" (a form of lotto). In addition, should it be confirmed that the president did indeed "get to" the Supreme Court judges to scuttle her own economic policy in order to enhance her popularity, then that would open up an entirely new dimension to the crisis. 

Defining the future of the Arroyo presidency
President Arroyo started out as a controversial president and remains so until this day. Former President Estrada, members of his family and close political allies are believed by many to be using their influence and their money to destabilise and discredit the current president at every opportunity. While they appear to have given up on the notion that Mr. Estrada could be returned to power, they certainly want the charges against him dropped so that he can enjoy his retirement as a free man. They also want pay-back.

Certainly the entire episode of the illegal wiretap on conversations between the president and one of her election commissioners during the 2004 elections is mired in controversy and while most believe that given the chance, President Arroyo would have fixed the election result, most also believe that the opposition would have done the same had it the chance to do so. So when it comes to the issue of election fixing, nobody comes out looking particularly "clean" and honourable. The best means of resolving this particular allegation is through a Truth Commission as has been proposed but if justice is to be served, its mandate should be sufficiently wide to look at the total picture of dagdag-bawas and how it can be finally stopped (by computerising the process for a start). 

Thus the refusal of President Arroyo to resign her post in the midst of the current controversy has to be viewed, at least in part, in the context of the personal power struggle (read: vendetta?) between two first families. Neither is going to yield ground for the sake of the country. Both are seeking vindication. However, there is a nagging feeling that the president wants to hold onto power at any price.

Then there is the issue of the illegal jueteng numbers game itself. Jueteng has been part of the fabric of local political life for at least the past century. Back in 1930, Governor General Dwight F. Davis ordered IloIlo governor, Don Mariano Arroyo, dismissed for corruption surrounding local jueteng operations. Mariano Arroyo was the most powerful man in the province at the time. His brother, Jose Arroyo y Pidal is the grand-father of the present First Gentleman. So while, of course, history proves nothing, it does suggest that for many years there has been a close association between the politically powerful regional families and illegal gambling, the proceeds from which have been used to cement their hold on power since it lined the pockets of so many local officials. In fairness it should be added that in some cases at least, jueteng money was used to augment the finances for local government programmes thereby serving a useful social purpose.

Certainly, common sense would argue that jueteng should be legalised. Detractors, however argue that to legalise the game would do nothing to solve the problem since, by its very nature, it is the illegality that makes it so attractive. The problem does not appear to have an easy solution except to point out that much of the noise surrounding the current "clampdown" on jueteng appears to be just that - noise, and that very little serious effort is going into eradicating it from national life. One reason commonly adduced for this state of affairs is the need to pay back political debts from the last election - and how other can these debts be repaid if not from the local jueteng franchise?

President Arroyo therefore has a point when she says that it is very difficult to be a politician in the Philippines and keep ones hands totally clean. That is the sad fact of life and most people would feel some empathy with her predicament.

Then there is the third factor that the country has in President Arroyo, a leader who is a professional economist and an acknowledged workaholic. Whatever faults may have been levelled against her tendencies to micromanage, her penchant for work was considered an admirable trait. While many people held reservations about her style, such reservations were held in check while President Arroyo was given the chance to prove that she could deliver on her promises. After all, nobody is perfect.

Finally there is the church to consider or, more specifically, the Roman Catholic Church. The statement last weekend from the Catholic Bishop's Conference signalled that the Church under Pope Benedict XVI will stand aside from the political fray. The failure of the Church to join the chorus of demands for the president's resignation, proved to be the nail in that particular coffin.

Forget about the concept of "Liberation Theology" and political involvement for the uplifting of the masses, growth of the Church in the future will come from the countries of Asia and especially China and Vietnam - two countries that take a rather stern view of any religious order meddling in politics. If Rome is to cut any sway in Beijing, Hanoi - or other capitals, then it will want to be seen to be taking a hands-off approach in matters concerning the secular state. At last we may be seeing a true separation of church and state here in the Philippines. Whether that is a positive development or not depends on your political standpoint. From a long-term perspective though, it has to be a good thing.
Certainly, Malacañang read into the bishop's statement, a vindication of the decision to tough it out. While the spin doctors at the Palace would like to think that their exercise in damage control has succeeded, they may well be mistaken if they continue their present course. 

The president moved quickly to replace the dream team with equally credible people. Among them Finance Secretary Margarito Teves; Trade and Industry Secretary Peter Favila; the officer-in-charge at the Bureau of Customs, Alexander Arevalo and Bureau of Internal Revenue Commissioner Jose Mario Buñag.

But credible appointments alone will not be sufficient to turn the ship around. Above all there is a need for bold moves to reassure international investor confidence that indeed the government is committed to those principles that it says it cares about. 

Newton's 3rd Law - to every action there is an equal and opposite reaction - applies as much in politics as it does in the physical world. And the reactions have not been slow in coming. Four ratings agencies have threatened to downgrade the Philippines once again and the peso has sunk to a new recent low. Paradoxically, the lower peso may have something to do with the holding up of the stock market as foreign funds take advantage of the bargain rates to prop up local stocks. 

Leaving aside the bourse, international investors as a species are becoming disenchanted once more by the turn of events and the manner in which they are being played out. A major investment conference planned for New York in September and timed to coincide with President Arroyo's visit to the U.N. General Assembly has been reportedly cancelled as sponsors have pulled out. Another major infrastructure investment conference planned for the Philippines in November has been put on hold pending a more clear indication of the direction in which the country is heading.

Despite assurances to the contrary, there is a fear that in the months ahead economic reform will play third stage to other acts surrounding the survival of the President. On stage 1 we have the possibility of an impeachment proceeding. At the end of the day it is unlikely to prosper since the President still has the numbers but it will divert scarce resources into an exercise in futility. On Stage 2 we will have the (likely) congressional hearings into constitutional change. Now taken together this mix could well produce the mother of all horse trades. It is a frightening outlook to contemplate but not entirely irretrievable. And to put the best possible gloss on it, at least we can see that the constitutional processes are working and that people want them to work.

President's SONA disappoints many
As a result of the crisis, the president's annual State of the Nation address, delivered on Monday 25th July, was far more about the state of the presidency than the nation as a whole. Conspicuously absent from her address was any mention of the issues that have undermined her presidency in recent weeks and especially the allegations of electoral fraud and of family involvement in the illegal numbers game of "jueteng" - the very issue that led to the impeachment of former President Joseph Estrada and which she had vowed to eradicate. That she attempted to put the best possible gloss on a very unsatisfactory situation is possibly an understatement.

This was the president's fifth SONA since assuming office in January 2001 and her shortest yet - only 4½ pages according to reports and delivered in English rather than the vernacular. That she was greeted with a record number of standing ovations during the course of her brief address had more to do with the allegiances of those gathered than it did with the content of her message for the nation as a whole.

By and large the political opposition absented itself from the assembly which was packed with pro-GMA and Lakas-CMD (the majority ruling party) supporters and her message was clearly meant for their ears rather than those of the country. Her central message was not that she was pressing ahead with further economic reforms, on further levelling the playing field to attract more foreign investment or that she was using the occasion of the courtesy resignations of the entire cabinet to revamp those government departments that are known hotbeds of mulcting. Rather it was that the political class as a whole has to share collective guilt for the sorry state of affairs and that, being all people of good faith, the problem did not lie with individuals but rather with a system that needed change.

That change meant a revision of the constitution - not by a Constitutional Convention that would bring in fresh blood and a new breed of political forces (and which had earlier been President Arroyo's preference), but by having the present Congress sit as a constituent assembly. As we said in an earlier commentary, the mother of all horse trades is about to begin. Those political forces and vested interests responsible for the present mess are going to be ones given the task of reorganisation. It is not difficult to predict what the result will be.

Somewhat mischievously, the twin issues of federalism and parliamentary government have been bundled into a single issue when of course they are quite different. Australia is an example of a parliamentary federal system while the United States is a presidential federal system. While the arguments that the Philippines should have a federal system of government are persuasive, especially to bring a lasting peace to Mindanao, the case for a parliamentary government rests on tenuous grounds. Many analysts will argue with some credence that placing all political power in the hands of a prime minister elected only by his or her parliamentary colleagues will, in the context of Filipino politics, only serve to entrench the present "trapo" system rather than remove it.

Yet we doubt there will be a clear demarcation of the two issues in the forthcoming debate, or indeed when it comes to a vote. People in Mindanao and elsewhere in the provinces clearly want federalism and if the two are part of the same "take-it-or-leave-it" package then those favouring the parliamentary system are likely to get it by piggybacking on a federalist package.

When speaking to the theme in Congress, President Arroyo praised the parliamentary systems of regional countries - presumably Malaysia came clearly to mind, a country which changes its prime ministers once in a generation rather than the European model where leaders come and go rather more quickly.

It was noticeable that during the SONA address, House Speaker and Lakas-CMD president, Jose de Venecia was visibly delighted by the president's adoption of his own model for political development (de Venecia is widely believed to want the prime ministership for himself) while Senate President (and Liberal Party leader) Franklin Drilon sat poker-faced and with his hands clasped throughout the proceedings.

Of course, the speech already had all the markings of a horse-trade. The dominant Lakas-CMD party will continue to support President Arroyo and allow her a dignified exit (and kill the impeachment bid at the same time) provided it gets its own way for the future political roadmap of the country.

If the president and Lakas-CMD get their way it will be by default since the opposition has so far singularly failed to rally people to their side despite the general dissatisfaction that exists throughout the country. Malacañang is quick to point out that it is only in Metro Manila where there is significant opposition to the president and that elsewhere in the countryside President Arroyo continues to enjoy widespread support. What they fail to mention is that just possibly it is because the voters of the National Capital Region are a little more astute and given more choice than those people in the provinces where family fiefdoms continue to hold sway and under present proposals are likely to become further entrenched. It is no wonder they support the moves.

What is now certain is that President Arroyo is going to remain president for the foreseeable future. Attempts to remove her have come to naught. Street demonstrations organised in recent weeks by opposition leaders intent on building momentum towards a further people power uprising to force her from Malacañang have fizzled. It is not that people are unconcerned at the issues facing the country; rather it is in their recognition that the opposition is being equally self-serving in calling people on to the streets. So far, the opposition has failed to unify around any issue other than the ousting of the president and has certainly not come up with a credible alternative agenda for the country. Perhaps now there may be the makings of one.

In fact, and as many commentators have pointed out, the failure of the Philippines is largely due to the failure of its political class to rise above self-serving interests. Both under President Estrada and under the present administration, many of the technocrats who have been called to service have been world-class. That more has not been achieved can, in large measure, be tracked to the pillage of politicians. Whether we will see more or less of this in the future remains an open question.

Where does the country go from here?
At a recent meeting of the Manila Overseas Press Club, the members present were privileged to have at the one head table the movers and shakers of the new economic team including Finance Secretary Margarito Teves; Trade and Industry Secretary Peter Favila; the officer-in-charge at the Bureau of Customs, Alexander Arevalo and Bureau of Internal Revenue Commissioner Jose Mario Buñag. The new team is impressive and has vowed to continue the reform programmes of their predecessors. (Interestingly, they collectively undertook to resign their positions if they came under pressure in their portfolios from Malacañang officials). So as far as the government's economic reform programme goes, everything appears to be still on track - or is it?

Already there are rumblings in the daily press that suggest some backsliding: The Bureau of Internal Revenue appears to have lost interest in pursuing the case of tax evasion against Rep. Ignacio "Iggy" Arroyo, the brother of First Gentleman, Jose Miguel Arroyo. According to reports, the Department of Finance and the Bureau of Internal Revenue completed their evidence gathering week's ago and were set to file charges with the Department of Justice when former finance secretary Cesar Purisima and former BIR commissioner Guillermo Parayno Jr. resigned their posts. Since then nothing has happened. Over at the Bureau of Customs there are reports that importers are again being charged "facilitation fees" of more than P10,000 per container by local port officials. 

The real problem in the Philippines lies in the issue of governance and it is a critical one. In defending her decision President Arroyo has made much of the fact that despite her unpopularity in Metro Manila, she remains extremely popular in the provinces. This is true to a point. The people who run the provinces certainly appear to be giving her widespread support - but since she controls the purse strings there is a certain self-serving quality about such gestures, especially since for the most part they come from the dynastic clans who control politics at the provincial level. Go beyond the political class and that support is much less secure - or why else would Malacañang be spending so lavishly on a press campaign lauding the achievements of the Arroyo presidency?

In a sense the present crisis has proved to be the defining moment of the Arroyo presidency. We no longer have to ask whether the president will truly pursue reforms designed to change the political landscape of the country. She will not. While at the economic level, her team will continue to chant the mantra of economic growth - "2004 was the best in 15 years" - we cannot expect to see any shaking of the political foundations. 
Traditional politics will continue to hold sway. Why else would we have Ramon Durano as head of Tourism - someone totally clueless about his portfolio (and who replaced Obet Pagdanganan who was widely regarded as a professional). We also have Ramon Revilla, a 78-year old former movie actor who remains in charge of the Public Estates Authority and an-ex police official Leandro Mendoza at the helm of the Department of Transport and Communications. Mr. Mendoza may know a lot about issuing traffic tickets but chances are he knows very little about the impact of the information superhighway on the Philippines business environment. The list continues; this is but a small sampling. Any expectation that we would see the rise of a meritocracy throughout government has vanished for the present.

A little over a month ago, we all thought that the President had had her epiphany and was about to make sweeping reforms in ridding national politics of the "trapo" element - how wrong we all were. In fact, given the present level of presidential insecurity, political patronage is now more secure than ever. Not only that, constitutional reform is now back at the top of the agenda - but a reform where the parameters will be debated by those who have a vested interest in ensuring their own self-preservation. There will be no opportunity for a new political class to emerge from the process.

We have no doubt that in many areas President Arroyo wants the best for the country. So did all presidents, even Mr. Marcos. We are sure that when she says she wants no child to go hungry, she hopes this can be achieved. Yet at the same time and in spite of the hours she puts into the job she has not shown that she is prepared to go beyond "wish list" politics in her goal of creating a society whereby wealth is more equitably shared or at least the poor have the resources to acquire wealth (asides from selling their labour overseas). The power of prayer can only take you only so far. At some point, her faith has to be matched by her actions. We doubt there will be any.

For the moment, investors are likely to sit on the sidelines.

« Top


« Back


Published by 
Newnations (a not-for-profit company)
PO Box 12 Monmouth 
United Kingdom NP25 3UW 
Fax: UK +44 (0)1600 890774