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PHILIPPINES


 

 

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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
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)

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Area (sq.km) 
300,000

Population 
84,619,974

Capital
Manila

Currency 
Philippine peso (PHP) 

President 
Gloria
Macapagal-Arroyo


 


Update No: 026 - (28/02/06)

The revolution that wasn't
President Arroyo, the president who was bought to power in 2001 in what was a coup against former President Estrada in all but name, has once again shown that she is has full mastery of the local political scene. Claiming that a range of opposition forces were about to attempt to unseat her from power, it appears that she has taken pre-emptive action. Deftly she has turned the tables on those oppositionists who are seeking to destabilise government by effectively destabilising the opposition instead.

The road not taken

"If you set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing."
                                                                         Margaret Thatcher

The Philippines is at present under a "state of emergency." How long it will last is anybody's guess. Pundits claim it could last from days to months. The emergency was declared by President Gloria Macapagal-Arroyo on the morning of Friday 24th February, a day that was to have marked the culmination of celebrations of the 20th anniversary of the EDSA 1 people's power movement that led to the overthrow of martial law dictator, President Ferdinand Marcos. 
In Proclamation No. 1017 declaring a State of National Emergency, the President said that over the past months, certain elements of the political opposition have formed a tactical alliance with the communist insurgents and military adventurists in a "concerted and systematic conspiracy, over a broad front, to bring down the duly-constituted Government elected in May 2004." She has demanded obedience to "all decrees and orders promulgated by me personally." 
According to press reports the economic team within Cabinet, worried by the international impact of the decree, are pushing to have it lifted almost immediately but it is the presidential security contingent that appears to have the ear of the president and they are urging her to keep it in place.
All schools in Metro Manila were closed temporarily and students told to stay at home. These orders have now been lifted.
By this proclamation, the President claims the power to prohibit peaceful assemblies, revoke rally permits issued ministerially by local mayors, order warrantless arrests, and take over sections of the media that do not follow the government line. Some sections of the media it was claimed "have recklessly magnified the claims of alleged conspirators." The offices of one leftist newspaper, the Daily Tribune, have already been taken over by the Philippine National Police and the Police Chief has publicly warned that others would follow "if they do not follow government standards."
Almost immediately the proclamation was issued, a number of prominent personalities known to be critical of the Arroyo administration were arrested, mostly without warrants but in one case at least on the basis of a warrant that dated back to the 1980s. 
Brigadier General Danilo Lim, founder of the now defunct Young Officers Union has been relieved of command of the 1st Scout Rangers. Marine Commander Major General Renato Miranda as well as Col. Ariel Querubin, of the 1st Marine Brigade were likewise relieved; the latter after he and his restive troops went to the defence of their former chief. Chief Superintendent Marcelino Franco of the Philippine National Police's Special Action Force has also been relieved of his post. 
It is significant to note that all these are crack units and considered to be among the elite of the military and para-military forces within the country. As such, far from being "used by politicians" as has been claimed by some pro-administration officials, these people are generally regarded as being among the most professional in the country and above reproach. Reading between the lines, it appears that they were not prepared to give their unqualified backing to their commander in chief (the President) and to follow the chain of command under all circumstances.
In declaring the state of emergency, did the President and her palace officials truly believe that a coup was in the works - if so then there has been no evidence of such presented? Or was it a case of wishing to nip in the bud any further criticism of the present administration that could have come from the expected celebration of the EDSA anniversary and associated rallies? Instead of celebrating the event, the president for the most part remained in her palace barricaded with container vans. The prevalent opinion is that the president used the mere threat of dissent to demonstrate her degree of control and confound the opposition.
As the chief beneficiary of the second People's Power protest action in February 2001, many would claim that the President has now turned her back on those people who brought her to power in the hope that she would lead a reformist government dedicated to eliminating (or at least significantly reducing) corruption and rebuilding the shattered public institutions of government.
How does one comment on the events of the past few days with any measure of objectivity? President Arroyo is believed to be an avowed Thatcherite and at one level her "no compromise" approach has to be admired. The dysfunctional political system of the Philippines whereby the only defeated candidates are the ones who believe they were cheated is the root cause of much of the current turmoil. 
As a general proposition, in a democratic country a duly elected government should be judged only at the end of its term of office and then by the electorate voting in a fair and credible poll. Not before. The problem here is that many within the political and commercial leadership class-even those who were not candidates in the election of 2004-believe that the President was not elected in a fair and credible poll. This has lead to widespread dissension within the body politic.
This leads us naturally into a second proposition, that the moral right to govern is lost when a government disregards democratic norms and acts out of partisan self-interest rather than seeking the common good. We are reminded of the famous epithet of Edmund Burke: "all that is necessary for the triumph of evil is that good men do nothing."
Clearly, in the case of the present administration, there are some significant questions both as to appointments to public positions that appear to be without merit and the use (diversion?) of public funds to support sectional interests and buy loyalty to the regime. Allegations of wrongdoing have not only gone unanswered but the administration has gone to unusual lengths to avoid confronting them. In the process the normal checks and balances of the system are being undermined. There is a strong and widespread suspicion that government is for the privileged few who are able to enjoy the perquisites of power without being held accountable. In the process what remains of democratic institutions have been compromised further by the transactional nature of the government.
In this sense the Philippines is confronted with a dilemma in which the administration while continuing to function is in danger of losing its moral right to govern. Or as Pope Benedict XVI reminded the world in his recent encyclical (and quoting Saint Augustin) "a State which is not governed according to justice would be just a bunch of thieves:" In such circumstances, is the price of economic growth to be a diminution of the moral or just basis of government? Some local commentators writing in the weekend press see ominous parallels between the actions of the Arroyo administration and those of President Marcos. "Is the Philippines veering towards a new fascism supported by the military/commercial complex?" asked one.
President Arroyo has indeed been fortunate so far in that she has enjoyed the support of most local government units, the military and the Catholic Church. The general population, weary of the machinations of their politicians has grown weary and apathetic. That is what government is counting on. But there are signs that the basis of her support is not as firm as it has been. Cracks are now starting to appear within the military high command - and over recent days have become highly visible. Even the Catholic Bishops Conference is now hedging its bets. With Manila Archbishop Cardinal Rosales elevated to become a prince of the Church, will he follow in the footsteps of Cardinal Sin and start to be more outspoken on the public stage?
Even Vice President Noli de Castro, who to this point has remained silent has joined the protest against the media crackdown. Some take this as a first sign that he is distancing himself from the Arroyo regime. The previous president, Fidel Ramos, has gone on record as saying his support for the president is "waning." "Waning" maybe, but it has not yet disappeared entirely. It was President Ramos it may be remembered that saved the day for President Arroyo in the middle of last year when her administration appeared all but doomed. She has very deftly turned the tables on the Kingmaker.
Yes, the administration could yet unravel. The general belief it holds in its own infallibility are already leading to policy misjudgements which at the very least will constrain growth but which, if the path is maintained and further misjudgements are made, could ignite further dissent and civil disobedience within the general population that could lead to social disintegration. The likely response from Malacañang however, will be to tighten the screws rather than loosen them.
Already text messages are circulating which claim to originate from the Magdalo Group (the group of young officers responsible for the Oakwood mutiny). "Civilians are advised to stay away from any cellsite installations and government buildings as a series of bombings may occur as part of the plan to change the corrupt system of governance of Mrs. Arroyo." Is the message genuine? Who knows? But it appears questionable and could have come from a range of sources including an administration seeking to justify its action. Nonetheless the advice contained in it is precautionary and worth heeding.
The international community while bemused by the current turn of events is likely to stay on the sidelines. After all, if the Philippines is making headway on the economic front and can repay its debts what is there to complain about? The fact that the country is falling behind its Asean neighbours counts for very little until such time as serious human rights abuses start to surface.
Firm government will allow the Philippines to continue to focus on economic reform and the delivery of an expanding GDP. But firm government that erodes the moral values of this conservative society will eventually fracture at some point. At the very least it needs to be said that on the present path the growth trajectory of the Philippines will be lower than it could have been had genuine reform been undertaken which was the expectation emanating from both EDSA 1 and EDSA 2. 
Unlike Robert Frost who once stood at a fork in the road undecided what path to take, President Arroyo has no illusions about her path - or her destiny. She is taking a road well-trodden by those who seize power. Not everyone it seems, wants to follow her.

Business as Usual?
Businesses will usually take the line of least resistance towards obtaining the profits that keep them running and growing. No doubt they will adjust to the present situation. But the declaration of Emergency Rule has just erected another barrier to achieving a higher growth trajectory and will again focus adverse international media attention on this country. If prolonged it could further discourage new businesses from locating to the Philippines. For those that are already here it will make them think twice before investing further. Asset management will be the "watchword."
It is a great pity that the government, with Proclamation 1017, has managed to undo much of the recent positive sentiment that has come from the increased flow of FDI and a strengthening peso; the immediate result of which was manifest in the recent actions by some of the leading global ratings agencies of upgrading the Philippines outlook.
The echoes of Martial Law inherent in declaring a State of Emergency-especially with threats of media censorship and warrantless arrests-are bound to spook investors and local businesses alike. The more so because the outcome is likely to be further instability rather than less. Declared 20 years to the very day that Martial Law President Marcos made his own emergency declaration that led to EDSA 1 and his own loss of power, the decree sent a chilling reminder of the excesses of that era. Apparently many in the opposition and even those loyal to President Gloria Macapagal-Arroyo appeared confused. Armed Forces Chief of Staff Gen. Generoso Senga in his public statements twice cited the infamous Martial Law "Proclamation 1081" when he meant "Proclamation 1017"!
However, what are the factors operating beneath the surface that led to the declaration and what is the truth of the local situation? Despite a broad coalition of forces linking arms against President Arroyo, the political "left" has not got into bed with the "right" as has been claimed. Even the Philippines, with its tradition of compromise, cannot have such strange bed fellows. However, these two groupings do have a common agenda on at least one point, unseating the president. But it is the leaders of the Filipino Business community- obviously including the elite families that are now talking behind closed doors about what is best for the Philippines-that will decide the issue eventually. We understand that these discussions suggest that even the prominent families are no longer happy with the direction the present administration is taking. This is an exact parallel with what happened before former President Estrada lost power in 2001. The truth behind People Power II was that the elite decided he must go after he signed Republic Act 8762, better know as The Retail Trade Liberalization Law, which allowed foreign retailers to make sizable investments in the Philippines and to do so without Filipino partners, thereby ending the retail monopolies.
Then of course we have President Fidel Ramos, viewed by many as King Maker, who has now been openly critical of the president and who can be assumed to have withdrawn unequivocal support. It is Mr. Ramos who is widely credited as helping President Arroyo survive her crisis last year. At that time of course, the compromise brokered was that President Arroyo would step aside in 2007 to make way for a parliamentary form of government. That idea was trashed as soon as the crisis had passed. Now, it seems, Mr. Ramos has been effectively sidelined.
The press is nervous and many are being very cautious in what they report. It is clear that some sections of the military have lost faith in the administration, including some generals but most discontent is below the surface and within the junior ranked officers who have less to risk with "adventurism" and more to gain. There is no sense of direction in present policy only twists and turns to suit presidential expediency.
The Catholic Church has said "…there seems to be a paralysing gridlock in the political sphere, as partisan interests prevail over the common good. Enough of this destructive politics, we hear the people declare. In this situation of widespread confusion, it is not surprising that apathy and cynicism with regard to politics have taken hold of the minds and hearts of many Filipinos. Tragically, many Filipinos have lost trust in political leaders from left, right, and centre, and worse still, in the political institutions themselves which are perceived by many to be corrupted." That hardly sounds like a ringing endorsement of government.
The Inglesia ni Cristo, another powerful religious group is staying silent for the moment while the Evangelical grouping, which prior to the election supported Brother Eddie Villanueva then switched allegiance and strongly supported President Arroyo after she won the election, have yet to comment on the latest development. As for the poor, their voice by and large is the Catholic Church which is right in saying they have "lost trust" and are apathetic.
Where does that leave the rest of us? Filipinos have a strong cultural dislike of conflict and generally we see Peoples Power defiance emerging rather than full blooded revolution or bloody coups. Normally in this country when a situation demands change, pressure is applied until something gives. President Arroyo is a shrewd political operator and has lasted longer than many had predicted. You have to give her credit for surviving this far, first the conduct of the 2004 elections itself, then the "Hello Garci" tapes that appeared to prove presidential cheating, followed by the resignation of the "Hyatt 10" and the impeachment attempt. But after each of these crises you find that the president owing more political debt to those who stood by her side; and as her support bases has shrunk many believe that she has found herself digging deeper into the public pocket in order to pay her dept to the loyalists.
What about political safeguards? The current Ombudsman reportedly has close ties to the First Gentleman. With suggestions that government funds have been reportedly diverted illegally (or at least inappropriately) to the loyalists, including the recovered Marcos money and certain agricultural funds, will the Ombudsman act to protect the people's interests? Most think not. 
Supreme Court Justices are now whispering about Senator Miriam Defensor-Santiago wanting the Chief Justice job in return for her loyalty (and likely to get it). If she is plucked from the Senate to head the Supreme Court, she will be there for a long time. Other loyalists appear to be making similar political demands. With the Senate being blocked by the House of Representatives, and vice versa the future for good government and a level playing field does not look bright.
Yet all of this assumes that the president will survive and serve out her full term. But what if she does not?
Some still cling to the view that the president's Achilles heel is her fear of ending up suffering a similar fate to that of Mr. Estrada. The argument goes that if she can be assured that she will not face investigation and will not be detained she may well decide to step down if the right face-saving measures are in place. Constitutionally this would have to be in favour of the Vice President but some political commentators suggest that a way could be found for another solution, possibly election or a power-sharing formula. 
Should the situation deteriorate further and should she then decide to hand over power to an individual or group, the ground may well be ripe for constitutional amendment. With a broad coalition now united against the president, room is provided for manoeuvring and at least members of the diverse opposition are talking to each other. If President Arroyo can be persuaded to step down gracefully then her forces will be looking to realign themselves. The Philippines has little in the way of ideological ties outside the Left so repositioning is a much easier and less traumatic matter than would normally be expected.
That is one view. But the fear of many people however, is that President Arroyo is positioning herself, not to step aside gracefully, but to remain in power well beyond 2010 by one means or another. With control of the electoral process, with a new constitution that is foisted on the people by fair means or foul and with the Supreme Court controlled by her political allies, what has she got to lose?
Of course, we have been here before and the local business community knows how to survive and adapt. The political sideshow makes the Philippines no less attractive to a shrewd investor as long as protesters do not block the streets and the uncertainties are factored into the returns expected. Sadly, the Philippines refuses to learn the lessons of its own history and correct the mistakes of the past. 
However, bottom line is that the country is still open for business. The problem is that it is "business as usual".

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CREDIT RATINGS

Philippine debt outlook gets upgrade from S&P


Standard & Poor's Ratings Service raised its ratings outlook on Philippine sovereign debt recently. The move is likely to reinforce bullish sentiment among investors, who shrugged off news earlier in the day that Moody's Investors Service had left its negative outlook unchanged, the Wall Street Journal reported recently.
S&P also revised its outlook on Indonesia's sovereign credit rating, to positive from stable, citing improved fiscal and monetary policies.
S&P said it changed the outlook on the Philippines' double-B minus sovereign rating to stale from negative in the wake of better-than-expected 2005 fiscal performance as well as implementation of an expanded value-added tax, the main revenue measure aimed at balancing the budget by 2008.
Still, the rating on the Philippines, one of Asia's most prolific borrowers, remains below investment grade.
Moody's said it was waiting for further improvement in fiscal performance and to see that overhaul efforts won't be derailed by unresolved political issues.
Philippine officials, who had played down Moody's lack of action, welcomed the step by S&P. "This is an express vote of confidence on what we've been doing," National Treasurer, Omar Cruz, said.
Both rating concerns had changed their outlooks for Philippine credit to negative from stable after the Supreme Court in July 2005 delayed implementation of the expanded VAT and because of moves to unseat President, Gloria Macapagal Arroyo. Ms Arroyo has since quashed efforts to impeach her, while the high tribunal has allowed the implementation of the VAT - allowing Philippine government bonds, stocks and the peso to rally in recent months.
Mr Cruz indicated ratings action, or lack of it, won't influence the borrowing plan. "The timing of the access, as to when we will issue bonds, will be determined by market forces," he said. The government still needs to borrow about US$900 million from abroad this year to complete its borrowing program.
It remains to be seen what the third big ratings concern, Fitch Ratings, will do.
James McCormack, head of Asia sovereign Ratings at Fitch, said concern remain over the Philippines' revenue-to-gross domestic product ratio, although it is improving. He declined to say when Fitch will release the result of its recent review of the Philippines.
S&P said a change in Indonesia's rating itself - affirmed at single-B- plus for long-term foreign currency - hinges on overhaul progress and reduction in external debt.

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