Philippines. Country Profile 2004

Transcription

1 Country Profile 2004 Philippines This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where its latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 15 Regent St London SW1Y 4LR United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2004 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author s and the publisher s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

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4 Country Profile The Economist Intelligence Unit Limited 2004

5 Philippines 1 Contents Philippines 3 Basic data 4 Politics 4 Political background 6 Recent political developments 8 Constitution, institutions and administration 9 Political forces 12 International relations and defence 15 Resources and infrastructure 15 Population 16 Education 17 Health 17 Natural resources and the environment 18 Transport, communications and the Internet 20 Energy provision 21 The economy 21 Economic structure 22 Economic policy 26 Economic performance 29 Regional trends 30 Economic sectors 30 Agriculture 32 Mining and semi-processing 32 Manufacturing 34 Construction 34 Financial services 37 Other services 38 The external sector 38 Trade in goods 40 Invisibles and the current account 41 Capital flows and foreign debt 42 Foreign reserves and the exchange rate 44 Regional overview 44 Membership of organisations 47 Appendices 47 Sources of information 48 Reference tables 48 Population 48 Labour force 48 Structure of employment 49 Transport statistics The Economist Intelligence Unit Limited Country Profile 2004

6 2 Philippines 49 Energy consumption by source 49 Outstanding public-sector debt 50 Government revenue and expenditure 50 Money supply and credit 50 Interest rates 51 Gross domestic product 51 Gross domestic product by expenditure 52 Gross domestic product by sector 52 Prices 52 Meat production 53 Production of major crops 53 Output of wood products 53 Private construction 54 Mineral production 54 Manufacturing production 54 Philippines Stock Exchange indicators 55 Visitor arrivals by country/region of residence 55 Exports 55 Imports 56 Key commodity exports 56 Main trading partners 57 Balance of payments, IMF series 58 Balance of payments, national series 59 External debt 59 Net official development assistance 60 Foreign reserves 60 Exchange rates Country Profile The Economist Intelligence Unit Limited 2004

7 Philippines 3 Philippines Basic data Land area Population Main towns 300,179 sq km 82.7m (mid-2004 official estimate) Population in 000 (2000) Metropolitan Manila Davao 1,147 (National Capital Region) 9,933 Cebu 719 of which: Zamboanga 602 Manila (capital) 1,581 Cagayan de Oro 462 Quezon City 2,174 Bacolod 429 Kalookan 1,178 General Santos City 412 Pasig 582 Iloilo 366 Valenzuela 485 Las Pinas 473 Paranaque 450 Makati 449 Climate Weather in Manila (altitude 14 metres) Languages Weights and measures Currency Time Fiscal year Public holidays in 2004 Tropical Hottest month, May, C; coldest month, January, C (average daily minimum and maximum); driest month, February, 13 mm average rainfall; wettest month, July, 432 mm average rainfall Tagalog, English and Spanish; many local dialects Metric system; also some local units Peso (P)=100 centavos. Average exchange rate in 2003: P54.2:US$1. Exchange rate on July 14th 2004: P55.82:US$1 Eight hours ahead of GMT January-December January 1st; April 8th, Maundy Thursday; April 9th, Good Friday; May 1st, Labour Day; June 12th, Independence Day; August 31st, National Heroes Day; November 1st, All Saints Day; November 30th, Bonifacio Day; December 25th, Christmas Day; December 30th, Rizal Day The Economist Intelligence Unit Limited Country Profile 2004

8 4 Philippines Politics The Philippines is a pluralist democracy modelled on the US, with an executive presidency, a bicameral Congress and a Supreme Court that can rule on the constitutionality of government actions. In January 2001 Gloria Macapagal Arroyo, then vice-president, replaced the incumbent president, Joseph Estrada, in a civilian coup backed by the military. She served out the remainder of his six-year term before winning re-election in her own right in the May 10th 2004 presidential election. The congressional elections held on the same day produced a large pro-administration majority, headed by the president s party, Lakas ng Edsa-National Union of Christian Democrats (Lakas), in the House of Representatives (the lower house) and gave the president a larger majority in the Senate (the upper house). Political background The colonial and commonwealth periods An independent republic closely tied to the US The Marcos autocracy The Philippine islands, inhabited by Malay peoples, were a colony of Spain from the late 1500s until the end of the 19th century. In the early 19th century that export crops sugar, coconuts, abaca (Manila hemp) and tobacco were developed. At the same time a Chinese entrepreneurial class evolved, marrying into the indigenous population and forming an elite based on land ownership. Spanish colonial rule ended in December 1898 after the US intervened in a popular rebellion that had broken out two years earlier. Spain ceded the Philippines to the US. Under US colonial rule democratic institutions were introduced, Filipinos increasingly took over all political and bureaucratic positions, and English-language education was extended throughout the country. In 1934 the Philippines became an internally self-governing commonwealth, with full independence scheduled for July 4th The transition to independence was interrupted by the Japanese invasion of December The Japanese occupation and the battle for liberation, in which local guerrilla groups played a significant role, destroyed much of the Philippines physical infrastructure. The independent republic, inaugurated on schedule in 1946, maintained preferential economic relations with the US. The constitution was modelled on that of the US and, as in Washington, power tended to alternate between two parties, the Nationalists and the Liberals. The fairly peaceful alternation in power within the political elite was interrupted in September 1972 as the president, Ferdinand Marcos, neared the end of his second term. Citing the threat from subversive forces, Mr Marcos imposed martial law. For the next 13 years until 1986 the Philippines experienced constitutional authoritarianism. In a series of elections the president and the party that he had created, the New Society Movement (Kilusan Bagong Lipunan), consistently recorded overwhelming popular support, whether or not the opposition participated in the electoral exercise. This owed something to the virtual monopoly over the media exercised by the president and his close associates, but more to manipulation and outright cheating at the polls. With many of its leaders Country Profile The Economist Intelligence Unit Limited 2004

9 Philippines 5 in detention or voluntary exile, the moderate opposition seemed unable to mobilise feeling against the administration and its abuses of power. The most effective opposition came from the communist New People s Army (NPA), which was active in rural areas, and from the southern areas, where a secessionist Muslim movement had been active since before the introduction of martial law. The situation changed radically in August 1983, when Benigno Aquino, the opposition leader regarded as the most credible alternative to Mr Marcos, was assassinated minutes after his return from exile and while under military escort. A series of massive demonstrations followed in which the disenchantment of the urban middle class, and notably the business community, was expressed for the first time. To reassert his own supremacy, Mr Marcos called an early presidential election for February In a close-run contest he was narrowly defeated by the candidate of a temporarily united opposition, Corazon Aquino, Mr Aquino s widow. The attempt by Mr Marcos to hold on to power set off a coup attempt by the military, backed by the deputy chief of staff, Fidel Ramos, and the defence minister. This received critically important backing from Mrs Aquino s People s Power movement and the local Catholic Church. Under pressure from the US, Mr Marcos went into voluntary exile in Hawaii, where he died in The return to a free democracy Political stability under Fidel Ramos Under the new regime civil liberties were restored, political prisoners were released and an attempt was made to negotiate with the NPA. A new constitution, drawn up by a convention appointed by Mrs Aquino, largely restored the set-up that existed before 1972, but with new controls on the presidency based on the experience of the Marcos years. From July 1986 there was a series of attempted coups, and rumours of coups, in which elements of the military were involved. In all cases the loyalty of the then chief-of-staff, Mr Ramos, was critical. Meanwhile, the reform hopes of the early days faded. The much-vaunted land reform was stalled by bureaucratic delay and landlord opposition, widespread corruption continued and the government was perceived as ineffectual. Mr Ramos won the mid-1992 presidential election. Within months of coming to the power, he had built up a large pro-government majority in Congress, secured a cessation of hostilities by dissident military groups and begun the process of peace negotiations with both communist and Muslim secessionist rebels. A ceasefire was agreed with the Muslim rebels in late 1993, and the communist insurgency began to weaken as fissures within the leadership emerged and active membership fell. However, deep-rooted economic and social problems remained largely unresolved. The president came under increasing pressure from some of his supporters to stand for a second term in However, this would have required a revision of the 1987 constitution (see Constitution, institutions and administration), and was strongly opposed by the Catholic Church, opposition politicians and some prominent members of the business community, all of whom feared a drift to a constitutionally rigged autocracy on the Marcos precedent. The persistent speculation about the president s intentions was only put to rest when Mr Ramos endorsed the secretary-general of Lakas as his nominee for the presidency in November The Economist Intelligence Unit Limited Country Profile 2004

10 6 Philippines Recent political developments Joseph Estrada is elected president by a wide margin Inefficiency and corruption lead to Mr Estrada s ouster The new government gradually gains legitimacy In the presidential election of May 1998 the administration s candidate was beaten by a wide margin by the popular vice-president and former film star, Joseph Estrada. Mr Estrada, who was backed by an alliance of the two opposition parties, the Nationalist People s Coalition (NPC) and Laban ng Demokratikong Pilipino (Laban, or Struggle for a Democratic Philippines; the pro-administration party under Mrs Aquino), won 40% of the vote in a field of ten candidates. The Lakas candidate for the vice-presidency, Gloria Macapagal Arroyo, won even more resoundingly, with 50% support. The coalition backing Mr Estrada won only around 60 of the 208 directly elected seats in the House of Representatives, but as the party of the presidential incumbent, renamed Laban ng Masang Pilipino (LAMP, Struggle of the Filipino Masses), it attracted enough defections from Lakas to build a large majority in the lower house by end The worst fears of a lurch towards populist policies under the self-proclaimed president for the poor were not borne out in the first two years of the Estrada administration as it maintained the macroeconomic targets and liberalising stance of its predecessor. However, policy formulation and implementation were often incoherent and unco-ordinated. Cronyism re-emerged on a major scale, and the president himself was implicated in a stockmarket scandal in January Although the president boosted his personal popularity by launching an all-out attack in March 2000 on Muslim rebels in Mindanao, sentiment in the business community, both foreign and domestic, deteriorated further as allegations of corruption by the president came to light. These culminated in October 2000 when a disaffected presidential crony claimed that Mr Estrada had been receiving multi-million-peso monthly pay-offs from the proceeds of illegal gambling as well as a slice of government funds for tobacco industry support. On November 13th 2000 the House of Representatives voted through articles of impeachment on four counts: bribery, graft and corruption, betrayal of public trust and culpable violation of the constitution. However, on January 16th 2001 pro-estrada senators won a vote in the Senate rejecting as inadmissible evidence that could have led to Mr Estrada s impeachment. The opposition was not prepared to accept a de facto acquittal on these terms. Mass street demonstrations immediately began, on the pattern of February 1986, and as in 1986 civilians and the military came together. The heads of all the armed services and of the national police joined the call for the president to resign. Besieged in the presidential palace, Mr Estrada agreed to leave the premises although he refused to resign formally. He was deemed by the Supreme Court to have abandoned the office of president, and Gloria Macapagal Arroyo was sworn in as president on January 20th The ouster of Mr Estrada prompted a rebound of confidence among the political and business elite. In May 2001 followers of the deposed president attempted to storm the presidential palace after Mr Estrada was arrested on a charge of economic plunder a capital offence. The administration secured a strong popular mandate in the congressional election in mid-may 2001, with a Country Profile The Economist Intelligence Unit Limited 2004

11 Philippines 7 sizeable majority in the House of Representatives and a slim, but viable, majority in the Senate. Hopes that Ms Macapagal Arroyo s first administration would achieve rapid progress on economic reform were, however, disappointed, as the government grappled with the ballooning budget deficit inherited from the Estrada government and the security situation in the south of the country remained dire. Ms Macapagal Arroyo has come to rely increasingly heavily on the US in counter-insurgency activities within the Philippines. In the wake of the September 11th 2001 terrorist attacks in the US, Abu Sayyaf, an extremist Muslim rebel group in Mindanao (see Political forces) was linked by the US to the al-qaida terrorist network. This paved the way for a resumption of US military aid, in the form both of hardware and of technical assistance, agreed in December 2001, and the deployment of US personnel on the ground from January 2002 in support of the Philippine military s campaign against the rebels. Ms Macapagal Arroyo wins a second term On December 30th 2002 Ms Macapagal Arroyo announced that she would not run for a second presidential term. However, many political analysts continued to expect her to contest the May 10th 2004 presidential election, and she finally reversed her decision in November In the final year of her first term in office, there was a gradual increase in political instability as pro-estrada forces readied themselves to right what they saw as the wrong of January In July 2003 junior officers mutinied in the Makati financial district of Manila, but the attempted coup was quickly defeated, and Ms Macapagal Arroyo managed to hold the government together in the run-up to the elections. Her main rival was a film star and political novice, Fernando Poe, an associate of Mr Estrada. Mr Poe initially rode high in the opinion polls, but the candidacy of Panfilo Lacson, the police chief in Mr Estrada s administration, split the opposition vote, allowing Ms Macapagal Arroyo to win re-election by a margin of around 1m votes on May 10th. She was sworn in for a fresh six-year term on June 30th, despite the fact that Mr Poe s supporters continued to contest the legitimacy of the result. Ms Macapagal Arroyo can claim some improvement in negotiations with insurgent rebels both Muslim separatist groups in Mindanao and the Communist Party of the Philippines and peace talks with a number of groups are likely to take place in the near future. Important recent events March 2000 The government launches a campaign that clears the most active Muslim secessionist movement at that time, the Moro Islamic Liberation Front (MILF), out of its bases in Mindanao. November 2000 The House of Representatives (the lower house) votes to approve the articles of impeachment of the president, Joseph Estrada, on charges of bribery and corruption. January 2001 Mr Estrada is removed from office after mass street demonstrations demanding his resignation are backed by the military high command. His vice-president, Gloria Macapagal Arroyo, becomes president. The Economist Intelligence Unit Limited Country Profile 2004

12 8 Philippines May 2001 Mid-term elections give the administration a comfortable majority in the House of Representatives and a narrow majority in the Senate (the upper house). August 2001 A ceasefire is agreed with the MILF, as the preliminary to peace negotiations. January 2002 US forces return to the Philippines to assist the military campaign against a small extremist Muslim rebel group, Abu Sayyaf. June 2002 The defection of one senator ends the government s majority in the upper house. The government regains its majority in July, when opposition senators cross the floor to the government side. December 2002 Ms Macapagal Arroyo announces that she will not stand for a new term in the 2004 presidential election. But speculation continues that she will do so. May 2003 The Philippines is declared a Major Non-NATO Ally during a visit by Ms Macapagal Arroyo to the US. Both countries commit themselves to crushing the Abu Sayyaf guerrilla group. July 2003 An attempted coup by more than 300 junior officers and soldiers in the Makati financial district of Manila is crushed, but security-related jitters continue. November 2003 Fernando Poe, a film star with no political experience, announces his candidacy in the 2004 presidential election. Ms Macapagal Arroyo reverses her decision not to stand for re-election. May 2004 Ms Macapagal Arroyo wins re-election and has the support of an enhanced majority in the Senate. Constitution, institutions and administration A structure on the US model The constitution introduced in 1987 provides for a single six-year presidential term. The president is chief executive, head of state and commander-in-chief. The legislature is bicameral, with a Senate of 24 members elected at large (on a nationwide ballot), and a House of Representatives composed of 212 members directly elected by district and up to 52 members chosen by party list. Senators have six-year terms and representatives three-year terms. The president may not abolish Congress, and the presidential veto can be overridden by a two-thirds majority in the legislature. The judiciary, which is independent of the executive, rules on the constitutionality of presidential decrees. A permanent, independent commission oversees compliance with a bill of rights contained in the constitution. Country Profile The Economist Intelligence Unit Limited 2004

13 Philippines 9 The president selects the members of the cabinet, but, in line with the separation of powers, they must be from outside Congress. All cabinet appointments require congressional approval, but, once approved, an incumbent can be removed only by the president. The National Economic Development Authority (NEDA), headed ex officio by the planning secretary, co-ordinates policy and decisions in all areas relevant to the economic development plan. The institutional structure is transparent, but its operation is far from open. This stems from the deeply entrenched patronage system that pervades Philippine society, where a favour granted requires a favour in return. Although this can have a benign aspect, preserving social stability in the short term, it seriously undermines the quality of policy formulation and implementation. Two autonomous regions Traditionally, government in the Philippines has been highly centralised. However, the 1987 constitution made provision for the establishment of autonomous regions in two areas with distinct historical and cultural heritages the Cordillera region of northern Luzon, and Mindanao if the local population voted by referendum for such status. Both autonomous regions have been established, although the autonomous region in Mindanao is limited to the five provinces (out of 13) in Mindanao that voted for inclusion. The autonomous authorities have powers in the areas of personal and property relations, regional and urban planning, education, and economic and social development. The Local Government Code of 1991 also devolved some fiscal powers, in the form of the oversight and control of government spending, to local governments. Political forces Parties based around personalities Lakas Political parties in the Philippines are based on personalities rather than ideologies. All those represented in Congress support the existing political and social structures, espouse a market economy (until it threatens sectoral interests), and are nationalistic, to varying degrees. There are thus continual shifts in allegiance. The president tends to attract a greater following in Congress than the election results would indicate, at least in the early years of his term. In the final years of a presidential term of office the parties tend to splinter as presidential hopefuls emerge and the president has only limited patronage to offer. After the congressional elections in May 2004 the three major parties represented in Congress were as follows. The president s party is Lakas ng Edsa-National Union of Christian Democrats (Lakas), which was formed in 1992 to support the presidential candidacy of Mr Ramos. Its strength in Congress was eroded after the May 1998 election, which brought Joseph Estrada to power, but surged once more in the 2001 midterm election following Ms Macapagal Arroyo s assumption of the presidency. Lakas won 91 of 212 directly elected seats in the House of Representatives in the May 2004 election. The Economist Intelligence Unit Limited Country Profile 2004

14 10 Philippines The NPC Laban The NDF rebels The rebels in Mindanao The Nationalist People s Coalition (NPC) was originally formed to support the presidential candidacy of Eduardo Cojuangco (a former Marcos crony) in In the 1998 election it backed Mr Estrada s presidential candidacy and was the largest component of the pro-administration coalition, Laban ng Masang Pilipino (LAMP, now defunct). The NPC remained part of the proadministration coalition led by Lakas under Ms Macapagal Arroyo, and won 58 seats in the May 2004 election. Altogether pro-administration parties won 181 of the 212 directly elected seats in the May poll. Laban ng Demokratikong Pilipino (Laban, Struggle for a Democratic Philippines) was formed in 1988 to back the Aquino presidency. After the 1992 election its position as the largest party in the House of Representatives soon collapsed owing to defections to the new administration party, Lakas. The party gave its support to Mr Estrada in 1998 after its leader, Edgardo Angara, abandoned his own presidential ambitions to run for the vice-presidency. The LDP is currently the largest opposition party in the House of Representatives, although it won only 15 seats in the May 2004 election. Outside the mainstream of congressional politics are political forces for which ideology is the determining factor, as follows. The National Democratic Front (NDF) is the umbrella organisation for the Maoist Communist Party and its military wing, the New People s Army (NPA). The Philippines has a long tradition of rural rebellion, and the NPA, founded in 1969, took up the fight waged by the Hukbalahap rebel movement in Luzon in the mid-1950s. The NPA expanded rapidly under martial law, the number of its regulars rising to an estimated 25,000 by mid It was then thought to control one-fifth of villages and to be active in 60 of the 75 provinces, as well as in the Manila region. Its attachment to the Maoist dogma that revolution must come from the countryside meant that it played no role as an organisation in the overthrow of Mr Marcos. The post-marcos regimes have eroded its popular base by offering amnesties, the legalisation of the Communist Party (in late 1992), and land and jobs to surrendering rebels, while maintaining an active military campaign. Peace negotiations with the government are intermittently under way, although a full resolution of the NDF insurgency may take some time to reach. Another more heavily armed but less cohesive rebel movement is that of the Muslim secessionists in Mindanao. In the past, the main rebel group was the Moro National Liberation Front (MNLF). The Moro Islamic Liberation Front (MILF) has been more active in recent years. The secessionist movement has a history stretching back several centuries. There is no easy solution to demands for secession or autonomy for Mindanao, since migration from Luzon and the Visayas in the 1950s and 1960s has created a Christian majority or nearparity in a number of provinces in the region. A referendum on autonomy was held in Mindanao in August 2001, but it failed to produce an agreement that the whole of Mindanao should come under the control of an autonomous administration. The MILF has taken part in peace talks with the government, and these are expected to continue, but hardliners within Country Profile The Economist Intelligence Unit Limited 2004

15 Philippines 11 the rebel movement may delay progress towards a peace accord. A more extreme group, Abu Sayyaf, periodically kidnaps foreigners for ransom and is not open to the possibility of dialogue with the government. The Catholic Church Another important political force is that represented by the Catholic Church. It played an active part in the civilian opposition to the Marcos regime, and helped the military rebellion that brought Mrs Aquino to power by bringing the population out on to the streets of Manila in its support. The church also took the lead in demands for Mr Estrada s resignation in the wake of the corruption allegations in late The church has given its blessing to the disputed victory of Ms Macapagal Arroyo in the May 2004 presidential election. Main political figures Gloria Macapagal Arroyo President, brought to power in January 2001 in a civilian coup backed by the military. She had been elected vice-president in May 1998, with more than 50% of the vote. She completed the presidential term of the ousted president, Joseph Estrada, and won re-election in her own right in May Ms Macapagal Arroyo s first term was disappointing in terms of economic reform. Her supporters hope that she will move more determinedly to implement a reform agenda over the next six years. Noli de Castro Elected as vice-president in May Despite having served as a senator, Mr de Castro is a former TV broadcaster, and this constituted his chief appeal to the electorate. Fidel Ramos A former president and retired general, Mr Ramos continues to play the role of elder statesman. His influence may be crucial in encouraging the new administration to implement its reform agenda. Joseph Estrada The former president, elected in May 1998 for a six-year term with strong popular backing. Deposed in January 2001 after the collapse of his impeachment trial in the Senate, he remains under arrest on charges of perjury and economic plunder. Fernando Poe A film star and associate of Mr Estrada, Mr Poe failed to win the presidency in May 2004 and continues to dispute the result. Raul Roco A former education secretary, Mr Roco topped opinion polls at one stage in the recent presidential election campaign. Concerns over his health and a lack of finance led his campaign to collapse in the spring. He came fourth in the poll. Panfilo Lacson A former police chief in the Estrada administration, Mr Lacson insisted on mounting a separate presidential bid to that of Mr Poe, thus splitting the opposition vote and handing victory to Ms Macapagal Arroyo. Mr Lacson is surrounded by accusations The Economist Intelligence Unit Limited Country Profile 2004

16 12 Philippines that the Presidential Anti-Crime Commission murdered 11 criminals while he headed it. Weak trade unions Organised labour has little power in the Philippines. Only around one in five workers was a member of a trade union in the late 1990s, although the rate was significantly higher in multinational firms, where union membership was around one in three. A tiny proportion (only 4% of the 11.8m salaried workers in the mid-1990s) were covered by collective-bargaining agreements. This reflects the weak bargaining position of workers in a labour-surplus economy. International relations and defence Regional issues Relations with the US A continuing foreign policy priority has been the strengthening of relations with fellow members of the Association of South-East Asian Nations, or ASEAN (see Regional overview: Membership of organisations). Membership of this organisation gives the Philippines a regional identity independent of relations with the US. Another priority for the Philippine government is participation in a regional force to counterbalance China, which is seen as a threat, notably in the dispute over the Spratly Islands in the South China Sea. The US has maintained a special relationship, both political and economic, with the Philippines since the latter s independence in The US administration has on a number of occasions played a pivotal role in domestic political affairs, inducing Mr Marcos to leave the country in February 1986 and backing the Aquino administration against coup attempts (on one occasion with military aircraft). The Philippines was home to two of the most important US military bases outside US territory, the naval facility at Subic Bay and the nearby air base at Clark Field. The non-renewal of the lease on the military bases when it expired in 1991 was the most open sign of the Philippines emerging Asian identity. However, the US war on terror and the Philippines own problems with Muslim insurgents have led to a closer military relationship between the US and the Philippines over the past few years. The US has awarded the Philippines Major Non-NATO Ally status, and US troops and hardware arrived in 2002 to support the campaign against Abu Sayyaf. The US remains a leading source of private investment in the Philippines, reflecting links forged during the colonial period and the early decades of independence; it has by far the largest Filipino community outside the Philippines; and its culture remains the dominant foreign influence within the Philippines. Armed forces and paramilitary, 2003 Armed forces 106,000 Army 66,000 Navy (incl 8,000 marines) 24,000 Air force 16,000 Paramilitary 84,000 Philippine National Police (PNP) 40,500 Coastguard 3,500 Civil Armed Force Geographical Units (part-time) 40,000 Source: International Institute for Strategic Studies, The Military Balance, Country Profile The Economist Intelligence Unit Limited 2004

17 Philippines 13 Security risk in the Philippines I. Armed conflict Armed conflict is a regular and disturbing feature of the domestic political scene in the Philippines. Over the years, several groups of armed rebels have been active in the large southern island of Mindanao, seeking the creation of an independent state on the island. The two principal secessionist movements are the Moro National Liberation Front (MNLF) and the Moro Islamic Liberation Front (MILF). (Moro is the term traditionally used to describe the Muslim population of the southern islands of the Philippines.) The Philippine military has been battling with the rebels for nearly three decades, although a peace agreement was signed with the MNLF in A separate ceasefire was reached with the MILF in August 2001, but armed conflict has continued. Negotiations for a permanent settlement are likely to be resumed at some point in the near future. In 2003 the military also found itself in pitched battles with yet another Mindanao rebel group, Abu Sayyaf. A small extremist Islamist organisation, Abu Sayyaf claims to be fighting for an independent Muslim state, but in fact appears more interested in kidnapping tourists and local residents for ransom. Abu Sayyaf is famously brutal: more than a few of its kidnap victims have been beheaded. Some members of the group have reportedly been trained at camps in Afghanistan run by Osama bin Laden s al-qaida terrorist network. The Philippine military intensified its campaign against Abu Sayyaf after an American tourist was killed in mid-2001, and the campaign has received backing in the form of both hardware and personnel from the US as part of its war on terrorism. This involvement has enhanced the Philippine military s ability to flush out Abu Sayyaf in the difficult terrain of the rebel group s island base, Basilan, but could be counterproductive if it is perceived as anti-muslim and so provokes terrorist acts in other parts of Mindanao. This area of the Philippines is clearly unsafe, for foreigners as well as local residents. It is important to note, however, that the Muslim insurgency is far removed from the political and business centre of Manila. Investors who avoid the disputed regions are unlikely to be affected significantly by the secessionist movements and the military s attempts to subdue them. The challenge from the communist guerrilla movement, the New People s Army (NPA), is much reduced but not defunct. The NPA s activities are essentially confined to attacking the security forces and local political leaders, but are more widely spread, notably in Luzon, and thus are closer to the country s economic hub. As with the MILF, peace negotiations with the NPA are likely to be resumed in the near future. Externally, the Philippines faces no serious threat. The government maintains its territorial claim to some of the Spratly Islands, and occasionally has minor confrontations with China over the presence of shipping in the area and the building of semi-permanent structures. However, there is little chance of armed conflict between the two countries. II. Civil unrest Large public demonstrations in the Philippines are commonplace; indeed, the country s so-called People s Power movement has brought down two governments in the past 15 years, most recently in January Such protests are not particularly violent, but are disruptive to the normal functioning of business in the capital. The Economist Intelligence Unit Limited Country Profile 2004

18 14 Philippines Violence is not, however, uncommon. The run-up to the May 2004 presidential and congressional elections was characterised by protests and a total of around 150 election-related deaths. Supporters of Fernando Poe, the film star who failed in his bid for the presidency in May, may continue to protest in the streets. Protests over economic issues are common, and demonstrations against the US military presence in support of the campaign against Abu Sayyaf are also likely to persist until the withdrawal of US troops. III. Crime Street crime is a serious problem in the Philippines, particularly in metropolitan Manila. According to official statistics, incidents of serious crime in 2002 were per 100,000 population (a rate of 25 or less per 100,000 is considered low). This was well below the recorded peak of per 100,000 in 1984, but higher than the rate of 98.8 per 100,000 in The authorities acknowledge that 18 murders, on average, are committed in the country every day. Kidnappings, rapes and drug-related crimes are also frequent. The high level of crime is a major reason why foreign investors shun the Philippines, and is a factor in the fall in tourist visits in recent years from the peak of 2.2m in The problem is made worse by the apparent complicity of some police officials in criminal enterprises. IV. Organised crime Violent drug-trafficking organisations are well established in the Philippines, and the narcotic trade is massive. The huge sums to be earned in the drug trade attract politicians, law enforcement officials and leading business figures, and undermine attempts to reduce official corruption. A leading opposition senator has been accused of having co-operated with one of the drug gangs while he headed the national police, and of ordering the murder of several Chinese nationals who fell foul of the group. The government has created a new National Anti-Crime Commission and has designated an anti-crime czar, but they have had few successes so far. Organised crime is not confined to drugs, however; it also encompasses gambling, prostitution, kidnapping, smuggling and extortion. Organised criminal gangs are believed to launder money through a network of local banks. The Philippines has been cited by the Financial Action Task Force (FATF) of the Group of Seven as non-co-operative in anti-money-laundering efforts. Legislation against money-laundering was introduced in 2003, but the Philippines remains on the FATF s blacklist. V. Kidnapping Kidnapping is rampant in the Philippines, and is carried out by a wide range of groups: Islamist insurgents in the southern islands, sophisticated drug gangs throughout the country and smaller groups of bandits. It is a major concern for companies in the Philippines, including foreign firms, and the affluent Chinese business community has been a prime target. In addition, Abu Sayyaf, the notorious Muslim secessionist group based on the southern island of Basilan, has kidnapped dozens of local residents and tourists, ostensibly for political reasons. When ransoms are not forthcoming, Abu Sayyaf, like other kidnap gangs, has been prepared to carry out its threat to execute hostages. It is widely suspected locally that members of the security forces co-operate with kidnap gangs to extort ransoms. In late 2003 Ms Macapagal Arroyo lifted a moratorium on the use of the death penalty, following the kidnapping and murder of an executive with a US soft-drinks firm, Coca Cola. Country Profile The Economist Intelligence Unit Limited 2004

19 Philippines 15 However, no executions have taken place since Ms Macapagal Arroyo came to power. VI. Terrorism Terrorism is a serious concern, although it is mainly confined to the southern islands. Abu Sayyaf carries out bombings, kidnappings and murders that clearly qualify as terrorist acts. The group is included on the US State Department s list of known terrorist organisations. Abu Sayyaf claims that some of its members have been trained by the al-qaida network in Afghanistan, although Abu Sayyaf seems motivated less by religious or political fervour than by financial gain from its kidnappings. The southern Philippines, nonetheless, is now widely regarded as a significant breeding ground for terrorists, with its large population of alienated, impoverished Muslim youth. Resources and infrastructure Population Population growth has slowed The rate of population growth has been slowing in recent decades (according to national sources), from an average of 3.1% a year in the 1960s to 2.3% in the 1990s. This reflects two trends: a fall in the birth rate and a fall in the death rate as infant mortality rates have declined. Thus the crude birth rate fell from 46 per 1,000 in 1960 to 30 in 2000 (when the last census was held) as family planning became more widely accepted. Once the government gave its backing to birth control, the percentage of married women of reproductive age practising contraception rose, reaching a peak of 51% in 1995, and has remained in the 47-50% range in subsequent years. Meanwhile, life expectancy at birth rose from 53 years in 1960 to 69.5 years in 2001 (according to the Human Development Report 2003 published by the UN Development Programme, or UNDP) as the infant mortality rate fell from 72 deaths in the first year of life per 1,000 live births in 1965 to 29 in The comparatively high rate of population growth means that the Philippines has a young population, 37% being under the age of 14 in Population by region ( 000, unless otherwise indicated) Annual average % change Luzon National Capital Region 9, Cordillera Administrative Region 1, Ilocos 4, Cagayan Valley 2, Central Luzon 8, Calabarzona 9,321 Mimaropaa 2,299 Bicol 4, Visayas Western Visayas 6, Central Visayas 5, Eastern Visayas 3, The Economist Intelligence Unit Limited Country Profile 2004

20 16 Philippines Mindanao Western Mindanao 3, Northern Mindanao 2, Southern Mindanao 5, Central Mindanao 2, Autonomous Region of Muslim Mindanao 2, Caraga 2, Total 76, a The region of South Tagalog was split into two parts, Calabarzon and Mimaropa, in May Source: Census reports. Population density is high in metropolitan Manila and neighbouring areas of central Luzon, whereas Mindanao, Negros and the other southern islands are sparsely populated. There have been two significant trends in population movement in the past 40 years. First, the proportion of the population living in rural areas has decreased, from 70% in 1960 to 48% in 2000, whereas the urban population grew by just under 4% per year on average during the period. The second trend is migration to the agricultural frontier areas in Mindanao, despite the unrest in that region. Competition from migrants for land has significantly contributed to the conflict in the region. Emigration and overseas employment There has also been substantial migration out of the Philippines, permanent and also temporary (in the form of overseas employment under contract), which has held down both the population resident in the Philippines and the rate of unemployment. This migration has been facilitated by the population s facility with the English language and its comparatively high standard of education. Registered permanent emigration peaked at 66,390 in 1993, but fell to only 40,507 in 1999, before recovering to 57,720 in 2002; the US was by far the leading destination, accounting for around two-thirds of total numbers. Overseas employment represents an important outlet for excess labour, and is a major source of income for Philippine households. The number of workers employed overseas each year fluctuates with conditions in host countries, but stood at 867,969 in The Middle East has traditionally been the leading destination for contract workers, with openings in both construction work and private services, but East and South-east Asia have grown in significance as destinations. Education High enrolment rates, but low completions Educational standards are fairly high. In the 2000/01 school year 96.8% of children of the relevant age were enrolled in primary schools and 66.1% in secondary schools, according to data published by the Department of Education, Culture and Sports. Tertiary education is also developing rapidly: in the 2001/02 academic year 2.5m students were enrolled in higher education institutions, up from 1.9m in 1994/95. However, the situation is not as good as these figures indicate. The government claims a high basic literacy rate, 95.4% in 2000, but in reality about one-seventh of the adult population (13.5%, according to government figures) is thought to be functionally illiterate (unable to read and write to a level sufficient for daily life). This is because of the fact Country Profile The Economist Intelligence Unit Limited 2004

21 Philippines 17 that, although there has been near-universal enrolment at primary-school level for more than two decades, the high drop-out rate means that one-third of all pupils do not complete their primary-level education. A similar proportion of secondary school students fail to complete secondary-level education. The national figures also conceal the familiar disparity between Manila and the poorer provinces: in Manila, the cohort survival rate (pupils completing their schooling as a proportion of the total intake) in elementary schools was more than 79%, compared with less than 34% in the Autonomous Region of Muslim Mindanao. Overall educational standards have come under pressure owing to underinvestment, as the sector has fallen victim to the squeeze on government spending. The situation in primary education has been compounded by the fall in the state s proportional contribution to primary-education costs, whereas the state s contribution to tertiary education has risen. Health Healthcare is substandard Healthcare provision is inadequate. UNDP data show that the Philippines had only 124 doctors per 100,000 people in To some extent, as in the case of education, this reflects budgetary constraints. Spending on public health in the Philippines was equivalent to only 1.5% of GDP in 2000, with a further 1.8% of GDP spent on private healthcare. However, the situation is exacerbated by the skewed geographical distribution of health facilities. A disproportionate number of doctors are located in the National Capital Region, and the poor road infrastructure in the rural areas of the poorer provinces limits the access of a large section of the population to such facilities as do exist. Natural resources and the environment A large island group The Philippines is one of the largest island groups in the world, numbering more than 7,100 islands and extending 1,851 km north to south and 1,107 km east to west. The topography is varied and includes two mountain ranges in Luzon and several volcanoes, 21 of them active. The climate is tropical, with some variation in the extent and duration of the dry season. In the western parts of Luzon, Mindoro, Negros and Palawan (the western rim) there are two pronounced seasons: dry from November to April and wet for the rest of the year. Other regions have rainfall more or less evenly distributed throughout the year. All are exposed to typhoons, which occur most frequently across the middle latitudes of the country. Southern Mindanao is almost typhoon-free. The area under crops expanded markedly in the 1970s and reached 12.3m ha in 1979/80, mainly as a result of the clearing of virgin forest, particularly in Mindanao, where more than one-half of the commercial acreage is located. Bureau of Agricultural Statistics data show that the national cropland area had risen to 12.8m has by 2002, but land availability is now a serious constraint in Luzon and some parts of the Visayas. Forests were in the past one of the Philippines main resources, but they have been rapidly depleted (see Economic sectors: Agriculture, forestry and fishing). The Economist Intelligence Unit Limited Country Profile 2004

22 18 Philippines Fishing Minerals Risk from natural disasters The Philippines has extensive fishing resources, both marine and inland, with the largest area of developed estuarine fishponds in South-east Asia and an exclusive fishing zone of 1.9m sq km. Although neither freshwater fishponds nor most of the marine waters have been fully developed, the productivity of some resources has been deteriorating as rising demand and the use of destructive methods of exploitation has resulted in overfishing. Few coral reefs remain in good condition, and the mangrove area has halved since the late 1970s. Mineral resources are widely scattered throughout the islands, but around one-quarter of the land area has not been surveyed. At end-1996 there were estimated reserves of 4.8m tonnes of copper, 1.1m tonnes of nickel, 36,667 tonnes of chromite, 226,852 tonnes of gold and 484,696 tonnes of iron. The picture is mixed for energy resources. There are large deposits of coal and lignite, with proven reserves of 369m tonnes, of which close to 40% are on Semirara Island, and potential reserves are estimated at 1.6bn tonnes. Commercial deposits of oil off Palawan Island are small and have proved technically difficult to exploit and operate. Reserves of gas in the Malampaya field in the same region are substantial, estimated at 2.8trn-3.5trn cu ft (other gas reserves are estimated at 1.8trn cu ft), and are now being exploited. Geothermal resources are large and, as yet, not fully developed. The Philippines is at significant risk from tropical storms, which can severely disrupt business operations; an average of around 20 storms hit the country each year. Typically, they are more frequent and severe in the northern islands. Volcanic eruptions can be extremely disruptive: the eruption of Mount Pinatubo in 1991 caused massive damage to a wide area of Luzon north of the capital and closed Manila airport for a period. Transport, communications and the Internet The transport infrastructure is inadequate, having suffered from decades of underinvestment. In the liberalised investment environment established by the administration of the former president, Fidel Ramos, during the 1990s some of the most serious shortcomings have begun to be tackled, but development has been concentrated in economic hubs. Transport The system is essentially bimodal, roads carrying 60% of freight and 80% of passenger traffic, and water 40% of freight and 10% of passenger traffic. Air transport is oriented towards carrying passengers on long-distance inter-island travel. The rail network is minimal. The road network covered 201,834 km at end-2000, of which two-thirds were feeder and village roads. Less than one-half of the network is all-weather, an important consideration in view of the climate, and only 21% of all roads are paved with concrete or asphalt. The condition of the feeder roads is generally poor, the result of substandard construction, inadequate maintenance and use by overloaded vehicles. Bridges are often weak, if not altogether absent, and some remote areas have few access roads. Current projects provide for the improvement of roads in Luzon, including the rehabilitation and modernisation Country Profile The Economist Intelligence Unit Limited 2004