Philippines - International University of Japan · 2007-07-24 · A Spanish expedition led by Ferdinand Magellan first reached the Philippine archipelago in 1521. European settlement

COUNTRY PROFILE 2001

PhilippinesThis Country Profile is a reference tool, which providesanalysis of historical political, infrastructural and economictrends. It is revised and updated annually. The EIU’squarterly Country Reports analyse current trends andprovide a two-year forecast

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EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001

Comparative economic indicators, 2000

1


Contents

3 Basic data

4 Political background4 Historical background

10 Political forces14 Constitution and institutions14 International relations and defence

16 Resources and infrastructure16 Population17 Health18 Education18 Natural resources and the environment19 Transport and communications20 Energy provision

22 The economy22 Economic structure23 Economic policy27 Economic performance29 Regional trends

30 Economic sectors30 Agriculture and fishing32 Mining and semi-processing33 Manufacturing34 Construction34 Financial services37 Other services

38 The external sector38 Trade in goods41 Invisibles and the current account43 Capital flows and foreign debt45 Foreign reserves and the exchange rate

47 Appendices47 Regional organisations48 Sources of information49 Reference tables49 Population49 Labour force50 Structure of employment50 Transport statistics50 Energy consumption by source51 Trend of government revenue and expenditure51 Outstanding internal public debt51 Money supply and credit52 Interest rates52 Gross domestic product52 Gross domestic product by expenditure

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53 Gross domestic product by sector53 Prices and earnings54 Production of major crops54 Meat production54 Output of wood products54 Fishing production55 Minerals production55 Manufacturing production56 Structure of manufacturing industry, 199756 Private construction57 Assets of financial system57 Philippines Stock Exchange indicators57 Visitor arrivals by country of residence58 Exports58 Imports59 Key commodity exports59 Main trading partners60 Balance of payments, IMF series60 Balance of payments, national series61 Foreign equity investment inflows by major country of origin and by sector62 External debt63 Net official development assistance63 Foreign reserves63 Exchange rates

Philippines 3

© The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

Philippines

Basic data

300,179 sq km, of which 49% is classified as forest (although only 21% isunder forest cover) and 34% is under agricultural cultivation

75.35m (May 2000 census: preliminary result)

Population in ‘000, 2000

Metropolitan Manila Davao 1,147(National Capital Region) 10,492 Cebu 662 of which: Zamboanga 600 Manila (capital) 1,673 Cagayan de Oro 462 Quezon City 2,160 Bacolod 429 Kalookan 1,233 General Santos 412 Pasig 582 Iloilo 366 Makati 524 Valenzuela 521 Las Pinas 499 Paranaque 489

Tropical

Hottest month, May, 24-34°C; coldest month, January, 21-30°C (average dailyminimum 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 2000: P44.19:US$1; P67.00:£1.Exchange rate on May 31st 2001: P50.50:US$1; P71.74:£1.

8 hours ahead of GMT

January-December

January 1st; February 25th (Freedom Day); Maundy Thursday; Good Friday;May 1st (Labour Day); May 6th (Araw ng Kagitingan); June 12th(Independence Day); August 27th (National Heroes’ Day); September 11th(Barangay Day); September 21st (National Thanksgiving Day); November 1st(All Saints’ Day); November 30th (Bonifacio Day); December 25th, 30th, 31st

Land area

Population

Main towns

Climate

Weather in Manila(altitude 14 metres)

Languages

Weights and measures

Currency

Time

Fiscal year

Public holidays

4 Philippines


Political background

The Philippines is a pluralist democracy modelled on that of the US, with anexecutive presidency, a bicameral Congress and a Supreme Court that can ruleon the constitutionality of government actions. Joseph Estrada was electedpresident in May 1998 for a single six-year term, but a civilian coup backed bythe military replaced him with his vice-president, Gloria Macapagal Arroyo, inJanuary 2001. She will serve out the remainder of his term (to mid-2004). Thepro-Estrada coalition, which had previously had an overall majority in theHouse of Representatives, broke up after the changeover, and following themid-term elections in May 2001 Ms Macapagal Arroyo can now claim aworking majority in the Senate.

Historical background

A Spanish expedition led by Ferdinand Magellan first reached the Philippinearchipelago in 1521. European settlement did not begin until more than 40years later, at Cebu (in the central Philippines), but within ten years Spanishcontrol had been extended over most of the Visayas and central Luzon,encountering little effective resistance from the indigenous Malaypopulation, which lacked any unified political authority. The principalmotivation for Spanish colonial settlement was religious conversion, andlittle effort was made to exploit the islands’ economic resources. Only at thebeginning of the 19th century were other Europeans permitted to engage ineconomic activity. Sugar, coconuts, abaca and tobacco were developed asexport crops and became the foundations of the economy, while a Chineseentrepreneurial class evolved, marrying into the indigenous population andproviding an elite based on land ownership.

Members of the elite took over leadership of a popular rebellion against Spanishrule that broke out in 1896. The struggle continued into early 1898, when theUS intervened. In December 1898 Spain ceded the Philippines to the US. Thenew republic inaugurated one month later expected Washington to grantindependence, and when this failed to happen open conflict broke out betweenthe new republic’s army and the occupying forces. A year of fierce resistance bythe Filipinos came to an end in April 1901. Under US colonial rule democraticinstitutions were introduced, Filipinos increasingly took over all political andbureaucratic positions, and English-language education was extendedthroughout the country. However, the social and economic structure was littlechanged. In 1934 the Philippines was made an internally self-governingcommonwealth, with full independence scheduled for July 4th 1946.

This transition was interrupted by the Japanese invasion in December 1941.The Japanese occupation and the battle for liberation destroyed much of thePhilippines’ physical infrastructure—Manila was devastated—and left a bitterresidue of charges and countercharges of collaboration. The path was resumedto full independence, which was achieved on schedule in 1946.

The colonial andcommonwealth period

Philippines 5


The newly independent republic initially maintained preferential economicrelations with the US. Goods from the Philippines (subject to quota) had duty-free access to the US until 1954, followed by a gradual move to full tariffs by1974. US citizens had parity with Filipinos in the exploitation of naturalresources until 1974. In 1947 the US was granted a 99-year lease on 23 bases,including the two major bases at Clark Field and Subic Bay in Luzon.

The new republic had a constitution modelled on that of the US and, as inWashington, power tended to alternate between two parties, the Nacionalistasand the Liberals. The fairly peaceful alternation in power within the politicalelite was interrupted in September 1972 as the president, Ferdinand Marcos,neared the end of his second term. Citing the threat from “subversive forces”,the president imposed martial law.

For the next 13 years until 1986 the Philippines experienced “constitutionalauthoritarianism”. In a series of elections the president and the party that hehad created, the New Society Movement (Kilusan Bagong Lipunan),consistently recorded overwhelming popular support, whether or not theopposition participated in the electoral exercise. This owed something to thevirtual monopoly of the media by the president and his close associates, butmore to manipulation and outright cheating at the polls. Opposition, whichwas never absent, was growing throughout the Marcos era, but with many ofits leaders in detention or voluntary exile, the moderate opposition seemedunable to mobilise feeling against the administration and its abuses. The mosteffective opposition came from the communist New People’s Army (NPA),which was active in rural areas, and from the southern areas, where asecessionist Muslim movement had been active since before the introductionof martial law.

The situation changed radically in August 1983, when Benigno Aquino, theopposition leader regarded as the most credible alternative to Mr Marcos, wasassassinated minutes after his return from exile and while under military escort.A series of massive demonstrations followed in which the disenchantment ofthe urban middle class, and notably the business community, was expressed forthe first time. This disenchantment owed much to the “crony” system: thegranting of massive privileges (such as monopoly control of coconut and sugarmarketing) to individuals whose main qualifications were their closeness anddevotion to the interests of the Marcos family.

To reassert his own supremacy, Mr Marcos called an early presidential electionfor February 1986. In a close-run contest he was narrowly defeated by thecandidate of a temporarily united opposition, Corazon Aquino, Mr Aquino’swidow. The attempt on the part of Mr Marcos to hold on to power set off acoup attempt in the military, backed by the deputy chief-of-staff, Fidel Ramos,and the defence minister. This received critically important backing fromMrs Aquino’s People’s Power movement and the local Catholic Church. Underpressure from the US, Mr Marcos went into voluntary exile in Hawaii, where hedied in 1989.

An independent republicclosely tied to the US

The Marcos autocracy

6 Philippines


Under the new regime civil liberties were restored, political prisoners werereleased and an attempt was made to negotiate with the NPA. A newconstitution, drawn up by a convention appointed by Mrs Aquino, largelyrestored the set-up before 1972 but with new controls on the presidency basedon the experience of the Marcos years.

The newly restored democracy had a difficult initial period. President Aquinohad been brought to power by a coalition of forces—People’s Power and themilitary—between which deep tensions were inherent. Moreover, Mr Marcospersisted in using his still substantial reserves of money and personal loyaltyto destabilise the regime. From July 1986 there was a series of attemptedcoups and rumours of coups, more or less credible, in which elements of themilitary 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 landreform was stalled by bureaucratic delay and landlord opposition; widespreadcorruption continued (although the president was not touched by allegationsof misconduct herself); and the government was perceived as ineffectual.

However, the Aquino presidency did achieve a fundamental objective: thetransfer of presidential power at the end of the constitutional term, bydemocratic means and in a comparatively peaceful manner (for thePhilippines). Moreover, the election of Mr Ramos in May 1992 ensured thecontinuation of the political and economic policies of the Aquinoadministration and was thus well received by the main foreign creditors andthe local business community. Within months of coming to office Mr Ramoshad built up a large pro-government majority in Congress, secured acessation of hostilities by dissident military groups and begun the process ofpeace negotiations with both communist and Muslim secessionist rebels. Aceasefire was agreed with the Muslim rebels in late 1993, while thecommunist insurgency began to weaken, as fissures within the leadershipemerged and active membership fell. Although deep-rooted economic andsocial problems remained largely unresolved, the resumption of economicgrowth and the prospect of its maintenance at more robust levels enhancedthe president’s popularity.

With the dominance of the administration party, Lakas, reaffirmed in the mid-term congressional elections in May 1995, the president came under increasingpressure from some of his supporters to stand for a second term in 1998.However, this would have required a revision of the 1987 constitution (seeConstitution and institutions), and was strongly opposed by the CatholicChurch, opposition politicians and some prominent members of the businesscommunity, all of whom feared a drift to a constitutionally-rigged autocracy, onthe Marcos precedent. The persistent speculation about the president’sintentions threatened to undermine the political stability that was one of hismajor achievements. It was only put to rest when Mr Ramos endorsed thesecretary-general of Lakas as his nominee for the presidency in November 1997.

The return to a freedemocracy

Political stability underPresident Ramos

Philippines 7


Important recent events

September 1996: Peace agreement signed with the main Muslim secessionistmovement in Mindanao.

November 1996: Congress approves the most controversial component ofthe comprehensive tax reform package, on excise taxation.

November 1997: Congress approves income tax reform.

May 1998: The anti-administration candidate, Joseph Estrada, comfortablywins the presidency out of a field of ten.

March 2000: The government launches a campaign to clear the main activeMuslim secessionist movement out of its bases in Mindanao.

November 2000: The House of Representatives votes the articles ofimpeachment of the president on charges of bribery and corruption.

January 2001: President Estrada is removed from office after mass streetdemonstrations demanding his resignation are joined by the military highcommand. His vice-president, Gloria Macapagal Arroyo, becomes president.

In the presidential elections of May 1998 the administration’s candidate wasbeaten 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 twoopposition parties, the Nationalist People’s Coalition (NPC) and Laban ngDemokratikong Pilipino (Laban, the pro-administration party under PresidentAquino), won 40% of the vote in a field of ten candidates. The Lakas candidatefor the vice-presidency, Gloria Macapagal Arroyo, won even moreresoundingly, with 50% support. The coalition backing Mr Estrada won onlyaround 60 of the 208 directly elected seats in the House of Representatives, butas the party of the presidential incumbent, renamed Laban ng Masang Pilipino(LAMP), it attracted enough defections from Lakas to build a large majority inthe lower house by end-1998.

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 Estradaadministration as it maintained the macroeconomic targets and liberalisingstance of its predecessor. But there were serious adverse developments whichundermined both the political effectiveness of the administration and,eventually, its stability. Policy formulation and implementation were oftenincoherent and unco-ordinated, as Mr Estrada’s hands-off style gave scope forcompetition among members of his inner circle—including people with noformal responsibility in government. Cronyism re-emerged on a major scale.Unease was compounded by the president’s proposal that the constitution beamended, solely—he claimed—to change those clauses that restrict the scope forforeign investment. There was widespread suspicion that the administrationwould use the opportunity to change the political clauses that set term limits onelective office. These factors, plus the inevitable disappointment after the highexpectations raised by an avowedly pro-poor president, caused a sharp fall in thepresident’s popularity in the second half of 1999. Whereas his approval rating

A president with a strongpopular mandate

A collapse in confidence

8 Philippines


was 78% in June in one respected poll, by December it was down to 44%. In a bidto halt this slide, at the beginning of January 2000 the president shelved hisproposal to amend the constitution. To improve the consistency of policyformulation a new Economic Co-ordinating Council was established, includingthe central bank governor and leading economic ministers.

Any hope of improvement was almost immediately dashed. A stockmarketscandal erupted a few weeks later, after a presidential crony was accused ofinvolvement in share price manipulation and insider trading, and thepresident allegedly intervened to protect his friend from the investigation bythe Securities and Exchange Commission. Although the president boosted hispersonal popularity by launching an all-out attack in March on Muslim rebelsin Mindanao, sentiment in the business community, both foreign anddomestic, increasingly deteriorated as allegations of corruption by thepresident came to light. These culminated in October 2000 when a disaffectedpresidential crony claimed that Mr Estrada had been receiving multi-million-peso monthly pay-offs from the proceeds of illegal gambling, as well as a sliceof government funds for tobacco industry support.

The gravity of these allegations, and the president’s less than convincingresponse, set off a wave of public outrage, which was given voice andleadership by people who had been active in the People’s Power movement in1986—notably the head of the Catholic Church in the Philippines, CardinalJaime Sin. The day after a pastoral statement declared that the president hadlost his “moral ascendancy to govern”, the vice-president resigned her cabinetpost. However, she did not resign the vice-presidency, thus remaining in placeas the constitutionally mandated successor to the president, should he stepdown from his post. That possibility arose when, on November 13th 2000, theHouse of Representatives voted through the articles of impeachment. TheSenate began its hearings on December 7th on four charges: bribery, graft andcorruption, betrayal of public trust and culpable violation of the constitution.

The prosecution panel from the lower house alleged that the president hadsecret bank accounts, fed by illicitly acquired funds. An executive of EquitablePCI Bank, a leading commercial bank, testified that she had witnessed thepresident signing account documentation in a false name. Evidence of theexistence of more secret accounts was thought to be contained in an envelopepresented by the prosecution in the first week of January. It was widelyassumed that this would seal the case against the president. But onJanuary 16th 2001 pro-Estrada senators called a vote to reject the admissibilityof this evidence, which they won by 11 votes to 10. The prosecution panelthereupon resigned, which meant that the impeachment trial was effectively atan end, since a decision had to be reached by early February—the latest datepermitted by the constitution before the mid-term elections in May.

The opposition was not prepared to accept a de facto acquittal on these terms.Mass street demonstrations immediately began, on the pattern of February1986, and—as in 1986—civilians and the military came together. The heads ofall the armed services and the head of the national police joined the call forthe president to resign. Besieged in the presidential palace, Joseph Estrada

Impeachment proceedingsend in disarray

A replay of People’s Power

Philippines 9


agreed to leave the premises—although he refused to resign formally. He wasdeemed by the Supreme Court to have abandoned the office, and GloriaMacapagal Arroyo was sworn in as president on January 20th 2001. She is dueto complete the Estrada term (to end in June 2004) and may win a further sixyears in office in her own right in the presidential elections due in May 2004.The initial appointments to her administration owed something to debts ofgratitude (the vice-president that she nominated was the senator who had firstbrought the gambling pay-off allegations to light), but essentially represented areturn to the personnel and policies of the Ramos administration. This,together with Ms Macapagal Arroyo’s personal qualities—economic policyexpertise, intelligence and diligence—prompted a rebound of confidenceamong the political and business elite. This confidence was undermined byrenewed major street protests and an apparent coup attempt in April, followingthe arrest of Mr Estrada on a charge of “economic plunder”. The president,Ms Macapagal Arroyo, responded by arresting a number of prominentopposition figures and declaring a “state of rebellion”, a declaration rescindedin May.

Despite these problems, the new administration accomplished its mostpressing political task when it secured a strong popular mandate in thecongressional elections in mid-May 2001, with a sizeable majority in the Houseof Representatives and a slim but viable majority in the Senate.

Cronyism: the recurring problem

The patronage system pervades the Philippine political, economic and socialstructure; a favour granted merits a favour in return. On a moderate scale thiscan have benign aspects, preserving social stability. But in the recent past thePhilippines has experienced an extreme case, in the form of the cronycapitalism exercised by the former president, Ferdinand Marcos, over a period ofmore than 20 years. Ownership and control of the economy were concentratedin the hands of the president’s family and a coterie of cronies. Governmentmonopolies were exercised by a few friends of the president. Subsidies andpreferential access to bank credit and government guarantees were extended tocompanies controlled by crony interests.

This structure was dismantled when Corazon Aquino took power in February1986, but the system was never eliminated and the Philippines retained itsplace high up in the international league table of corruption. But from the verybeginning of Joseph Estrada’s presidency in July 1998 there were clear signsthat crony capitalism had come back—in complete opposition to the trend in anumber of other countries within the region.

A number of wealthy individuals—some of them former Marcos cronies—benefited from their financial backing for Mr Estrada’s campaign for thepresidency. Eduardo Cojuangco was allowed to exercise the voting rights ofshares sequestered by the government and so regain control of the Philippines’leading food conglomerate, the San Miguel Corporation. He was well on hisway in late 2000 to securing control over assets acquired by a fund drawn froma levy on coconut farmers during the Marcos administration. The taxauthorities effectively abandoned a multi-billion-peso tax evasion suit against

10 Philippines


another prominent backer of Mr Estrada, Lucio Tan. Mr Tan’s attempts torestore the fortunes of Philippine Airlines (PAL), of which he is the majorityowner, were aided by the government’s revocation of its air agreement withTaiwan, whose airlines have been cutting into PAL’s market share. He alsoacquired the government’s share options in a leading commercial bank, thePhilippine National Bank, in a highly opaque manner. This left him as the solebidder for the government’s residual equity, which the administration had todivest as a condition for World Bank loans for banking sector reform. Newcronies also emerged. Mark Jimenez, a businessman who fled the US after hewas indicted on charges of making illegal campaign contributions, tax evasionand fraud, acted as adviser to President Estrada while brokering large businessdeals (out of which he, and the president, reportedly did well).

The impeachment hearings in the Senate produced evidence of an extensivenetwork of cronyism and illegality, with the president at its centre. Just overtwo years into a six-year term President Estrada seemed to be well on the wayto a replay of the Marcos record. The fact that President Marcos was neverbrought to account in a court of law, and that his ill-gotten wealth largelyescaped forfeiture, was proving a powerful argument in February 2001 forinstigating criminal proceedings against Mr Estrada. He was trying to evadeprosecution by claiming that he was still president de jure, and hence shieldedby executive immunity.

Political forces

Political parties in the Philippines are based on personalities rather thanideologies. All those represented in Congress support the existing political andsocial structures, espouse a market economy (until it threatens sectoralinterests), and are nationalistic, to varying degrees. There are thus continualshifts in allegiance. The president tends to attract a greater following inCongress than the election results would indicate, at least in the early years ofthe term. In the final years of a presidential term of office the parties tend tosplinter as presidential hopefuls emerge and the president has only limitedpatronage to offer.

In early 2001 political alignments were unusually fluid, because of the takeoverof the presidency by a vice-president from the leading opposition party. Therewere four major parties represented in Congress, competing for the mid-termcongressional elections in May.

The new president’s party is Lakas ng Edsa-National Union of ChristianDemocrats (Lakas), which was formed in 1992 to support the presidentialcandidacy of Fidel Ramos. Its strength in the House of Representatives erodedrapidly after the May 1998 elections, falling from 112 members following thevote to fewer than 20 by the year-end. In the Senate (where party labels havelittle significance) it had always been a small minority, with its representationin 2000 down to three of the 24 senators. In February 2001 Lakas joined withthree small parties (Reporma, Probynsya Muna Development Initiative, AksyonDemokratiko), the Liberal Party and Partido Demokratiko Sosyalista ng

Parties based aroundpersonalities

Lakas

Philippines 11


Pilipinas, in the People’s Power Coalition to present a slate of candidates forthe senatorial elections.

The three parties that backed Joseph Estrada in 1998 and formed the pro-government coalition, Laban ng Masang Pilipino (LAMP), resumed theirseparate identities in the wake of his removal. The smallest of the three,Partido ng Masang Pilipino (PMP), was formed specifically to back the Estradacandidacy and won no seats in the lower house in May 1998. However, thecoalition of which it was the central point had reached a membership of 195in the lower house by end-1998. Its following in the Senate peaked at 12 inearly 2000.

The Nationalist People’s Coalition (NPC), the largest among the coalitionmembers, was originally formed to support the presidential candidacy ofEduardo Cojuangco in 1992. It initially teamed up with Lakas in support ofPresident Ramos, but became the official opposition after Laban agreed anelectoral pact with the pro-administration party, Lakas, in 1994. It backedMr Estrada’s presidential candidacy in 1998 and its former leader in the lowerhouse, Ronaldo Zamora, was given the key post of executive secretary inhis administration.

Laban ng Demokratikong Pilipino (Laban) was formed in 1988 to back theAquino presidency. After the 1992 elections its position as the largest party inthe House of Representatives soon collapsed owing to defections to the newadministration party, Lakas. The May 1995 poll left it with only 27 members inthe lower house, while its majority in the Senate split into pro-government andopposition blocs. The party gave its support to Mr Estrada in 1998 after itsleader, Edgardo Angara, abandoned his own presidential ambitions to run forthe vice-presidency. After Mr Angara did badly, Laban failed to recover groundin the lower house and virtually lost its separate identity in LAMP until theupheaval of January 2001.

Outside the mainstream of congressional politics are political forces for whichideology is the determining factor.

The National Democratic Front (NDF) is the umbrella organisation for theMaoist 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 in1969, took up the fight waged by the Hukbalahap rebel movement in Luzon inthe mid-1950s. The NPA expanded rapidly under martial law, with the numberof its regulars rising to an estimated 25,000 by mid-1985. It was then thoughtto control one-fifth of villages and to be active in 60 of the 75 provinces, aswell as in the Manila region. Its attachment to the Maoist dogma thatrevolution must come from the countryside meant that it played no role, as anorganisation, in the overthrow of Mr Marcos. The post-Marcos regimes erodedits popular base by offering amnesties, legalisation of the Communist Party (inlate 1992), and land and jobs to surrendered rebels, while maintaining anactive military campaign. In April 2001 the government and the NDF startedpeace negotiations in Norway. These are expected to continue until end-2002.

LAMP

The NPC

Laban

The NDF rebels

12 Philippines


Another, more heavily armed but less cohesive, rebel movement is the Muslimsecessionist rebellion in Mindanao. The main group is the Moro NationalLiberation Front (MNLF), which was estimated by military sources to have17,000 active members in late 1995. Vying with it for primacy is the MoroIslamic Liberation Front (MILF), which has a religious appeal and is thought tohave a smaller following (of 10,000-15,000), more widely dispersed throughoutthe region. Unlike the NPA, the Muslim rebels have received support fromforeign sources. The secessionist movement has a history stretching backseveral centuries. There is no easy solution since immigration from Luzon andthe Visayas in the 1950s and 1960s has created a Christian majority—or nearparity—in a number of provinces in Mindanao. Thus a proposal to grantregional autonomy to Mindanao found favour in a referendum in 1989 in onlyfour of the 13 provinces.

One of the major achievements of the Ramos administration was the peacesettlement agreed with the MNLF in September 1996. It provided for atransition to an autonomous entity within an integral Philippines, setting upan administrative body, the Southern Philippines Council for Peace andDevelopment (SPCPD), covering the whole of Mindanao and advised by aconsultative assembly of local officials and representatives of non-governmental organisations. After the SPCPD had operated for three years(until September 1999), the whole region was due to vote on whether thecouncil should become its autonomous government. This poll has beenrepeatedly postponed, at the urging of the MNLF leader, governor of the fourautonomous provinces and head of the SPCPD, Nur Misuari, because peace hasfailed to deliver the economic benefits that might induce the other provincesto opt for autonomy under his aegis.

The situation is complicated, moreover, by the refusal of the MILF torecognise the validity of the 1996 peace settlement and its continuingdemand for an independent Islamic state. Technical-level discussionsbetween the government and the MILF started in late 1998 against thebackground of a de facto, though frequently breached, ceasefire. This ceasefirebroke down definitively in April 2000 after government forces launched acampaign to drive the MILF from the fortified bases over which it wasseeking to have its control formally recognised. That campaign wascompleted with the capture of the rebels’ main base at Camp Abubakar inMaguindanao in July 2000. The Mindanao conflict had meanwhile taken anew turn with an upsurge in activity by a much smaller, more extreme,group, Abu Sayyaf, which kidnapped a group of foreign tourists from aMalaysian resort. Their release was secured only after the payment of asubstantial ransom from Libyan sources (which permitted new recruitmentreportedly bringing the group’s numbers to above 1,000). The MILFmeanwhile refused to return to the negotiating table. However, the change ofpresident in January 2001 held out the prospect of a resumption of talks withthe MILF as the new incumbent renounced the “total war” of her predecessorand appointed a new negotiating panel. The MILF was also quick to distanceitself from another kidnapping by the Abu Sayyaf group in May 2001.

The rebels in Mindanao

Philippines 13


Another important political force is that represented by the Catholic Church. Itplayed an active part in the civilian opposition to the Marcos regime andhelped the military rebellion to achieve victory by bringing the population outon to the streets of Manila in its support. The Catholic Church was also asignificant force in opposition to any extension of the term in office ofPresident Ramos, and it took the lead both in opposition to President Estrada’sproposal for constitutional change in late 1999 and in the demand for hisresignation in the wake of the corruption allegations in late 2000.

Main political figures

Gloria Macapagal Arroyo: President, brought to power in January 2001 in acivilian coup backed by the military. She had been elected vice-president in May1998, with more than 50% of the vote, as the candidate of the previousadministration. She held the social welfare portfolio in the Estradaadministration and has experience of economic policy formulation under theRamos presidency. She is now due to complete the outgoing president’s term ofoffice and has the option of standing for the presidency in her own right in 2004.

Teofisto Guingona: Vice-president, nominated to the post in February 2001.An experienced politician, twice elected to the Senate, he served as executivesecretary to President Ramos before taking the justice portfolio. He led theLakas minority in the upper house under President Estrada. Raised inMindanao, he is seen as correcting the traditional dominance of Luzonpoliticians at the centre of government.

Renato de Villa: Executive secretary to the president (the post dubbed the”little president”). He was previously the armed forces chief-of-staff anddefence secretary under President Ramos, and is a leading carry-over from thatadministration in the new executive.

Fidel Ramos: A former president, who has no formal post in theadministration (other than that of roving ambassador), but is now seen asassuming the elder statesman role that he had wanted when he leftpresidential office in mid-1998.

Joseph Estrada: The former president, elected in May 1998 for a six-yearterm, with strong popular backing. Deposed in January 2001 after the collapseof the impeachment trial in the Senate. Faced with charges that carry the deathpenalty, he still claims to be the rightful president.

Cardinal Jaime Sin: Head of the Catholic Church in the Philippines.He can influence, but not direct, the vote of the 85% of the populationwho are Catholic. He will have considerable influence with the devoutlyCatholic president.

Organised labour has little power in the Philippines. Only around one in fiveworkers was a member of a trade union in the late 1990s, although the rate wassignificantly higher in multinational firms, where around one in three wasunionised. A tiny proportion (only 4% of the 11.8m salaried workers in themid-1990s) were covered by collective bargaining agreements. This reflects theweak bargaining position of workers in a labour-surplus economy.

The Catholic Church

Weak trade unions

14 Philippines


Constitution and institutions

The constitution introduced in 1987 provides for a single six-yearpresidential term. The president is chief executive, head of state andcommander-in-chief. The legislature is bicameral, with a Senate of 24members elected “at large” (on a nationwide ballot) and a House ofRepresentatives composed of 208 members directly elected by district and upto 52 members chosen by party list. Senators have six-year terms andrepresentatives three-year terms. The president may impose martial law forno longer than 60 days, and the decree proclaiming it can be revoked byCongress. The president may not abolish Congress and the presidential vetocan be overridden by a two-thirds majority in the legislature. The judiciary,which is independent of the executive, rules on the constitutionality ofpresidential decrees. A permanent, independent commission overseescompliance with a bill of rights contained in the constitution.

The president selects the members of the cabinet but, in line with theseparation of powers, they must be outside Congress. All cabinet appointmentsrequire congressional approval, but, once approved, the incumbent can beremoved only by the president. Areas of policy that straddle departmentalresponsibility tend to be treated in cabinet committee; privatisation andinfrastructure projects are leading examples. This does not, however, eliminateinterdepartmental conflicts of interest, such as that between the Department ofFinance and the Department of Trade and Industry on the issue of taxincentives for investment, or that between the environment and energydepartments on the siting of power plants. The National EconomicDevelopment Authority (NEDA), headed ex officio by the planning secretary,co-ordinates policy and decisions in all areas relevant to the economicdevelopment plan.

Traditionally, government in the Philippines has been highly centralised.However, the 1987 constitution made provision for the establishment ofautonomous regions in two areas with distinctive historical and culturalheritages—the Cordillera region of northern Luzon and Mindanao—if the localpopulation voted by referendum for this status. Both autonomous regions havenow been established, although the autonomous region in Mindanao islimited to the four, out of 13, provinces that voted for it. The autonomousauthorities have powers in the areas of personal and property relations,regional and urban planning, education, and economic and socialdevelopment. The Local Government Code of 1991 also devolved some fiscalpowers, in the form of the oversight and control of government spending, tolocal governments.

International relations and defence

A continuing foreign policy priority has been the strengthening of relationswith fellow members of the Association of South-East Asian Nations (ASEAN).Membership of this organisation gives the Philippines an regional identityindependent of the US umbrella.

Presidential powers

Two autonomous regions

Philippines 15


Another priority for the Philippine government is participation in a regionalforce to counterbalance China, which is seen as a threat, most recently in thedispute over the Spratly Islands in the South China Sea. Relations with the USadministration retain a special character and significance, even as thePhilippines seeks to diversify its relations, notably with Europe.

The US has retained a special relationship, both political and economic, withthe Philippines since independence. The US administration has on a numberof occasions played a pivotal role in domestic political affairs in recent years,inducing Mr Marcos to leave the country in February 1986 and backing theAquino administration against coup attempts (on one occasion with militaryaircraft). The Philippines was home to two of the most important US militarybases outside US territory, the naval facility at Subic Bay and the nearby airbase at Clark Field. The non-renewal of the lease on the military bases when itexpired in 1991 was the most open sign of the Philippines’ emerging “Asian”identity. Nevertheless, the US remains a leading source of private investmentin the Philippines, reflecting links forged during the colonial period and theearly decades of independence; it has by far the largest Filipino communityoutside the Philippines; and its culture remains the dominant foreigninfluence. A special military relationship remains in place by virtue of theMutual Defence Treaty, under which the US administration pledges to defendthe territorial integrity of the Philippines, and military equipment is almostwholly of US origin.

Although the support of the military was one of the pillars of the Marcosregime, and its discontent helped to foster serious instability under hissuccessor, the defence forces have traditionally accounted for a small share ofgovernment budget spending. Their numbers are fairly small compared withthose of other countries in the region. Their equipment is outdated andinappropriate to the country’s real needs. In 1995 the Ramos administrationinitiated a programme of modernisation and re-equipment, shifting the focusof the security forces from counter-insurgency—which has tended to be a low-technology, high-manpower activity—to external defence. The first five yearsof the P332bn (US$12.9bn at the 1995 exchange rate of P25.71:US$1) 15-yearprogramme envisaged buying a fighter squadron, naval patrol boats and anindependent nationwide radar system, and reducing military personnel fromaround 110,000 to 100,000. However, the steep depreciation of the peso in theregional crisis of 1997, which raised the local cost of a programme initiallyexpected to absorb P50bn in its first five years, and the deterioration in thefiscal balance since 1998 have undermined both targets and schedule.

Relations with the US

A relatively small militarywith limited capacity

16 Philippines


Armed forces and paramilitary, 2000

Armed forces 106,000 Army 66,000 Navy (incl 8,000 marines) 24,000 Air force 16,000

Paramilitary 82,500 Philippine National Police (PNP) 40,500 Coastguard 2,000 Civil Armed Force Geographical Units (CAFGU), part-time units 40,000

Source: International Institute for Strategic Studies, The Military Balance, 2000/01.

Resources and infrastructure

Population

The rate of population growth has been slowing in recent decades (accordingto national sources), from an average of 3.08% a year in the 1960s to 2.35% inthe 1980s and 2.02% in the second half of the 1990s (see Reference table 1 forpopulation data). This reflects two trends: a fall in the birth rate and a fall inthe death rate as infant mortality rates have declined. Thus the crude birth ratefell from 46 per 1,000 in 1960 to 32 in 1992, as family planning became morewidely accepted. Once the government gave its backing to birth control, thepercentage of married women of reproductive age practising contraceptionrose, reaching 40% in 1988-93. Meanwhile, life expectancy at birth rose from53 years in 1960 to 66 years in 1995 as the infant mortality rate fell from 72deaths in the first year of life per 1,000 live births in 1965 to 40 in 1992. Thecomparatively high rate of population growth means that the Philippines has ayoung population, 51% being under the age of 20 in 1990.

Population by region2000 Annual average % change

(‘000) 1995-2000

LuzonNational Capital Region 10,492 2.26Cordillera Administrative Region 1,352 1.60Ilocos 4,174 2.01Cagayan Valley 2,756 1.80Central Luzon 7,797 2.55South Tagalog 11,321 2.84Bicol 4,629 1.47

VisayasWestern Visayas 6,147 1.34Central Visayas 5,404 1.62Eastern Visayas 3,589 1.38

MindanaoWestern Mindanao 3,045 1.86Northern Mindanao 2,276 2.08Southern Mindanao 5,601a 2.32Central Mindanao 2,494 1.19Autonomous Region of Muslim Mindanao 2,192 1.75Caraga 2,076 1.31

Total 75,345a 2.02

a Erroneous figure in source corrected.Source: Census reports.

Population growth hasslowed

Philippines 17


Population density is high in metropolitan Manila and neighbouring areas ofcentral Luzon, whereas Mindanao, Negros and the other southern islands aresparsely populated. There have been two significant trends in populationmovement in the past 40 years. First, the proportion of the population livingin rural areas has decreased, from 70% in 1960 to 56% in 1992, while theurban population grew by just under 4% per year on average during the period.The second trend is the migration to the agricultural frontier areas inMindanao, despite the unrest in that region. Competition from migrants forland has significantly contributed to the unrest.

There has also been significant migration out of the Philippines, bothpermanent and temporary (in the form of overseas employment undercontract), which has held down both the population resident in thePhilippines and the rate of unemployment (see Reference tables 2 and 3 fordata on the labour force and employment). This movement has been madefeasible by the population’s familiarity with English and the comparativelyhigh standard of education. Registered emigration peaked at around 66,000 in1993, but was down to around 39,800 a year in 1998-99, with the US by far theleading destination, accounting for around two-thirds of the number. Overseasemployment represents an important outlet for the excess labour force and is amajor source of income for Philippine households. The number of contractworkers deployed each year fluctuates with conditions in host countries, butthe annual average was 689,000 in the 1990s. The great majority of placements(77% of the total of 837,020 in 1999) are for land-based employment. TheMiddle East was traditionally the leading destination by a wide margin, withopenings in both construction work and private services. From the beginningof the 1990s, however, Asia has grown in significance as a destination, andsince 1997 it has moved just ahead of the Middle East, hosting 47% of land-based placements in 1999 compared with 45% in the Middle East.

Health

Overall healthcare provision is inadequate, and World Bank data indicate adeterioration since the mid-1980s in the number of doctors and nurses relativeto the population (to 1.5 and 3.6 per 10,000, respectively, in 1989-90). To someextent, as in the case of education, this reflects budgetary constraints. Spendingon public health in the Philippines averaged only 1.3% of GDP in 1990-95, asmaller proportion than in most other countries in the region. But thesituation is worsened by the skewed geographical distribution of healthfacilities. About half of all doctors are located in the National Capital Region(NCR), where each health centre covers an average of 14,200 people, comparedwith 21,000-44,000 in other regions. Moreover, the poor road infrastructure inthe rural areas of the poorer provinces limits the access of a large section of thepopulation to such facilities as exist.

Emigration and overseasemployment

Healthcare provision isinadequate

18 Philippines


Education

Education standards are fairly high. In 1990 around 99% of children of therelevant age were enrolled in primary and 73% in secondary schools. There is afairly high level of tertiary education: 27% of the relevant age group wereenrolled in 1990.

However, the situation is not as good as these figures indicate. About one-fifthof the adult population is thought to be functionally illiterate (they cannot reador write with any fluency) because, although there has been universalenrolment at the primary level for more than two decades, nearly one-third ofprimary school pupils do not complete their education. This national figure alsoconceals the familiar disparity between Manila and the poorer provinces: in theformer nearly 100% complete their primary education, whereas in the latter onlyaround 30% do so. This reflects factors including general underinvestment ineducation as the sector falls victim to the squeeze on government spending. Inaddition, the state’s percentage contribution to primary education costs hasfallen in recent years whereas its contribution to tertiary education has risen.

Natural resources and the environment

The Philippines is one of the largest island groups in the world, numberingmore than 7,100 islands and extending 1,851 km north to south and 1,107 kmeast to west. The topography is varied and includes two mountain ranges inLuzon and several volcanoes, 21 of them active.

The climate is tropical, with some variation in the extent and duration of thedry season. In the western parts of Luzon, Mindoro, Negros and Palawan (thewestern rim) there are two pronounced seasons: dry from November to Apriland wet for the rest of the year. Other regions have rainfall more or less evenlydistributed throughout the year. All are exposed to typhoons, which occurmost frequently across the middle latitudes of the country. Southern Mindanaois almost typhoon-free.

The area under crops expanded markedly in the 1970s and reached 12.25m hain 1979/80, mainly as a result of the clearing of virgin forest, particularly inMindanao, where more than half of the commercial acreage is located. Since1979/80 the area under crops has stabilised at about 13m ha and landavailability 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 have beenrapidly depleted (see Economic sectors: Agriculture, forestry and fishing).

The Philippines has extensive fishing resources, both marine and inland, withthe largest area of developed estuarine fishponds in South-east Asia and anexclusive fishing zone of 1.89m sq km. While neither freshwater fishpondsnor most of the marine waters have been fully developed, the productivity ofsome resources has been deteriorating as rising demand and the use ofdestructive methods of exploitation have resulted in overfishing. Only 4% ofcoral reefs remain in good condition, while the mangrove area has halvedsince the late 1970s.

Illiteracy is a problem

A large island group

Fishing

Philippines 19


Mineral resources are widely scattered throughout the islands, but aroundone-quarter of the land area has not been surveyed. At end-1996 there wereestimated reserves of 4.79m tonnes of copper, 1.09m tonnes of nickel, 36,667tonnes of chromite, 226,852 tonnes of gold and 484,696 tonnes of iron. Thepicture is mixed for energy resources. There are large deposits of coal andlignite, with proven reserves of 369m tonnes, of which close to 40% are onSemirara Island, and potential reserves estimated at 1.59bn tonnes.Commercial deposits of oil off Palawan Island are small (estimated at 16.3mbarrels in 1985) and have proved technically difficult to exploit and operate.Reserves of gas in the same region are substantial, estimated at 2.8trn-3.5trncu ft (other gas reserves are estimated at 1.82trn cu ft). The offshore depositsare to be used to fuel three power plants with a total installed capacity of2,700 mw and possibly also to serve as the basis for the petrochemicalsindustries. Geothermal resources are large and, as yet, not fully developed.

Transport and communications

The transport and communications infrastructure is inadequate, suffering fromdecades of underinvestment. In the liberalised investment environmentestablished by the administration of the former president, Fidel Ramos, someof the most serious shortcomings began to be tackled.

The transport system is essentially bimodal, roads carrying 60% of freight and80% of passenger traffic, and water 40% of freight and 10% of passengertraffic. Air transport is oriented towards carrying passengers on long-distanceinter-island travel. The rail network is limited. (See Reference table 4 fortransport statistics.)

The road network covers 161,000 km. More than 26,000 km of roads areclassified as national and more than 28,000 km as provincial (mainlysecondary roads); the rest are feeder and village roads. Although average roaddensity is comparatively high, at 2.35 km per 1,000 people, there is a widedisparity between regions, the NCR having the highest density and parts ofMindanao the lowest. Moreover, less than half of the network is all-weather,an important consideration in view of the climate, and only 17% of all roadsare paved with concrete or asphalt. The condition of the feeder roads isgenerally poor, the result of substandard construction, inadequatemaintenance and use by overloaded vehicles. Bridges are often weak, if notaltogether absent, and some remote areas have few access roads. Currentprojects provide for the improvement of roads in Luzon, including theconstruction of an elevated expressway in Manila and the rehabilitation andmodernisation of the North Luzon highway and its extension to the SubicSpecial Economic Zone. Both are under build-operate-transfer (BOT) terms,bringing in private capital and expertise.

The railway system is limited to 740 km of single-line track in the Bicol-Manila-La Union corridor in Luzon. It is in urgent need of rehabilitation, since onlyone-fifth of the track is in operation. In addition, there is a modern, elevated

Transport

20 Philippines


rail system in Manila, which is currently being expanded within themetropolitan area. In 1997 this system registered 134m passenger journeys.

Given the geography of the Philippines, shipping services and port facilities areof critical importance. In all there are nearly 1,500 ports in operation, but six—Manila, Cebu, Iloilo, Cagayan de Oro, Zamboanga and Davao—handle over80% of public port traffic. The inter-island fleet is old, safety regulations arepoor and maritime navigational aids, in particular lighthouses, are inadequate.However, more operators entered the port and shipping sector as a result ofliberalisation by the Ramos administration.

There are 85 national airports, of which three—Manila, Cebu and GeneralSantos—are international. The provision of domestic services has beenimproving as the aviation sector has been liberalised. One result has been thatthe privatised national carrier, Philippine Airlines (PAL), has started to operatein competition with new airlines. However, excessive capital spending at PALresulted in a financial crisis in 1998, which necessitated a sharp cutback in theroute network (both domestic and international) to restore profitability.

The telecommunications system used to be inadequate and unreliable, andtelephone density was only 1.02 per 100 persons in the mid-1980s. Thederegulation of the sector in 1993 transformed the situation. Presidentialdecrees mandated interconnections between networks and required thatinternational gateway operators and cellular telephone companies installtelephone systems in urban and rural areas. The changes ended the monopolyenjoyed by the Philippines Long Distance Telephone Company (PLDT). AsPLDT installed new lines and other operators entered the field, telephonedensity rose to 9.12 per 100 persons by 1999. Mobile phone usage has alsobeen expanding rapidly.

Under the Marcos regime, the mass media, with the exception of a few small-circulation and often short-lived newspapers, were controlled by interests closeto the president, and press censorship was exercised by the government. Nowthat the sector has opened up again, there is a multiplicity of newspapers andthe Philippine press is a byword for freewheeling comment and speculation.

There are around 270 broadcasting radio stations, commercial and non-commercial. There are five main television networks, 19 carrier and sevenrelay stations.

Energy provision

The Philippines depends to a fairly high degree on foreign energy, but since theoil price rises of the 1970s the government has sought to bring down the deficitin national supply. (Reference table 5 gives statistics on energy consumption bysource.) The contribution of domestic energy sources has been rising—reflectinginvestment in geothermal and hydroelectric capacity and the availability of awider range of non-conventional sources.

The contribution of indigenous commercial sources is due to rise markedlyonce gas production from the Malampaya reserves, off Palawan, comes on

Communications

Energy generationand usage

Philippines 21


stream from June 2001 and as geothermal output continues to rise. Domesticoil is not at present expected to make a significant contribution, and coalproduction will need to be supplemented by imports.

Power generation was previously a state preserve but severe shortcomings ininfrastructure have been remedied by bringing in the private sector. When FidelRamos became president in May 1992 the Luzon grid (on which Maniladepends) had a supply deficit of 1,000 mw. This was because a plan for 620 mwin nuclear capacity to come on stream in 1986 had lapsed. The new governmentlaunched a fast-track programme of electricity expansion, which eliminated thepower shortage by end-1993. At end-1999 power-generating capacity was12,341 mw, up from 6,949 mw at end-1992. Much of the increase came fromplants built under BOT contracts, and the use of such arrangements, as well asbuild-own-operate (BOO) agreements, has become common, being used also forthe development of capacity utilising offshore gas. But the greatest potential forexpansion in power generation capacity, in the long term, lies in geothermalenergy. Geothermal power generation on a commercial scale began in 1979 andcapacity, at 1,914 mw in 1999, was second in the world only to that of the US.

The liberalisation of the energy sector is due to take a major step forward withthe privatisation of the state-owned utility, the National Power Corporation(Napocor). This will occur in two stages, starting with generating capacity (withthe main units to be sold off over three years) and moving on to thedistribution network. Originally scheduled to start in 1996, this process shouldnow get under way following congressional approval of the enablinglegislation (which includes a new regulatory structure) in June 2001.

Primary energy balance, 2000(m tonnes oil equivalent)

Oil Coal Electricity Other Total

Primary supplyProduction 0.0 0.5 4.2a 9.0 13.7Imports 20.0 2.5 0.0 0.0 22.5Exports –1.0 0.0 0.0 0.0 –1.0Total 19.0 3.0 4.2a 9.0 35.2

Processing & transformationInput to refining –18.0 0.0 0.0 0.0 –18.0Input to transformation –4.5 –1.2 –4.2a –1.7 –11.6Refining & transformation output 18.0 0.0 3.7b 0.0 21.7Energy industry fuel & gas –1.5 –0.5 –0.7b 0.0 –2.7

Final consumptionTransport fuels 7.0 0.0 0.0 0.0 7.0Industrial fuels 3.5 1.3 1.0b 3.6 9.4Residential, etc 2.0 0.0 2.0b 3.7 7.7Non-energy uses 0.5 0.0 0.0 0.0 0.5Total 13.0 1.3 3.0b 7.3 24.6

a Expressed as input equivalents on an assumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

22 Philippines


The economy

Economic structure

Reflecting its varied resource endowment, physical and human, the economy isdiversified. In recent years the contribution to GDP of manufacturing has beenabout 21-25%, that of agriculture, fishing and forestry 20%, and that of theservices sector around 50%. The informal sector is sizeable, particularly in thetowns where about half the population now lives.

Main economic indicators, 2000

GDP (US$ bn) 75.2

Real GDP growth (at constant 1985 prices; %) 3.9

Population (mid-year; m) 75.3

Current-account balance (US$ bn) 8.3

Foreign debt (US$ bn) 51.0

Exchange rate (av; P:US$) 44.19

Sources: Bangko Sentral ng Pilipinas (BSP); EIU.

The economy is marked by great disparities: in ownership of assets, in income,in levels of technology in production and in the geographical concentration ofactivity. The National Capital Region (NCR), the region centred on Manila,accounts for 15% of the population and produces one-third of GDP. Incomeper head in 1999 in the NCR, the richest region, was almost eight times that ofthe poorest, the four provinces forming the Muslim autonomous region inMindanao (see Regional trends). A wide gap also exists on the humandevelopment measure (which takes into account other indicators) with theindex score for Sulu, one of the Muslim provinces, about half the nationalaverage in 1997 and just over one-third that for the NCR. An even greaterdisparity is evident nationwide between the richest and the pooresthouseholds. In 1997 the richest 10% of the population had an income 24times that of the poorest 10%. Those living below the poverty line wereestimated at 25% of the population in the same year—an improvement on the41% recorded at the height of the economic crisis in 1985 but still a highproportion, and one that rose once more as the economy contracted in 1998,to an estimated 27.8%.

Comparative economic indicators, 2000

Philippines Indonesia Malaysia Taiwan Thailand

Real GDP growth (%) 3.9 4.8 8.5 6.0 4.3

Consumer price inflation (av; %) 4.3 3.7 1.5 1.3 1.6

Current-account balance (US$ bn) 8.2 8.8 9.0 9.3 9.2

Exports of goods (US$ bn) 38.0 63.5 98.0 147.6 67.9

Imports of goods (US$ bn) 31.4 38.0 79.6 133.6 56.2

Source: EIU.

Income disparities

Philippines 23


Economic policy

The administrations of Corazon Aquino (1986-92) and Fidel Ramos (1992-98)embarked on the long overdue restructuring and liberalisation of thePhilippine economy. The core purpose was to remove the structural constraintswhich had distorted the development and depressed the growth of aneconomy that by the end of the 1950s was the most industrialised in South-east Asia. The constraints had their origin in the rentier economy of thecolonial period and the persistent and high level of protectionism of thedecades since independence. The major strands of the liberalisationprogramme were:

• the elimination of monopolies;

• the opening of restricted or banned sectors to foreign investment;

• the privatisation, wholly or in part, of all government corporate holdingsand such core services as are appropriate;

• the easing or lifting of tariff and non-tariff barriers; and

• a simplified and widened tax system that would yield enhancedtax receipts.

To varying degrees all these policies challenge entrenched interests, which findstrong protection in Congress. Nevertheless, major structural reforms wereintroduced during the Aquino and Ramos administrations and they weresupplemented by the opening of another closed sector, retail trade, and furtherbank liberalisation during the presidency of Joseph Estrada. But at thebeginning of 2001 some economic reforms remained to be implemented, mosturgently the liberalisation of the power sector, including as its majorcomponent the privatisation of the electricity utility, the National PowerCorporation (Napocor). The generating assets of Napocor were originally dueto be sold off in 1996-98, with the distribution facilities following some threeyears later. However, the legislation for this was finally passed in June 2001.Another item on the liberalisation agenda that had still to be finalised was thesale of the government’s equity in the Philippine National Bank. Otherproposals that had been aired during the Estrada administration—lifting theban on foreign ownership of land and easing restrictions on foreigninvolvement in the media, education and utilities—were further down theagenda, for domestic political reasons, but remained a reform objective.

Landmarks in economic liberalisation

June 1989: Privatisation of 30% equity in the Philippine National Bank.

June 1991: Foreign Investment Act allows 100% foreign equity ownership except insectors where it is specifically restricted (to 25-40%) or banned.

August 1992: Lifting of exchange controls on virtually all current-account transactions.

February 1993: Ending of telecommunications monopoly.

A decade of restructuringand liberalisation

24 Philippines


February-June 1994: Privatisation of 60% equity in state-owned oil refinery.May 1994: Lifting of ban on entry of operating branches of foreign banks.

January 1995: Aviation services opened up. Extension of land-lease period forforeigners from 50 to 75 years.

February 1995: A total of 100% foreign equity allowed in mining under terms offinancial and technical agreements.

March 1996: Deletion of the negative list in the Foreign Investment Act relating tosectors where there is already adequate capacity to meet domestic demand.

January 1997: Privatisation of Manila water system through two 25-year franchises.

February 1997: Downstream Oil Industry Deregulation Law ends administered pricingof petroleum products.

February 1998: New oil deregulation law replaces previous law declared by theSupreme Court in November 1997 to be unconstitutional.

December 1999: Congress lifts the ban on foreign investment in retail trade.

May 2000: Amendment to the General Banking Law permits 100% ownership by aforeign bank of a local bank classified as distressed.

An improvement in the government’s budget revenue on a sustainable basis isthe key to the attainment of stable economic growth over the long term. Thelow ratio of tax revenue to GDP—around 15% in most years—has meant thatthe government has never invested adequately in physical and socialinfrastructure, generating serious bottlenecks in mobilising the Philippines’considerable resources.

The Ramos administration made substantial progress in tackling this deficit. Itbrought in the private sector to remedy shortfalls in physical infrastructureunder build-operate-transfer (BOT) contracts. This mechanism, which shifts thecapital and management burden from the public to the private sector, was firstused to remedy the critical power shortage in Luzon in 1992-93. It wassubsequently employed for roads and commuter rail services. BOT dealsrelieved some of the burden on the spending side of the budget. The incomeside was aided by the sale of government assets, both corporate and physical,which yielded a total of P68.7bn (US$2.5bn) in 1993-96, representing 5% ofbudget revenue for the period. These inflows enabled the budget to move intoa P16.3bn surplus (equivalent to 1% of GDP) in 1994 and remain in surplusthrough to 1997. A new feature in 1996 was the achievement of a small surplusbefore privatisation proceeds, which owed much to the fact that interestpayments—the largest single expenditure item—had been eroded by the fall inthe government’s debt stock. The public-sector deficit (as opposed to thegovernment’s budget balance) was nearly zero in both 1994 and 1995, andthere was even a small surplus in 1996.

The Ramos administrationtackles the fiscal problem

Philippines 25


Asset disposals were not, however, a long-term solution. So the most significantprogress made on the fiscal front during the Ramos presidency was thestrengthening in the tax base. Value-added tax (VAT) was extended in 1996,while a comprehensive tax reform package, approved in two stages in 1996 and1997, tackled a range of defects in the tax structure. It simplified the system ofpersonal and corporate tax, raising thresholds for the former and reducing therange of allowances in both, and rebased the excise system from an ad valoremto a specific levy system. The underlying aim was to reduce both the scope andthe incentive for corruption and evasion, and thereby increase the tax take.

The progress achieved in the Ramos years did not last. The budget surplusdeclined in every year after 1994 and was down to only P1.6bn in 1997, one-tenth of the original target. In 1998 the budget was back in the red, by P50bn,and the deficit more than doubled in1999.

The reason for the turnaround was the onset of the Asian financial crisis in1997. This had an immediate and severe impact on the budget. Thedepreciation in the peso and the steep rise in interest rates pushed up the costof servicing the government’s debt, at the same time that the slowing ineconomic growth, and the onset of recession in 1998, hit tax revenue. To liftthe economy from its lows the new administration adopted an expansionarybudget for 1999: spending was projected to rise by 16% and revenue by 13%.This would have produced a deficit of P68.4bn. In the event the recovery inGDP growth in 1999 was slower, and more fitful, than expected, with the resultthat internal tax receipts fell well below expectations. Despite some trimmingon the expenditure side, the deficit far exceeded the target, at P111.7bn.

But the deterioration cannot all be attributed to poorer GDP results. Economicgrowth in 2000 was close to the revised official forecast, yet the deficit atP136bn was double the target. The results in 2000 were partly caused byworsening investor sentiment as the political situation deteriorated; thegovernment’s privatisation proceeds fell P19bn short of the P22bn target; whilethe sharp fall in the peso in October, and the sharp rise in interest rates tocontain the fall, greatly boosted interest outgoings on government debt. Butthe most serious deterioration was in the proceeds of the Bureau of InternalRevenue (BIR), which were P43bn below the revised target and only 4.3% upcompared with 1999, when domestic demand growth was considerably slower.As a result, and despite better than forecast results from customs receipts inboth 1999 and 2000, the tax ratio fell from 15.6% of GDP in 1998 to 14.9% in1999 and 13.6% in 2000. Preliminary results for 2000 showed a budget deficitof P136.1bn, equivalent to 4.1% of GDP. The target for 2001 is a deficit ofP145bn. The new administration is hoping for a return to equilibrium by 2004,but apparently accepts that 2006 is a more realistic date.

Setting aside the issue of large-scale tax evasion by well placed individuals, theessential problem lies in the system itself. The comprehensive tax reformintroduced under President Ramos has not produced an increase in revenue asa percentage of GDP. A study by the IMF in late 2000 showed that the reformhas been broadly revenue neutral; proceeds from VAT had in fact fallen as apercentage of GDP since 1994 because of the exemptions introduced. A study

Government financesreturn to the red

26 Philippines


by a Philippine think tank has claimed that tax evasion on personal incometax has worsened under the simplified structure. It is widely recognised thatthe solution lies not in new levies but in improving tax compliance bytightening up on tax administration and reducing the opportunities forcorruption. (Reference table 6 provides data on government revenue andexpenditure in 1996-2000, and Reference table 7 gives figures for outstandinginternal public debt in 1995-99.)

Against this background and the political and electoral constraints of early2001, the incoming administration under President Macapagal Arroyo set itselfa realistic budget deficit target for 2001. Given the P70bn in unpaid liabilitiesoutstanding at end-2000, which were not registered in the P136bn fiscalbalance, there was no likelihood that the outgoing administration’s target for2001 would be attained. This had already been revised upwards on severaloccasions in 2000, from the original P62.5bn to a final P121bn. On a rathermore bullish GDP forecast, reflecting the change in the presidency and thefalling cost of government debt as domestic interest rates ease, the governmenthopes to hold the deficit to P145bn, including the settlement of some liabilitiesfor 2000. A major assumption is that tax collection will be improved, notablyby chasing up some major delinquents.

Budget results and forecasts, 2000 and 2001(P bn)

2000 2001 forecast Forecast Actual Dec 2000 Feb 2001a

Revenue 567.0 505.7 607.2 565.0 of which: Bureau of Internal Revenue 397.8 354.8 441.6 418.0 Bureau of Customs 91.9 93.5 100.5 105.0

Expenditure 629.5 641.8 692.2 710.0

Balance –62.5 –136.1 –85.0 –145.0

a After the change in administration.

Source: Press reports.

Prior to the political crisis in the final months of 2000, the Bangko Sentral ngPilipinas (BSP, the autonomous central bank), had been due to begin inflationtargeting from the beginning of 2001. It had traditionally set interest rates tomeet monetary targets monitored by the IMF, and with an eye to counteringsharp fluctuations in the peso’s value and—most recently—providing somedegree of support when it was depreciating rapidly. The schedule for a more toan inflation targeting policy has been moved back slightly, to the second halfof 2001. (See Reference table 8 for money supply data and Reference table 9 forinterest-rate data.)

The 2001 budget setsmodest goals

A move to inflationtargeting is scheduled

Philippines 27


Economic performance

Gross domestic product(% real change at constant 1985 prices)

Annual average2000 1996-2000

Private consumption 3.5 3.8

Government consumption 0.2 2.5

Fixed capital formation –1.6 1.4

Exports of goods & services 16.4 5.2

Imports of goods & services 2.4 2.4

GDP 3.9 3.5

Source: National Statistical Co-ordination Board (NSCB).

Economic growth until 1998 was based on the buoyancy of exports and theinvestment that this in turn stimulated. With an initial boost from the endingof the power shortfall in 1993, the rate of GDP growth rose every year to reacha peak of 5.8% in 1996, before a modest deterioration in 1997, to 5.2%, as theregional crisis hit. Each year also saw a double-digit rise in exports (in bothnational accounts terms and on the US dollar-denominated merchandisemeasure), while the real growth in gross fixed investment reached 11-12% peryear in 1996 and 1997.

The sharp fall in fixed capital formation in 1998, of 11.2%, owing to thecombination of a steep rise in both interest rates and import costs sincemid-1997 and slackening domestic demand, brought economic growth to ahalt. GDP fell by 0.6% in 1998 while GNP was stagnant. The 21% contractionin exports (national accounts measure) caused a deterioration in the netforeign balance since the fall in imports—while steep—was a lower 14.7%.Meanwhile, on the supply side, agricultural output fell sharply owing todrought damage to the rice and maize crops.

In the following two years there was a recovery that strengthened throughmost quarters, although growth remained below pre-crisis rates. Exportsrecovered marginally in 1999, while imports continued to decline, if at a muchmilder pace: as a result the net foreign balance contributed 3% to GDP growth.Domestic demand remained sluggish throughout 1999, with privateconsumption rising by only 2.6% and capital formation still contracting, albeitat a much slower rate. The most dynamic demand component wasgovernment consumption spending, which recorded its fastest growth in thefirst quarter of 1999 (7.9% year on year) as the government embarked on anexpansionary spending programme. The pace slackened in the two followingquarters, but still registered 5.3% for 1999 as a whole. On the supply side,agriculture made up the ground lost in 1998, while industry remained in thedoldrums with growth of only 0.9%. In 2000 the combination of double-digitexport growth, as the US economy hit the peak of its cycle, and a modest risein import spending produced another fall in the net foreign deficit, equivalentto an increment of 5.6% in GDP. Private consumption growth picked up oncemore but capital formation continued to decline at a rate close to that recorded

Exports and investmentbuoy growth until 1998

A recovery in growth isachieved in 1999 and 2000

28 Philippines


in 1999. On the supply side the most significant feature was the strengtheningrecovery in manufacturing, which registered growth of 5.6% over the wholeyear. However, the pace of manufacturing growth, as of overall GDP, began toslacken in the final quarter of 2000, largely in response to adverse politicaldevelopments. (For GDP and GNP growth in 1996-2000 see Reference tables10, 11 and 12.)

One important factor in the rate of economic growth, which is not directlyregistered in the GDP measure, is the inflow of remittances from Filipinosoverseas, both contract workers and emigrants. The World Bank has estimatedthat such remittances were in the range of 2.2-4.5% of GDP in 1991, and thepercentage has risen substantially since then. Trends in these inflowsconsequently have an impact on the pace of overall economic growth, as theyrepresent a significant source of income for Filipino households and generatedemand for Filipino assets.

The recovery in economic performance after 1991 was accompanied by asteadying in the rate of consumer price inflation. An important contributingfactor until mid-1997 was the stability of the peso against the US dollar, withthe annual average exchange rate fluctuating within a narrow band, of 2-7%,in 1992-96 and in the first half of 1997. The steep fall in the peso’s value in thesecond half of 1997 added to the pressure from a much lower rice crop to pushup the rate of inflation to 10-11% in May-December 1998.

Strong deflationary pressures began to be felt in early 1999, reflecting theimpact of the economic recession, the weakness in world oil prices and—fromOctober 1998—the slight appreciation in the peso’s value against the US dollar.With the rebound in the rice crop in the second quarter of 1999, and despitethe recovery in oil prices, the rate of consumer price inflation fell in virtuallyevery month of 1999. In January 2000 it reached a 13-year low of 2.6%, and therate moved up only slowly through most of 2000 as the government counteredthe surge in energy prices through subsidies on the price of state-supplied rice.The latter impact fell out of the year-on-year comparison in October 2000, thesame month that the peso plummeted in response to the political crisis.Consequently the rate of inflation increased to 6.9% by January 2001, easingback to 6.7% in February.

Over most of the 1990s real wages were in decline. Wages tend to lag behindthe rise in prices, with sudden catch-up increases that owe most to essentiallypolitical pressures (such as a surge in food prices or an imminent nationalelection). The measure most frequently used is the minimum wage, whichvaries with the type of work (agricultural or non-agricultural) and the region. Itis an imperfect measure for a number of reasons. Many sectors are excludedfrom its operation—the whole of the public sector, as well as export-orientedand labour-intensive manufacturing—and many companies ignore it becauseof the limited bargaining power of organised labour. (See Reference table 13 fordata on consumer and wholesale prices and the minimum wage.)

Overseas remittances play asignificant role

Inflation slows in 1999and 2000

Wages tend to lagprice inflation

Philippines 29


Inflation and the minimum wage(% change, year on year)

Annual average2000 1996-2000

Consumer prices 4.3 7.1

Minimum non-agricultural wage in National Capital Region (incl allowances) 6.4a 6.2b

a 1999. b Annual average, 1995-99.

Source: BSP.

Regional trends

The figures for overall GDP of P2,996bn and for GDP per head of P39,025(US$998) in 1999 conceal a wide disparity in wealth between different regions.The NCR accounts for one-third of the economy’s output and its GDP per headis close to three times the national average. Only two other regions—theCordillera Administrative Region and Northern Mindanao—recorded a level ofincome per head above the national average, whereas income per head in sixregions was only 50-60% of the national average and that of the fourautonomous provinces in Mindanao only about one-third. This reflects theconcentration of manufacturing activities in the Manila area. However, growthpoints have been developing in other regions, where industrial parks have beenthe focus for much investment, both domestic and foreign, in recent years.

Gross domestic product by region, 1999% of Per % of % real

Total national head national change,(P bn) total (P) average 1999/94

LuzonNational Capital Region 1,027.5 34.3 104,285 267.2 11.1Cordillera Administrative Region 70.6 2.4 48,446 124.1 24.7Ilocos 103.1 3.4 23,783 60.9 17.2Cagayan Valley 67.4 2.2 22,766 58.3 23.8Central Luzon 238.2 7.9 30,536 78.2 –South Tagalog 416.1 13.9 38,743 99.3 4.0Bicol 87.4 2.9 17,972 46.1 0.9

VisayasWestern Visayas 197.6 6.6 29,665 76.0 3.8Central Visayas 200.3 6.7 34,940 89.5 14.1Eastern Visayas 81.8 2.7 21,226 54.4 7.8

MindanaoWestern Mindanao 74.2 2.5 23,203 59.5 6.7Northern Mindanao 115.7 3.9 40,672 104.2 40.3Southern Mindanao 164.5 5.5 31,236 80.0 –5.4Central Mindanao 79.6 2.7 30,156 77.3 5.7Autonomous Region of Muslim Mindanao 30.8 1.0 13,559 34.7 10.5Caraga 41.2 1.4 17,981 46.1 n/a

The Philippines 2,996.4 100.0 39,025 100.0 7.0

Source: NSCB.

There are wide regionaldisparities in wealth

30 Philippines


Economic sectors

Agriculture, forestry and fishing

While agriculture ranks higher than manufacturing in terms of employmentand is a significant net earner of foreign exchange (owing to its low importcontent), its share of GDP has been diminishing steadily for decades because ofits poor rate of output growth.

Although the Philippines produces and exports a wide range of crops, many ofthem in significant quantities, agriculture is dominated by two crops—rice andcoconuts (see Reference table 14 for information on major crop production).Rice has the largest share of value added in this sector (21% in 1999), whilecoconuts (which usually rank equally with maize at around 6% of value added)are an important source of income for rural households. The two are cultivatedon around 3m-4m ha each (rice is mainly grown in typhoon-prone centralLuzon, while more than half of the coconut-growing area is in Mindanao). Inboth cases production is predominantly small-scale. Under favourable weatherconditions the Philippines has been self-sufficient in the food staple, rice, sincethe late 1970s, reflecting a switch to higher-yield strains. Whereas thePhilippines is occasionally a small importer of rice, it is at all times a leadingexporter of coconuts, accounting for nearly half of the world crop. In contrastto rice output, which has generally been rising in the past decade, output ofcoconuts was falling until 1995. This reflected the rapid ageing of trees andfelling for construction purposes, as logging of conventional forest wasrestricted. The government implemented a major replanting and rehabilitationprogramme with World Bank support, which began to pay off in 1995, whenoutput rose by 9%. However, typhoon damage in late 1995 resulted in a fall inoutput in 1996 and during much of 1997 (although the full-year figureincreased). The El Niño-induced drought caused the rice harvest to fall sharplyin 1998 (by 24%, to 8.56m tonnes), and had a lagged impact on coconutoutput, which fell by 44% in 1999 to 1.35m tonnes (in copra terms). Coconutsupply began its rebound in 2000, when the volume of exports of coconut oil(the major product) was estimated to have risen by 93%.

Major agricultural exports, 1999% of total

US$ m export earnings

Coconut oil 342 1.0

Desiccated coconut 89 0.3

Copra cake or meal 18 0.1

Bananas 241 0.7

Pineapples (canned) 82 0.2

Mangoes 32 0.1

Sugar 70 0.2

Total agricultural exports incl others 1,136 3.2

Source: National Statistical Co-ordination Board (NSCB).

Rice and coconuts

Philippines 31


Sugar, which was once a leading export crop and is still produced on largeplantations, is now of minor importance. This reflects both the long-termdecline in the preferential market in the US and a lengthy period of worldprice weakness, which prompted a switch to higher-value crops and fishfarming in the early and mid-1980s. In recent years the Philippines has had toimport sugar to meet its US quota. In the case of another traditional exportcrop, coffee, the rise in domestic demand has in most recent years eliminatedsupplies for export. Earnings from exports of both bananas and pineapplesrecorded rapid growth in the 1970s, reflecting investment by US companies,and have stabilised since. Mango exports recorded strong growth in the 1990s.

All livestock production is for domestic consumption. The Philippines is self-sufficient in pork and poultry production but needs to import beef and dairyproducts (see Reference table 15 for data on meat production).

One of the fundamental reasons for the failure of the Philippine economy totake off along with similar economies in East Asia lies in the distribution ofland—or rather the failure to redistribute land. As the rise in the area undercultivation has failed to keep pace with population growth, the average farmsize has fallen, to 2.6 ha in 1980, and the number of the landless has risen.Moreover, within this average size of landholding there is, as ever, a widedisparity: in 1988 around 86% of landowners held 23% of agricultural land,while 2% controlled 36% of the land. The result has been deep-rooted povertythat affects around half the rural population.

Since the first years of independence there have been attempts at land reform,which initially took the form of allocating virgin land for settlement as well aspartitioning some large estates. The scope for the former was soon exhausted. Aprogramme was introduced under the Marcos presidency to convert sharetenancies in land planted to rice or maize. Corazon Aquino initiated a muchmore extensive programme of redistribution, the Comprehensive AgrarianReform Programme, covering all agricultural land (above a retention limit of5 ha per landowner and 3 ha per direct heir) over a ten-year period. Thebeneficiaries were the farmers or “regular farm workers” on the land. About55% of existing agricultural land was covered. But there was a new exclusion:corporate landholdings were deemed to comply with the programme througha transfer of stock, rather than land, and so landowners could useincorporation as a means of avoiding the break-up of their estates.

The underlying problems remained the inadequacy of back-up services for anew generation of small, poor farmers and the absence of political will in theelite to transfer so fundamental an asset. Lawsuits and obstruction byentrenched interests have caused the programme to fall behind schedule. Byend-1999 a total of 4.94m ha had been redistributed; completion is not nowexpected before 2004.

Resource depletion has resulted in a continuous decline in forestryproduction since the early 1970s. (See Reference table 16 for data on outputof wood products.) The sector accounted for less than 0.5% of GDP in theearly 1990s, but as little as 0.001% in 1999, when total export earnings from

Minor crops

Land distribution: anunresolved problem

Forestry

32 Philippines


forestry products were only US$20m, compared with US$261m 11 yearsearlier. However, there is a high level of illegal logging, particularly in remoteareas of Mindanao.

Fishing is an important sector, contributing around three times as much asmining to GDP, employing 1.8m people (mostly at near-subsistence level) andproviding an important and growing source of foreign earnings. (See Referencetable 17 for data on fishing production.) However, while commercial fishingand fish farming have each risen by around one-tenth since 1994, sustenancefishing has been in overall decline, depressing output growth in this sector.This reflects the overfishing of inshore waters as the commercial fleetencroaches within this area. Since the fish taken from the coastal area arenormally the progeny of those caught further offshore, there are adverseimplications for commercial fishing. Meanwhile, the coral reef has sufferedserious damage from dynamiting and other destructive fishing practices.Moreover, there is no doubt that foreign fleets are depleting Philippine waters.

Mining and semi-processing

The Philippines is now a minor producer of copper, accounting for only 0.4%of world production in 1999 (much below its share in the preceding decade),and, partly as a by-product, gold (representing 0.8% of world production in1999). Both are traditional, but second-rank, exports. Other metallic mineralsproduced include silver, nickel and chromite (see Reference table 18 for data onminerals production). The sector has been in overall decline since the mid-1980s, with fairly wide year-to-year fluctuations, mainly because world priceshave not been high enough to cover the operating and financing costs of mostproducers. Moreover, crude oil production has been affected by the naturaldepletion of reserves and frequent shutdowns of wells for repairs andmaintenance. The sector currently accounts for 1% of GDP, and this share isunlikely to change much in the near future. High hopes were raised with thepassage of a mining law in 1995, which allows 100% foreign ownership (underthe terms of a financing and technical assistance agreement). However, fewsuch agreements had been finalised by early 2001, and they are prone tochallenge in the courts on environmental grounds.

Output of leading minerals, 1999(‘000 tonnes unless otherwise indicated)

Gold (tonnes) 6.7

Silver (tonnes) 18.8

Nickel (ores & concentrates) 20.7

Copper (ores & concentrates) 37.6

Chromite (refractory ore) 19.7a

a 1998.

Sources: World Bureau of Metal Statistics, World Metal Statistics Yearbook; NSCB.

Fishing

Philippines 33


Manufacturing

Manufacturing output, 1999(gross value added)

% changeyear on year % of total

Food manufacturing 5.8 33.8

Petroleum & coal –0.9 15.1

Electrical machinery 15.0 9.0

Chemicals & products –4.7 5.5

Clothing & footwear –15.0 4.4

Total value added in manufacturing incl others 1.4 100.0

Source: NSCB.

The manufacturing sector is the single most important production sector in theeconomy (Reference tables 19 and 20 give data on manufacturing output and thestructure of manufacturing industry). It developed rapidly during the 1950s and1960s essentially for import substitution, a process aided by high levels ofprotection for domestic industry. There was also marked growth in industriesassembling consumer goods, which were initially heavily dependent onimported components. In response to the second oil shock and the lessfavourable external environment, the government launched a programme inthe early 1980s to develop the intermediate and heavy industrial base. A coppersmelter, a coco-chemicals complex, a phosphate fertiliser plant and a low-rangediesel-engine factory were set up by groups with government participation, andthe cement industry was expanded. Nevertheless, the structure ofmanufacturing is still heavily weighted towards the production of consumergoods. It also remains oriented towards the domestic market despite thedevelopment since the 1970s of labour-intensive export manufacturing, inparticular of electronics and automotive parts.

The expansion of the manufacturing sector was stimulated by the floating ofthe currency in 1970, special tax incentives and duty exemptions, and thecreation of export-processing zones (EPZs) where companies were grantedadditional incentives. The first such zone was set up at Mariveles (in Bataan).Other zones have been developed at Mactan Island near Cebu city, at Baguio,north-east of Manila, and at Cavite, south of Manila. In addition, a total of 54special economic zones and industrial estates, mainly focusing on theelectronics and semiconductor industry, had been set up by the private sectorand were in operation by end-1998, in a surge of investment that began in1995. Two newcomers were the Subic Special Economic and Freeport Zone, atthe former US naval base along Subic Bay on the main island of Luzon, andClark, at the former air force base in the central Luzon province of Pampanga.

Detailed official statistics on manufacturing do not cover the importantcontribution of small enterprises. These are numerous and are an importantsource of employment. It is estimated that firms employing five or fewerpeople (classified as the informal sector) provide work for up to twice as manypeople as the formal sector.

34 Philippines


At end-1998 the private industrial estates and other special economic zoneswere still lagging behind the four government-run export-processing zones interms of employment (providing 100,791 jobs compared with 119,000).However, they were far ahead of them in export earnings, at US$8.54bncompared with US$4.73bn in 1998. This relative gap has been maintainedsince 1998 too. Against a background of positive expectations, investment inthe zones had been rising rapidly, from P65.3bn (US$2.5bn) in 1996 toP159.8bn in 1997. The ensuing regional crisis dampened investment in theeconomic zones in 1998 and 1999, and approvals reached only P36.7bn(excluding Subic and Clark) in the latter year. There was a strong recovery in2000 (in contrast to investments registered through the Board of Investments),to P73.2bn, and over the long term the prospect remains one of growth in thissector, as the Philippines benefits from the “hollowing out” of the economiesof Japan and Taiwan and attracts investment geared to cross-border productionwithin the Association of South-East Asian Nations.

Construction

Growth in the construction sector (see Reference table 21 for data on privateconstruction) was strong and accelerated during the mid-1990s, to averagenearly 10% per year in GDP terms in 1993-97, despite sluggish capital spendingby the government. The private sector was tapped to finance improvements inphysical infrastructure, which in the past would have depended on publicfunds. Meanwhile, sustained economic growth generated private-sectordemand in both residential and non-residential segments of the propertymarket, such as luxury apartment complexes, offices and shopping complexesin the National Capital Region (NCR) and in other growth centres. The sectorwent into decline in 1998, however, owing to the sharp rise in interest rates inthe wake of the regional financial crisis and the downturn in investmentspending. Construction GDP fell by 9.6% in that year, with the fall easing to1.6% in 1999 after the sustained fall in interest rates since mid-1998. In bothyears the private sector registered the steepest fall, at 13.5% in 1998 and 14.5%in 1999. The contraction in the sector deepened once more in 2000, whenconstruction sector output fell by 6%.

Financial services

The financial sector is undeveloped compared with that of other countries inthe region. (See Reference table 22 for banking and financial statistics.) The ratioof total assets of the banking system to GNP is the lowest in East Asia, andindividual commercial banks are small compared with those in other countries.In 1996, before countries in the region were hit by the economic crisis, thedepth of the Philippine financial system, as measured by the ratio of M2 to GNP,was low, at 51.8% compared with 101.1% in Malaysia and 81.5% in Thailand.

However, these statistics have been improving as the financial system hasdeveloped—in 1984 the M2/GNP ratio stood at only 20.9%. An importantstimulus to further real growth has come from the liberalisation of this sector:

The export-processing andspecial economic zones

Construction sector woescontinue

Philippines 35


the 44-year ban on the establishment of foreign banks was lifted in May 1994;full operating licences are being accorded to foreign insurance companies inline with commitments to the World Trade Organisation (WTO); andlegislation in 1997 eased restrictions on foreign investment in financecompanies and investment houses.

In late 1994 there were 38 commercial banks, of which only four werebranches of foreign banks (Citibank, Bank of America, Hongkong & ShanghaiBank and Standard Chartered). Two banks were wholly or partly government-owned, including the largest in terms of assets, the Philippine National Bank(PNB). Majority equity in PNB passed to the private sector in 1995, but thegovernment is having difficulty in disposing of its residual 13% equity, becauseits financial position is weak and its majority owner is Lucio Tan, a crony of theformer president, Joseph Estrada.

A more profound change has come with the entry of ten more foreign banks,which were granted licences in 1995. The new foreign banks are: Fuji Bank, theBank of Tokyo, ING Bank, ANZ Bank, the Development Bank of Singapore,Korea Exchange Bank, Bangkok Bank, the Commercial Bank of China,Deutsche Bank and Chemical Bank. Initially, these banks are concentrating onwholesale corporate services, but the entry of such large players is stimulatingmergers among domestic entities. The government has for some time beenencouraging the establishment of “unibanks”, which are allowed to engage inthe full range of financing activities and have a higher minimum paid-upcapital than normal commercial banks. Three major mergers occurred in 1999,the last one—which was finalised in early 2000—allowing two leading banks,the Bank of the Philippine Islands and Far East Bank and Trust, to take over thetop position in terms of assets from Metrobank. The consolidation process isbeing encouraged by the higher capitalisation demanded of all banks in thewake of the regional financial crisis. However, there is still some way to go; atend-1999 there were 51 domestic commercial banks, a number of them smalland family-controlled operations. The governor of the Bangko Sentral ngPilipinas (BSP, the central bank) is opposed to the entry of more fully-ownedforeign banks until the consolidation process has gone further.

The biggest investment house is the Private Development Corporation,followed by the Bank of the Philippine Islands Investment Corporation(formerly the Ayala Investment Corporation). The government-ownedDevelopment Bank of the Philippines is an important source of investment foragriculture and small- and medium-scale industry. In addition, there is anoffshore banking and foreign-currency deposit system. Offshore bankinglicences are available only to foreign banks, but all commercial banks arepermitted to operate foreign-currency deposit units (FCDUs).

The banking system

36 Philippines


Assets of the top ten commercial banks, 1999(P bn; year-end)

Metrobank 320

Equitable PCI Bank 255

Bank of the Philippine Islandsa 231

Philippine National Bank 202

Land Bank of the Philippinesb 199

Citibankc 185

Development Bank of the Philippinesb 138

Far East Bank & Trusta 137

Rizal Commercial Banking Corporation 125

United Coconut Planters’ Bank 119

a The Bank of the Philippine Islands and the Far East Bank & Trust merged in 2000 to form thelargest bank in the Philippines. b Government-owned. c Foreign.

Source: Press reports.

The Philippines Stock Exchange (PSE) received a double boost in the early andmid-1990s from the general international interest in emerging markets and theprogramme of investment liberalisation and privatisation. The marketcapitalisation of the stockmarket rose from only P353bn at end-1992 toP2.12trn (US$80.9bn) by end-1996. As in other stock exchanges in the region,however, the index fell sharply in 1997, by 41%, while market capitalisationwas reduced by nearly half to P1.25trn. A slight, and partial, recovery in thefirst quarter of 1998 proved short-lived, and this small market remained highlyvulnerable to persistent worries about the region (including the prospects forthe Japanese economy) and the nervousness about international equitymarkets. The PSE index consequently reached a seven-year low in September1998, at 1,082. It was subsequently buoyed up by the strengthening peso andthe steady decline in both domestic interest rates and inflation, to reach newhighs in June 1999, when it hit 2,487 at the end of the month. Butdeteriorating perceptions of the quality of the Estrada administration, whichwere not offset by the relative resilience of the economy in 2000, served topush down the index once more, to 1,495 at end-2000. The swearing in ofGloria Macapagal Arroyo as President on January 20th 2001 prompted a leap inthe index from below 1,450 to above 1,700. (See Reference table 23 for stockexchange indicators.)

Money laundering: a topical issue in 2001

The Senate hearings on the impeachment charges against the former president, JosephEstrada, and the evidence that came to light in subsequent weeks highlighted acharacteristic of the Philippine banking system which makes it highly permeable tomoney laundering operations—the Secrecy Law on Bank Deposits. This is regarded asthe tightest in the world. It prevents the disclosure by a bank of any details on individualdeposit accounts, other than in exceptional legal circumstances (an order from theombudsman can apparently elicit information, but not the tax authorities). It is widelyrecognised that the bank secrecy law in the Philippines has provided a cover for

The securities market

Philippines 37


operations by bank directors, officers and shareholders, and by bank customers that areat best merely opaque, and at worst criminal. The multiple covert accounts apparentlyheld by Mr Estrada, and which were allegedly used to channel illicitly obtained funds tocorporate and real estate acquisitions, are only the most high-profile incidence of afamiliar feature.

The IMF has for years been urging an amendment relaxing the bank secrecy law tofacilitate the identification of tax delinquents. This pressure was augmented in July 2000when the Financial Advisory Task Force of the Group of Seven listed the Philippinesamong the 15 countries characterised as “non-co-operative” in anti-money-launderingefforts. The Philippines was the only Asian country on the list. Subsequently the USrepresentative on the IMF executive board abstained in the vote approving thePhilippines’ review under the stand-by programme, “insisting” that money launderingbe an issue on which the government’s progress on economic reform be judged.

The BSP responded to this pressure by issuing a circular in August 2000 requiring banksto report all outward and inward remittances of funds “without visible lawful purpose orunderlying trade transactions”, “unusually large” transactions and “unusual transactionpatterns”, and funds held as deposit substitutes if there are “reasonable grounds” tosuspect that they are the proceeds of criminal activities. But all these reports were to bemade without violating any existing laws—so deposits were still shielded by the banksecrecy law. One useful step forward, however, was the central bank’s requirement thatbanks keep records that identified the beneficial holders of numbered accounts(although that still apparently permitted the use of aliases by Mr Estrada).

The response of legislators has been limited. In February 2001 just days before Congressadjourned, a measure was voted through requiring the identification of non-Filipinoholders of accounts in the foreign-currency deposit units of local banks. But Congresshad not yet approved the Revised Central Bank Act which contained a clause giving theBSP powers to examine deposit accounts above P50m “under exceptionalcircumstances”. But there is undoubtedly a trend towards greater transparency, which isessential to make banking regulation meaningful and prevent insider abuse—this isanother characteristic of the Philippine financial system and one that the World Bankrecently described as a major cause of bank failures in the country. In the post-Estradaenvironment, with a new administration that has cited the creation of transparentgovernance as its core objective, the financial sector will be a prime target for reform.

Other services

The financial crisis that set in from mid-1997 and the knock-on effect ondomestic demand led to a slowdown in the rate of growth of value added inretail trade from 12.7% (real terms) in 1996 to a low of 3.6% in 1998. A modestimprovement appeared in 1999, with value added increasing by 4.1%. Thisgrowth seems to have been maintained in 2000. The bulk of retail trade is stillsmall-scale, much of it in the informal sector. Around one half of the 418,000retailers (1991 estimate) are single proprietorships: market vendors accountedfor 13% of the total, and family neighbourhood stores for just over one-third.However, over the past two decades there has been a growing trend towardslarge shopping complexes, many of them in the vicinity of Manila and geared

The retail sector

38 Philippines


towards the higher incomes in this region. The trend will be reinforced onceforeign investor confidence revives and a number of large foreign retailersrespond to the legislation enacted in early 2000 to open up this previouslyclosed sector.

Tourism is of great importance to the Philippines. Earnings as recorded in thebalance of payments reached a peak of US$2.34bn in 1997, equivalent to justunder one-tenth of receipts from merchandise exports. (See Reference table 24for data on visitor arrivals by country of residence.) Visitors arrivals reached arecord of 2.22m in 1997. The US and Japan are the leading sources of foreignvisitors, the former accounting for 19-20% and the latter for 17-18% of totalarrivals during 1993-97, but the most dynamic growth during this period wasin visitors from South Korea and Taiwan, boosted by developing investmentlinks. The economic crisis in the region in 1997-98 hit the latter group hard,and the rate of growth of visitor arrivals therefore slackened from late 1997. Bymid-1998 numbers were in decline. For 1998 as a whole, visitor arrivals weredown by 3.3% compared with 1997; if Filipinos on home visits are excluded,the fall was 5.5%. Tourist earnings fell much more sharply, by two-fifths, toUS$1.42bn. There were signs of a modest recovery in numbers in the course of1999 and a marked improvement in earnings, which rose by 80% to US$2.6bn.Tourism has considerable untapped potential.

The external sector

Trade in goods

Foreign trade, 2000(US$ m)

Exports 38,078

Imports –31,387

Trade balance 6,691

Source: Bangko Sentral ng Pilipinas (BSP).

Until the regional crisis of 1997-98, external trade had been in constant deficit,reflecting the high dependence on the foreign supply of both capital goods andintermediates (including oil). (Export and import data are provided inReference tables 25, 26 and 27.) The imbalance has always been extremelysensitive to trends in GDP. Thus it rose from an average of US$3bn-4bn in theearly 1990s to over US$11bn a year in the peak growth period of 1996-97; thedeficit was then equivalent to around 13% of GDP and exports covered onlyabout two-thirds of imports. As the economy contracted in 1998 importdemand plummeted, falling by 19% in US dollar terms and virtuallyeliminating the trade deficit, which stood at just US$28m. The pick-up in theeconomy in 1999 began to push up import spending from the second quarter,with the result that imports over the full year were up by 4.1%. Exports,however, maintained stronger growth, at 18.8%, helping to create anunprecedented surplus of US$4.3bn on merchandise trade in 1999. While the

Tourism

A volatile trade balance

Philippines 39


rate of export growth halved in 2000, the still slow growth in imports (3.9%,calculated on a new basis) meant that the surplus on merchandise trade roseonce more to nearly US$7bn.

Merchandise trade(US$ m; fob)

% change1998 1999 1999/98

Exports 29,496 35,037 18.8 of which: manufactures 25,843 31,305 21.1 of which: electrical/electronic equipment & components 17,137 21,165 23.5 machinery & transport equipment 3,316 4,950 49.3 garments 2,356 2,267 –3.8 agricultural & fishery products 1,843 1,468 –20.4 mineral products 592 645 9.0

Imports –29,524 –30,742 4.1 of which: raw materials & intermediate goods of which: semi-processed raw materials 10,416 11,083 6.4 of which: materials for the manufacture of electrical equipment 4,634 4,708 1.6 unprocessed raw materials 1,168 1,518 30.0 capital goods 12,051 11,827 –1.9 consumer goods 2,623 2,642 0.7 mineral fuels & lubricants 2,020 2,433 19.8

Balance –28 4,296 –

Source: BSP.

The turnaround in the trade balance in 1998-99 was the result not only of theweakness of import demand. The maintenance of double-digit export growthwas the other side of the coin. Trends in foreign demand had been positive forthe Philippines throughout the 1990s, reflecting the dependence on the USmarket and its competitiveness in a range of manufactures, above allelectronics. In 1999 these accounted for 60% of all export receipts; the US$4bnincrease they registered in that year accounted for three-quarters of the overallrise in export earnings. In 1986 the same category had brought in less than 19%of the total, and in 1976 just 3%. But 2000 saw a marked slowing in the growthin demand for Philippine electronics. This was the result of two unusual features in1999. First, earthquake damage in Taiwan in September prompted a surge indemand for electronics from other suppliers, allowing the Philippines to benefitwith a 46% rise in the value of its electronics exports year on year in September-October. Second, demand and prices were pushed up in late 1999 as firms andindividuals prepared to avoid the so-called Y2K millennium bug. The first monthsof 2000, by contrast, saw a softening in prices for semiconductors (which accountfor over half of Philippine electronics sales). Over the whole year electronicsearnings consequently rose by only 4.4%, whereas in 1997-99 growth hadaveraged 28% per year. It was the sluggishness of electronics—formerly the starperformer—which held export growth down in 2000. Other exports registered arise in dollar earnings of 15.5%.

Growing dependence onelectronics exports

40 Philippines


Main trading partners(% of total)

Exports to: 1998 1999 Imports from: 1998 1999

US 34.2 29.8 US 21.8 20.7

EU 20.3 20.2 Japan 20.4 20.0

ASEAN 12.9 14.0 ASEAN 15.1 13.8

Japan 14.3 13.3 EU 9.0 8.9

Taiwan 6.0 8.5 South Korea 7.4 8.9

Netherlands 7.9 8.2 Singapore 5.9 5.7

Source: BSP.

Regional trade liberalisation makes slow progress

Although the Philippines has been lowering its overall trade barriers—both tariff andnon-tariff—since the early 1980s as part of its policy pledges to the IMF and theGATT/World Trade Organisation (WTO), it had earlier begun a process of tradeliberalisation within the region.

From the beginning of 1978 a mutual preferential trading agreement with othermembers of the Association of South-East Asian Nations (ASEAN) came into effect,covering specified goods including rice, sugar, crude oil, cement and chemicals. Around19,000 items are now covered, on which a 50% discount on import tariffs is granted. Inaddition, in 1992 the countries agreed to a tariff-reduction schedule leading to thesetting up of a free-trade area (the ASEAN free-trade area, or AFTA) within 15 years, witha ceiling of 20% for tariffs on manufactured and processed goods within five to eightyears, and 5% by the end of the 15-year period. An accelerated programme, reducingthe schedule to seven years, was agreed for 15 priority products. In 1993 the 15-yearperiod was shortened to ten years, with tariffs then below 20% falling to 5% by 2000,and those over 20% scheduled to reach this level by 2003. For some goods the 0-5%rate was to be implemented by 1998. Tariffs within ASEAN would thus fall to an averageof 2.6% by 2003, from 13.4% in 1994. The goods excluded from the AFTA liberalisationwere to be reduced in number, so that the programme’s coverage of intra-ASEAN tradewould rise from 85% to nearly 100%.

This schedule fell victim to the regional financial crisis of 1997/98 when economicgrowth in ASEAN braked sharply, generating protectionist pressures to varying degrees.Consequently it was agreed, in late 2000, to relax the tariff-cutting schedule. Memberstates were permitted to keep products on the temporary exclusion list longer.

Exports remain highly concentrated on the US market (around 35% for mostof the 1990s), with the EU and Japan (each in the 15-20% range) alsosignificant trading partners. Import sourcing is more evenly spread betweenthe US and Japan, with the share of the latter underpinned by its dominance asa provider of aid funds and its investment in manufacturing in the Philippines.(For information on main trading partners see Reference table 28.) A growinginvestment presence has also pushed South Korea up the table of importsources in the last decade. But the most notable diversification has been thattowards trade with the Philippines’ partners in ASEAN, which moved ahead of

A modest diversification intrading partners

Philippines 41


Japan as an export market in 1999. Around half of Philippine exports to ASEANgo to Singapore.

Direction and composition of trade, 1999(US$ m)

Exports fob US Japan Taiwan Netherlands Total

Fish 68 139 6 1 288Fruit & vegetables & preparations 129 227 27 12 594Sugar & preparations 63 1 1 0 89Ores, slag & ash 0 129 0 0 191Mineral fuels 9 51 5 0 265Coconut oil 168 23 3 98 342Chemicalsa 53 71 20 5 390Wood & manufactures 32 80 6 2 159Textile fibres, yarn, cloth & manufactures 105 33 21 1 285Precious stones & metals 11 15 0 1 220Copper & manufacturesb 0 59 5 0 318Machinery 6,314 3,299 2,798 2,633 26,585Transport equipment 99 150 26 2 620 of which: road vehicles 66 100 26 2 504Furniture 232 45 2 12 396Clothing 1,710 81 6 34 2,218Scientific instruments, etc 163 44 6 1 350Total incl others 9,736 4,660 2,993 2,865 35,037

Imports cif US Japan South Korea Singapore Total

Food, beverages & tobacco 598 11 25 66 2,236 of which: cereals & preparations 284 4 5 9 785Ores, slag & ash 0 0 0 0 382Mineral fuels 9 20 24 116 2,440Chemicalsa 377 306 215 286 2,780Paper, etc & manufactures 87 28 26 12 347Textile fibres, yarn, cloth & manufactures 75 98 200 10 1,326Iron & steel & manufacturesb 33 270 112 25 1,141Other metals & manufacturesb 18 86 90 31 522Machinery 4,666 4,319 1,871 1,066 16,358Transport equipment 89 514 60 10 988 of which: road vehicles 53 502 59 6 814Scientific instruments, etc 112 247 7 46 640Total incl others 6,361 6,136 2,723 1,742 30,742

a Including crude fertilisers and manufactures of plastics. b Including scrap.

Source: Global Trade Information Services, World Trade Atlas; Philippines National Statistics Office.

Invisibles and the current account

In contrast to trade in goods, the balance on invisibles has always been insurplus. Historically, this has not normally been enough to push the current-account balance into the black, but when the merchandise trade balance isnear zero or in surplus, as it has been since 1998, the consequence is a sizeablesurplus on the current account. (See Reference table 29 for the IMF series of

A structural surplus

42 Philippines


balance-of-payments data and Reference table 30 for the national series.) Thesurplus on invisibles can be attributed in large part to one item—remittancesfrom overseas workers (which appear in the payments account as a servicesexport rather than an unrequited transfer). In 1997-99 these averagedUS$5.8bn a year, equivalent to one-fifth of merchandise export earnings and7-8% of GDP. Moreover, it is generally agreed that the official figures, which arederived from formal banking transactions, greatly understate the actual inflowof funds.

There is another large positive item on the invisibles account that is peculiar tothe Philippines—inflows through the conversion to pesos of foreign-currencydeposits. These are balances held by emigrant Filipinos for the purpose ofinvestment by their families in the Philippines, and by exporters. They havetended to show wide fluctuations since, under the liberalised foreign-exchangesystem in place since 1992, deposit holders could time the currency conversionto respond to movements, actual or expected, in the peso’s value or the yieldon peso assets. In 1995-98 the conversions averaged around US$5bn a year,with a high of US$6bn in 1997. The category was a rather hybrid one, andfrom 1998 has no longer been used in Philippine payments statistics.

Most other inflows on the invisibles account pale into insignificance againstthese, although tourism makes a useful contribution, at US$2.6bn in 1999. Byfar the most important outflow on invisibles is interest, arising from thePhilippines’ substantial and continually rising stock of external borrowing.Interest payments have, however, tended to stabilise since the mid-1990s,partly because of debt rescheduling and restructuring agreements.

Current account(US$ m)

1999 2000

Merchandise exports fob 34,210 37,295

Merchandise imports fob –29,252 –30,380

Trade balance 4,958 6,915

Exports of services 4,802 4,178

Imports of services –7,515 –6,084

Net transfers 494 403

Current-account balance 7,647 9,349

Note: From 2000 Philippine balance-of-payments statistics have used new definitions. The data for1999 in this table are calculated under the new definitions and vary from those presented under theold definitions in Reference table 30.

Source: BSP.

Transfers other than workers’ remittances make a minor positive contributionto the invisibles account, but the official component has changed little in mostrecent years as the Philippines’ middle-income status renders it ineligible formuch in the way of grant funding.

Philippines 43


Capital flows and foreign debt

The Philippines’ large current-account financing requirement in the past hastraditionally been met mainly by borrowing, from both official and privatesources, and aid (see Reference tables 32 and 33). Foreign debt, according toWorld Bank statistics, rose from US$24.4bn at end-1984 to US$52bn atend-1999. For most of this period the maturity profile of the debt was shiftingaway from short-term debt, share of which fell from an average of 37.6% of thetotal in 1983-85 to an average of 13.7% in 1994-95. This reflected the majorfunding support given to the administration of President Corazon Aquino bymultilateral lending institutions and bilateral official creditors. As a result,official creditors accounted for 59% of total external debt at end-1995,compared with 26% in 1985. The trend towards greater long-term debt wasinterrupted in 1996-97 by an increase in short-term debt mainly to financetrade. With the onset of the regional financial crisis in mid-1997 and intandem with falling imports, short-term trade debt eased down. At end-1999short-term liabilities represented 11% of total external indebtedness, downfrom 25.8% at the end-1997, according to World Bank data.

There has been a marked change in the character of long-term borrowing fromprivate sources, which is now overwhelmingly in the form of bonds, ratherthan commercial bank loans. This change reflects the improved credit rating ofcorporate entities and the debt-restructuring agreement of 1992, under whichUS$1.3bn in commercial bank debt was bought back and another US$3.3bnconverted into long-term bonds.

Summary of foreign debt, 1999(end-period)

US$ m % of total

Medium- & long-term debt 44,454 85.5 Public & publicly guaranteed 33,568 64.5 Official creditors 21,406 41.1 Private creditors 12,162 23.4 of which: bonds 9,693 18.6 Private non-guaranteed 10,886 20.9

Use of IMF credit 1,822 3.5

Short-term debt 5,745 11.0

Total external debt 52,022 100.0

Source: World Bank, Global Development Finance.

A long-term fall in short-term liabilities

44 Philippines


Key regulations for foreign investment

Basic constitutional guarantees• Freedom from expropriation without just compensation.

• Right to remit profits, capital gains and dividends.

• Right to repatriate proceeds of liquidation of investment.

Foreign Investment Act 1991 (revised in March 1996)A total of 100% equity permitted in export enterprises and in domestic-orientedenterprises not on two negative lists, as follows.

Negative list A (limited by the constitution or specific laws)• No foreign equity is allowed in mass media, licensed professions, retail tradeco-operatives, private security agencies, small-scale mining, fisheries, rice and maizefarming; 25% equity limit for recruitment agencies and locally funded public worksprojects.

• 30% equity limit for advertising.

• 40% equity limit for natural resource development and utilisation, land ownership,public utilities, educational institutions, financing companies and construction.

Negative list B• A 40% equity limit for explosives, munitions, armaments, dangerous drugs, massageclinics, gambling, domestic market enterprises with capital below US$500,000; andsmall-scale export enterprises depleting natural resources.

Amendment to Republic Act 7652, 1993Extends maximum term on land lease to foreign investors from 50 to 75 years.

Since 1997 there has been a steady deterioration in the capital-accountbalance, which fell to a deficit of US$1.8bn in 1999 compared with a surplus ofUS$11.1bn recorded as recently as 1996. In 2000 a capital-account deficit wassufficient to wipe out nearly three-quarters of the substantial surplus on thecurrent account. Initially the deterioration was owing to a turnaround inportfolio investment, with net flows moving from a surplus of US$2.18bn in1996 to a deficit of US$351m in 1997, reflecting a steep rise in withdrawals bynon-residents as their placements levelled off. A surplus was re-established in1998 through to early 2000, but there were signs of a move back into deficit inthe second half of 2000 as the political crisis deepened. Net direct investmentmeanwhile had stagnated overall. In this situation, dependence on foreignborrowing rose once more, with net inflows reaching US$4.7bn in 1999.

The capital account movesinto the red

Philippines 45


Capital and financial account(US$ m; national figures)

1999 2000

Net direct investment 1,427 1,584

Net portfolio investment 6,270 45

Net other investments –9,505 –8,501

Capital-account balance –8 26

Capital- and financial-account balance –1,816 –6,846

Note. From 2000 Philippine balance-of-payments statistics use new definitions. The data for 1999 inthis table are calculated under the new definitions and vary from those presented under the olddefinitions in Reference table 30.

Source: BSP.

Foreign reserves and the exchange rate

Foreign-exchange reserves rose during 1991-96, as comparatively high interestrates, an appreciating currency (between 1993 and 1995) and foreign-exchangeliberalisation (in August 1992) pushed up capital inflows to more thancompensate for the current-account deficit. In the first half of 1997 they werehovering around the US$10bn mark (excluding gold). The currency andfinancial crisis that set in during July 1997 hit foreign reserves hard. Initialattempts by the BSP to defend the peso pulled reserves down to US$8.3bn inthe same month, and persistent pressure to meet repayment obligations meantthat, despite concessional funds from the IMF and Japan and the BSP’s sale ofone-year notes, by end-1997 foreign-exchange reserves were down to US$7.3bn(according to IMF figures). They subsequently recovered strongly, despite thedeterioration in capital payments in 1998, because of the rising surplus on thecurrent account. They reached a new record of US$14.7bn in March 2000 after abond issue by the government, but were easing down in most following months intandem with the deterioration in the external-payments balance and some centralbank support for the peso in the crisis month of October 2000. At year-end totalreserves (excluding gold) were put at US$13bn by the IMF; the central bankestimate including gold was US$15.1bn (see Reference table 34 for data onforeign reserves).

Foreign reserves, Dec 2000(US$ m; end-period)

Foreign exchange 12,938

SDRs 2

Reserve position with the IMF 113

Total reserves excl gold 13,054

Source: IMF, International Financial Statistics.

Despite a fundamental payments disequilibrium, the peso’s link to the USdollar meant that the nominal exchange rate remained remarkably stable from1991 through to mid-1997. As there were large inflation differentials with itsmajor trading partners, this represented a substantial real appreciation on thepart of the peso. The regional financial crisis of 1997 produced a radical

46 Philippines


correction. After the peso was floated in July 1997, it depreciated by 34%against the dollar within six months, ending the year at P39.98:US$1. Thecurrency then hovered around this level for most of 1998, with a gradualstrengthening in the final months that continued through to mid-1999.Paradoxically, while the current account was registering a persistent and risingsurplus, the peso then entered a period of weakness. Initially this stemmedfrom the rise in the US federal funds rates while Philippine interest rates heldsteady, which sapped demand for peso-denominated assets. But from thebeginning of 2000 political factors came into play, culminating in Octoberwhen the corruption allegations against the president caused a drop ofone-tenth in the peso’s value within the month, to P51.43:US$1. This broughtthe depreciation since the beginning of 2000 to 24%. The peso then brieflystabilised, but with sharp daily fluctuations in response to every turn in theimpeachment proceedings. By year-end it had strengthened slightly, toP46.94:US$1 because of reasonably strong economic fundamentals. The rollercoaster ride continued until January 2001. The peso entered a new period ofrelative stability once Ms Macapagal Arroyo took over the presidency (seeReference table 35 for data on exchange rates).

Average exchange rate against major trading partner currencies, 2000(P per unit of currency; period average)

US$ 44.192

¥100 41.001

€ 40.715

S$ 25.633

HK$ 5.672

Sources: IMF; BSP.

Philippines 47


Appendices

Regional organisations

The Association of South-East Asian Nations was established in 1967.The five original members were Indonesia, Malaysia, the Philippines, Singaporeand Thailand. Subsequent joiners were Brunei (1984), Vietnam (1995), Laosand Myanmar (1997) and, most recently, Cambodia (1999).

ASEAN summit meetings, which bring together the heads of government ofmember states, must now be held every three years. The most recent was inBrunei in 2001. Informal summits of heads of governments are also held. Inaddition, members’ foreign and economic affairs ministers meet once a year.Joint meetings of foreign and economic affairs ministers are held before eachASEAN summit. There is also a Standing Committee (consisting of themembers’ accredited ambassadors to the host country), which usually meetsevery two months. There is a permanent secretariat, based in Jakarta, and anumber of committees.

The organisation started with some grand objectives, but has generally failed todeliver. Early hopes that ASEAN could engineer a regional economicdevelopment strategy—with particular countries concentrating on particularindustries—were soon dashed. In 1977 the Basic Agreement on theEstablishment of ASEAN Preferential Tariffs was concluded, but a decade lateronly about 5% of trade between members was covered by this system.(Members had been permitted to exclude “sensitive” sectors, a let-out clausethat a subsequent agreement in 1987 only slightly curtailed.)

Plans for a proper ASEAN Free-Trade Area (AFTA) were unveiled in 1992,with the aim of achieving this by 2008. A common effective preferential tariff(CEPT) scheme was applied in 1993, providing for the gradual reduction oftariffs on intra-ASEAN trade in certain goods over a number of years. Again,however, member states could exclude “sensitive” items, limiting progress. Anew AFTA programme, with a wider spread of products covered, was launchedin 1994. During the mid-1990s the timescale for implementing the programmewas steadily tightened, with the aim being to reduce tariffs on most goods tobelow 5% by 2000, with a full AFTA achieved by 2003. (Recent joiners havebeen allowed more time.)

The 1997-98 regional financial crisis exposed ASEAN’s failings in a brutalfashion. The organisation was unable to stop the regional currencydevaluations, or alleviate the subsequent economic hardship. A Statement onBold Measures, released at end-1998, was exactly the opposite of what the titleimplied. Unfolding events in Indonesia then moved the focus on to theorganisation’s security plans. ASEAN members’ commitment to the principle ofnon-interference in the internal affairs of other members complicated theresponse to East Timor. (Some members did eventually participate in themultinational force, but not under ASEAN auspices.)

Association of South-EastAsian Nations (ASEAN)

48 Philippines


On the economic front, ASEAN’s slow progress towards AFTA has encouragedone of its members, Singapore, to opt instead for bilateral trade pacts.Singapore’s bilateral trade agreement with New Zealand in 2000 promptedprotests from other ASEAN members, but the island state is pursuing similaragreements with other countries, including the US. (It is unlikely that thisapproach will prove universally applicable, as the absence of an agriculturalsector in Singapore makes it much easier for it to negotiate with tradingpartners with heavily protected primary sectors.) A decision in 2001 by variousASEAN members to set up bilateral currency-swap arrangements to protectagainst currency volatility is limited in scope, and does not presage furtherASEAN economic collaboration.

The organisation’s political hopes could be severely tested in the next fewyears. Changing governments in member countries could undermine anyremaining pretence about political consensus in the region. On the securityfront, the ASEAN Regional Forums (ARFs—which bring together theASEAN ministers of foreign affairs with those of other countries, notablyChina) are likely to remain just talking shops, with little impact on changinggeopolitical trends.

Sources of information

Bangko Sentral ng Pilipinas (BSP), Selected Philippine Economic Indicators, Manila

National Statistical Co-ordination Board (NSCB), Philippines Statistical Yearbook,Manila

National Statistics Office (NSO), Monthly Bulletin of Statistics, Manila

Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner,Middlesex HA5 5PJ

Bank for International Settlements, International Banking and Financial MarketDevelopments (quarterly)

Food and Agriculture Organisation, Quarterly Bulletin of Statistics, Rome

IMF, International Financial Statistics (monthly)

International Finance Corporation, Emerging Stockmarkets Factbook (annual)

International Institute for Strategic Studies, The Military Balance (annual),London

OECD, Geographical Distribution of Financial Flows to Aid Recipients (annual)

World Bank, Global Development Finance (annual)

World Bank, World Development Report (annual)

World Bureau of Metal Statistics, World Metal Statistics Yearbook

John Bresnan (ed), Crisis in the Philippines: The Marcos Era and Beyond, PrincetonUniversity Press, Princeton, 1987

National statistical sources

International statisticalsources

Select bibliography

Philippines 49


Department of Energy, Philippines Energy Plan 1994-2010, Manila, 1997

Roland E Dolan (ed), The Philippines: A Country Study, Federal ResearchDivision, Library of Congress, Washington, 1993

E Gutierrez, I Torrente and N Narza, All in the Family: A Study of Elites and PowerRelations in the Philippines, Institute for People’s Democracy, Quezon City, 1992

Erika Jorgensen, A Strategy to Fight Poverty, World Bank, Washington, 1996

James Putzel, A Captive Land, Catholic Institute for International Relations,London, 1992

Reference tables

These tables provide the most up-to-date statistics available at the date of publication.

Reference table 1

Population(‘000; censual year, May; % average annual change since last census in brackets)

1970 1980 1990 1995a 2000b

Total 36,685 48,098 60,703c 68,617c 75,345(3.08) (2.71) (2.35) (2.32) (2.02)

By island groupLuzon 19,688 26,081 33,339 38,248 42,521 of which: National Capital Region 3,967 5,926 7,928 9,454 10,492Visayas 9,032 11,113 13,040 14,159 15,140Mindanao 7,964 10,906 14,298 16,207 17,684

By residenceUrban 12,106 18,009 29,442 n/a n/aRural 24,579 30,089 31,256 n/a n/a

a September. b Preliminary. c Figures do not sum in source.

Sources: National Statistics Office (NSO), Philippines Yearbook; National Statistical Co-ordination Board (NSCB), Philippines StatisticalYearbook.

Reference table 2

Labour force(‘000 unless otherwise indicated; Oct)

1995 1996 1997 1998 1999

Labour force 28,040 29,637 30,265 31,278 32,000

No. employed 25,698 27,442 27,888 28,262 29,003 of which: underemployed 5,083 5,326 5,805 6,695 6,410 % of employed 19.8 19.4 20.8 23.7 22.1

No. unemployed 2,342 2,195 2,377 3,016 2,997 % of labour force 8.4 7.4 7.9 9.6 9.4

Source: NSCB.

50 Philippines


Reference table 3

Structure of employment(‘000; Oct)

1995 1996 1997 1998 1999

Agriculture, forestry & fishing 11,324 11,451 11,260 11,272 11,342

Mining 95 115 124 104 89

Manufacturing 2,571 2,756 2,755 2,687 2,778

Construction 1,238 1,573 1,641 1,511 1,506

Electricity, gas & water 103 123 139 140 145

Commerce 3,745 4,062 4,219 4,328 4,619

Transport 1,490 1,657 1,769 1,885 2,009

Finance, insurance, etc 551 681 680 695 716

Government, community, social & personal services 4,559 5,019 5,296 5,631 5,789

Total incl others 25,696 27,442 27,888 28,262 29,003

Source: NSCB.

Reference table 4

Transport statistics

1995 1996 1997 1998 1999

VehiclesMotor vehicles registered (‘000) 2,581 2,905 3,194 3,317 3,534 of which: private cars 582 642 667 667 689

RailPhilippine National Railways Passengers (‘000) 589 300 614 578 541 Freight (‘000 tonnes) 14.1 n/a n/a n/a n/aMetro Manila Rail Commuter passengers (‘000) 4,055 3,007 3,077 4,702 5,015

PortsTotal cargo handled (m tonnes) 127.3 140.1 145.1 137.9 n/aDomestic shipping fleet (‘000 grt) 1,646 1,095 1,596 1,866 n/a of which: cargo & container ships 566 451 441 544 n/a

AirPhilippine Airlines Passenger-km (m) 14,372 15,132 15,735 9,428 10,374 Tonne-km (m) 1,798 1,893 1,972 1,210 1,332

Source: NSCB.

Reference table 5

Energy consumption by source(m barrels oil equivalent)

1995 1996 1997 1998 1999

Indigenous 92.24 97.12 97.12 97.93 106.17 Oil 0.03 0.45 0.16 0.27 0.17 Coal 6.09 5.06 4.05 4.84 3.97 Hydroelectricity 10.71 12.17 10.46 8.77 13.50 Geothermal 10.58 11.30 12.48 15.36 18.28 Non-conventional (bagasse, etc) 64.83 68.14 69.95 68.65 70.22

Imported 117.51 125.74 144.61 142.12 137.83 Oil 113.98 117.40 132.76 128.93 122.46 Coal 3.53 8.34 11.85 13.19 15.35

Total 209.75 222.86 241.73 240.05 244.00

Source: NSCB.

Philippines 51


Reference table 6

Trend of government revenue and expenditure(P bn unless otherwise indicated; cash operations)

1996 1997 1998 1999 2000

Revenue 410.5 471.8 462.5 478.5 505.7 of which: tax 367.9 412.2 416.6 431.7 451.7

Expenditure 404.2 470.3 512.5 590.2 641.8 of which: current 319.1 419.4 467.9 524.2 n/a of which: interest 76.5 78.0 99.8 106.3 140.9 capital 42.2 47.9 43.5 61.2 n/a

Balance 6.3 1.6 –50.0 –111.7 –136.1 % of GDP 0.3 0.1 –1.8 –3.7 –4.1

FinancingDomestic borrowing (net) 49.3 –20.3 76.6 98.9 n/aForeign borrowing (net) –6.0 –6.8 12.3 82.8 n/aNon-budgetary accounts, use of cash balances & miscellaneous –49.6 25.5 38.9 70.0 n/a

Memorandum itemConsolidated public-sector balance 7.3 –24.1 –83.2 –102.8 n/a

Sources: NSCB, Economic Indicators; Bangko Sentral ng Pilipinas (BSP), Selected Philippine Economic Indicators.

Reference table 7

Outstanding internal public debt(P bn; end-period)

1995 1996 1997 1998 1999

National government 669.9 714.2 716.5 799.7 939.5

Government corporations 7.3 6.9 9.1 11.5 24.6

Total incl others 677.9 721.3 725.7 811.2 964.1

Source: NSCB, Philippines Statistical Yearbook.

Reference table 8

Money supply and credit(P bn unless otherwise indicated; end-period)

1995 1996 1997 1998 1999

Currency in circulation 110.89 122.95 143.64 146.06 218.47

Demand deposits 72.04 96.41 111.92 134.09 172.87

M1 incl others 194.63 233.12 266.33 285.95 395.56 % change, year on year 21.7 19.8 14.2 7.4 38.3

Time, saving & foreign-currency deposits 765.20 949.71 1,225.32 1,332.79 1,483.42

M2 959.83 1,182.83 1,491.65 1,618.74 1,878.98 % change, year on year 24.2 23.2 26.1 8.5 16.0

Domestic credit 1,036.60 1,475.20 1,925.61 1,868.45 1,911.82Claims on central & local

government (net) 271.11 326.43 442.27 412.95 451.94

Claims on non-financial public enterprises 16.80 18.19 28.63 44.82 65.44Claims on private sector 715.34 1,063.80 1,370.08 1,279.19 1,249.59Claims on other financial institutions 33.35 66.73 84.63 131.49 144.86

Net foreign assets 117.90 70.24 –48.93 92.51 278.29


52 Philippines


Reference table 9

Interest rates(% annual rate; period averages)

1996 1997 1998 1999 2000

Manila reference ratea 11.8 13.1 15.4 10.4 9.4

91-day Treasury bills 12.4 13.1 15.3 10.2 9.9

Bank average lending rate 14.8 16.2 18.4 11.8 10.9

a All maturities.

Source: BSP, Selected Philippine Economic Indicators.

Reference table 10

Gross domestic product

1996 1997 1998 1999 2000

Total (P bn)At current prices 2,171.9 2,426.7 2,678.2 2,996.4 3,322.6At constant (1985) prices 849.1 893.2 887.9 917.4 953.6 % change, year on year 5.8 5.2 –0.6 3.3 3.9

Per head (P)At current prices 30,208 33,003 35,633 39,025 42,369At constant (1985) prices 11,810 12,147 11,814 11,948 12,160 % change, year on year 3.3 2.9 –2.7 1.1 1.8

Sources: NSCB, National Accounts of the Philippines; EIU.

Reference table 11

Gross domestic product by expenditure(P m at constant 1985 prices; % change year on year in brackets)

1996 1997 1998 1999 2000

Private consumption 651,790 684,316 707,904 726,578 751,926(4.6) (5.0) (3.4) (2.6) (3.5)

Government consumption 68,527 71,703 70,305 74,065 74,187(4.3) (4.6) (–1.9) (5.3) (0.2)

Fixed capital formation 206,854 230,589 204,829 200,698 197,498(12.0) (11.5) (–11.2) (–2.0) (–1.6)

Change in stocks 3,586 4,463 –8,035 –7,279 –2,610

Exports of goods & services 397,201 465,322 367,447 380,755 443,175(15.4) (17.2) (–21.0) (3.6) (16.4)

Imports of goods & services 500,194 567,672 484,235 470,673 481,755(16.7) (13.5) (–14.7) (–2.8) (2.4)

GDPa 849,121 893,151 887,905 917,382 953,582(5.8) (5.2) (–0.6) (3.3) (3.9)

Net factor income from abroad 35,105 37,507 46,481 51,174 55,769(57.4) (6.8) (24.0) (10.1) (9.0)

GNP 884,226 930,658 934,386 968,556 1,009,351(7.2) (5.3) (0.4) (3.7) (4.2)

a Including statistical discrepancy.

Sources: NSCB; National Economic Development Authority (NEDA).

Philippines 53


Reference table 12

Gross domestic product by sector(P m at constant 1985 prices; % change year on year in brackets)

1996 1997 1998 1999 2000

Agriculture, forestry & fishing 179,451 185,004 173,106 183,407 189,678(3.8) (3.1) (–6.4) (6.0) (3.4)

Mining 10,166 10,338 10,624 9,736 10,580(1.3) (1.7) (2.8) (–8.4) (8.7)

Manufacturing 214,613 223,672 221,151 224,667 237,223(5.6) (4.2) (–1.1) (1.6) (5.6)

Construction 49,339 57,322 51,791 50,988 47,947(10.9) (16.2) (–9.6) (–1.6) (–6.0)

Utilities 28,008 29,357 30,315 31,259 32,401(7.5) (4.8) (3.3) (3.1) (3.7)

Transport & communications 50,878 55,067 58,640 61,726 67,837(7.4) (8.2) (6.5) (5.3) (9.9)

Commerce 130,247 135,326 138,641 145,406 153,549(5.5) (3.9) (2.4) (4.9) (5.6)

Finance 38,513 43,509 45,445 46,311 46,728(13.8) (13.0) (4.4) (1.9) (0.9)

Ownership of housing & real estate 45,576 47,297 48,065 48,350 48,495(4.1) (3.8) (1.6) (0.6) (0.3)

Private services 58,231 61,040 63,883 67,582 70,758(5.0) (4.8) (4.7) (5.8) (4.7)

Government services 44,099 45,219 46,244 47,950 48,382(5.9) (2.5) (2.3) (3.7) (0.9)

GDP (incl statistical discrepancy) 849,121 893,151 887,905 917,382 953,582(5.8) (5.2) (–0.6) (3.3) (3.9)

Sources: NSCB; NEDA.

Reference table 13

Prices and earnings(period averages)

1996 1997 1998 1999 2000

Consumer prices (1995=100) 109.0 115.4 126.6 135.1 140.9 % change, year on year 9.0 5.9 9.7 6.7 4.3

Wholesale prices (1995=100) 108.9 109.5 122.2 129.2 130.2 % change, year on year 8.9 0.6 11.6 5.7 0.1

Minimum daily non-agricultural wage in National Capital Region (P)a 175.86 199.07 214.50 228.32 242.13b

% real change 3.6 8.1 3.5 1.4 9.4b

a Including allowances. b Jan-Sept.

Sources: IMF, International Financial Statistics; BSP.

54 Philippines


Reference table 14

Production of major crops(‘000 tonnes unless otherwise indicated)

1995 1996 1997 1998 1999

Rice 10,541 11,284 11,269 8,555 11,787

Maize (unshelled) 4,128 4,151 4,332 3,823 4,585

Coconuts (m tonnes) 12.18 11.37 13.18 10.91 10.50

Sugar 1,562 1,894 1,954 1,549 1,913

Bananas 3,499 3,312 3,774 3,493 3,727

Pineapples 1,443 1,542 1,638 1,489 1,519

Mangoes 594 898 1,005 932 800

Coffee 134 119 130 122 116

Rubber 182 193 221 223 215

Tobacco 64 65 65 62 56

Abaca 65 70 67 71 74

Sources: NSCB; International Sugar Organisation.

Reference table 15

Meat production(‘000 tonnes)

1995 1996 1997 1998 1999

Pork 1,050 1,037 1,037 1,100 1,123a

Beef & buffalo 120 161 177 176 223a

Chicken meat 403 474 497 491 536

a Estimates.

Source: UN Food and Agriculture Organisation, Production Yearbook.

Reference table 16

Output of wood products(’000 cu metres)

1995 1996 1997 1998 1999

Lumber 286 313 351 222 260

Logs 758 771 556 634 726

Plywood 290 508 484 246 211

Veneer 19 82 62 59 84

Source: NSCB.

Reference table 17

Fishing production(‘000 tonnes)

1995 1996 1997 1998 1999

Commercial fishing 893 879 885 941 947

Aquaculture 919 981 957 955 949

Municipal & sustenance fishinga 972 909 925 891 919

Total 2,784 2,769 2,767 2,786 2,815

a Fishing with boats of 3 grt or less, or without boats.

Source: NSCB.

Philippines 55


Reference table 18

Minerals production(‘000 tonnes unless otherwise indicated)

1995 1996 1997 1998 1999

Golda (tonnes) 12.8 8.1 11.2 8.7 6.7

Silver (tonnes) 31.1 25.1 19.6 18.8 18.8

Nickela 17.2 14.7 17.4 23.7 20.7

Coppera 108.1 61.6 48.6 45.4 37.6

Copper (refined) 158.1 155.8 146.6 152.4 148.0

Chromite (refractory ore) 66.8 62.9 54.2 19.7 n/a

Coal 1,322 1,047 1,077 1,154 n/a

Crude oil 151.0 47.0 43.0 41.6 n/a

a Ores and concentrates.

Sources: World Bureau of Metal Statistics, World Metal Statistics Yearbook; NSCB.

Reference table 19

Manufacturing production(% volume change, year on year)

1995 1996 1997 1998 1999

Food –6.2 8.1 5.7 5.3 14.3

Beverages –1.1 4.7 24.8 3.4 –7.7

Tobacco 0.5 5.4 –10.6 5.2 11.4

Textiles 10.8 –6.7 –10.0 –11.0 –23.5

Garments & footwear –8.9 –36.8 –16.0 –31.0 –19.1

Wood & products –12.7 –6.0 0.2 –8.0 –12.4

Furniture & fixtures 141.2 1.7 9.8 2.1 –6.2

Paper & products 23.0 –16.3 –30.3 8.3 –13.5

Chemicals, plastics & products 9.9 –0.9 3.6 –2.9 6.1

Petroleum refineries 37.6 18.6 –12.2 –10.9 –18.4

Rubber products –15.3 –22.2 –46.5 –8.5 4.4

Glass & products 6.7 8.0 –4.6 35.1 –9.5

Cement 6.5 4.8 2.8 –21.6 –17.5

Non-metallic mineral products 21.1 1.0 32.3 –24.1 –13.7

Iron & steel 8.5 6.7 –1.6 –32.1 –29.5

Non-ferrous metal 60.1 –21.6 –1.2 0.6 –5.1

Electrical machinery 22.5 27.5 50.1 5.2 8.5

Transport equipment 32.3 0.6 –11.8 –48.5 18.2

Total incl others 13.1 4.2 5.0 –11.5 3.0

Source: BSP.

56 Philippines


Reference table 20

Structure of manufacturing industry, 1997a

Total average CensusNo. of employment value added

establishments (‘000) (P m)

Food 3,718 190.6 103,558

Beverages 124 29.6 36,376

Tobacco 18 11.2 21,531

Textiles 583 54.6 11,848

Wearing apparel 2,003 155.3 22,410

Leather products 559 39.6 3,860

Wood & cork products (excl furniture) 574 28.0 5,140

Furniture 659 32.6 4,452

Paper & paper products 288 22.3 11,243

Printing & publishing 910 29.9 7,378

Industrial chemicals 321 20.3 10,427

Other chemical products 393 39.4 48,281

Petroleum refining 5 2.1 68,153

Miscellaneous petroleum & coal products 15 1.0 627

Rubber products 146 9.8 2,878

Plastics products 457 33.3 11,757

Glass & glass products 65 6.2 4,362

Cement 19 8.0 14,967

Other non-metallic mineral products 666 32.9 6,719

Iron & steel 374 30.2 15,970

Non-ferrous metal 26 3.9 4,849

Fabricated metal products (excl machinery & equipment) 895 37.3 8,759

Non-electric machinery & equipment 726 32.4 7,168

Electrical machinery & apparatus 371 148.4 77,246

Transport equipment 351 39.7 40,819

Total incl others 14,734 1,116.9 573,552

a Establishments employing ten or more workers.

Source: NSCB.

Reference table 21

Private construction

1995 1996 1997 1998 1999

Building permitsTotal (no.) 76,073 93,631 115,566 82,971 n/a of which: residential 53,777 67,251 85,541 n/a n/a

Value (P m) 68,066 102,185 123,453 70,163 69,789 of which: National Capital Region 33,065 57,784 71,962 25,245 24,180 residential 24,594 31,167 33,403 24,278 27,231

Sources: NSCB; NSO, Monthly Statistical Bulletin.

Philippines 57


Reference table 22

Assets of financial systema

(P m; end-period)

1996 1997 1998 1999 2000b

Commercial banks 1,876.2 2,513.0 2,512.2 2,722.3 2,780.5

Thrift banks 185.1 208.4 216.4 223.8 223.0

Rural banks 48.0 57.6 60.0 61.9 65.0c

Specialised government banksd 0.2 – – – –

Non-bank financial institutions 527.7 610.3 638.8 716.2 739.5

Total 2,637.3 3,389.3 3,427.4 3,724.2 n/a

a Excluding central bank. b August. c June. d Consolidated with commercial banks during 1996.

Source: BSP.

Reference table 23

Philippines Stock Exchange indicators

1996 1997 1998 1999 2000

Market capitalisation (P bn; year-end) 2,120 1,251 1,374 1,939 2,578

Composite index (year-end) 3,171 1,869 1,969 2,143 1,495

No. of companies listed 216 221 221 226 230

Total turnover (P bn) 666.7 586.3 408.7 781.0 357.7

Source: International Finance Corporation, Emerging Stockmarkets Review.

Reference table 24

Visitor arrivals by country of residence(‘000)

1995 1996 1997 1998 1999

US 342 374 427 469 464

Japan 323 350 377 362 388

Hong Kong 107 149 160 163 160

Taiwan 190 207 246 186 144

South Korea 122 174 170 82 133

UK 71 84 95 98 89

Australia 76 88 94 86 78

Canada 46 57 64 67 65

Germany 51 60 63 64 62

Overseas Filipinos 150 143 135 174 199


Source: NSCB.

58 Philippines


Reference table 25

Exports(customs statistics, fob; US$ m)

1995 1996 1997 1998 1999

Electrical & electronic equipment & components 7,413 9,988 13,028 17,137 21,165

Machinery & transport equipment 741 1,294 2,685 3,316 4,951

Garments 2,570 2,423 2,349 2,356 2,267

Coconut oil 826 571 673 706 342

Chemicals 343 353 383 340 294

Processed food & beverages 292 334 346 306 256

Furniture & fixtures 276 293 322 323 353

Textile yarns & fabrics 208 253 299 242 219

Petroleum products 171 273 257 129 216

Copper metal 341 297 232 178 236

Bananas 224 237 216 217 241

Toys, games & sporting goods 231 224 203 169 157

Shrimps & prawns 215 150 126 129 126

Footwear 207 171 194 147 86

Sugar 77 139 99 100 70

Pineapples (canned) 81 93 86 79 82

Copper concentrates 134 52 44 25 42

Gold 62 55 49 34 48


Source: BSP.

Reference table 26

Imports(US$ m; fob)

1995 1996 1997 1998 1999

Telecommunications equipment & electrical machinery 3,211 4,211 6,437 6,870 6,891

Materials & accessories for the manufacture of electrical equipment 3,772 5,130 5,407 4,634 4,708

Semi-processed manufactured goods 3,572 3,948 3,983 2,807 3,175

Power-generating & specialised machines 2,874 3,647 3,804 2,568 2,396

Consumer goods 2,784 3,331 3,091 2,623 2,642

Crude oil 1,931 2,458 2,458 1,433 1,998


Source: BSP.

Philippines 59


Reference table 27

Key commodity exports(‘000 tonnes unless otherwise indicated)

1995 1996 1997 1998 1999

Coconut oil 1,339 793 1,108 1,178 479

Desiccated coconut 73 70 77 72 76

Copra meal & cake 756 475 570 544 281

Copper concentrates 282 159 121 105 146

Copper metal 120 126 98 102 143

Gold (‘000 oz) 169 202 149 114 n/a

Bananas 1,213 1,253 1,154 1,150 1,320

Fresh fish 70 61 70 91 89 of which: shrimps & prawns 18 13 14 12 11

Sugar 153 318 198 185 143

Pineapples (canned) 192 203 185 169 183

Lumber (‘000 cu m) 87 146 145 44 70

Source: NSCB.

Reference table 28

Main trading partners(% of total value)

1995 1996 1997 1998 1999

Exports fob to:US 35.3 33.9 32.4 34.2 29.8EU 17.3 17.5 18.0 20.3 20.2 of which: Netherlands 4.6 5.4 6.6 7.9 8.2 UK 5.3 4.6 4.3 6.0 5.0ASEAN 12.8 14.4 13.2 12.9 14.0 of which: Singapore 5.7 6.0 6.4 6.2 7.0Japan 15.7 17.9 16.6 14.3 13.3Taiwan 3.3 3.2 4.6 6.0 8.5Hong Kong 4.7 4.2 4.6 4.5 5.6

Imports fob from:US 18.9 22.0 19.9 21.8 20.7Japan 22.4 19.6 20.6 20.4 20.0ASEAN 11.7 12.3 12.9 15.1 13.8 of which: Singapore 5.9 5.4 6.0 5.9 5.7EU 10.2 11.1 12.8 9.0 8.9South Korea 5.1 5.2 6.1 7.4 8.9Taiwan 5.4 4.9 5.0 4.8 5.3Hong Kong 4.8 4.2 4.3 4.4 4.0

Source: NSCB.

60 Philippines


Reference table 29

Balance of payments, IMF series(US$ m)

1995 1996 1997 1998 1999

Goods: exports fob 17,447 20,543 25,228 29,496 34,210

Goods: imports fob –26,391 –31,885 –36,355 –29,524 –29,252

Trade balance –8,944 –11,342 –11,127 –28 4,958

Services: credit 9,348 12,947 15,137 7,477 4,802

Services: debit –6,926 –9,429 –14,122 –10,107 –7,515

Income: credit 6,067 6,059 7,698 6,440 8,081

Income: debit –2,405 –2,777 –3,017 –2,671 –2,910

Current transfers: credit 1,147 1,185 1,670 758 610

Current transfers: debit –267 –596 –590 –323 –116

Current-account balance –1,980 –3,953 –4,351 1,546 7,910

Capital-account balance 0 0 0 0 –9

Direct investment abroad –399 –182 –136 –160 +59

Direct investment in the Philippines 1,478 1,517 1,222 2,287 573

Portfolio investment assets –1,429 191 –9 –603 –278

Portfolio investment liabilities 2,619 5,126 600 –325 5,094

Other investment assets 0 –1,745 425 809 –5,669

Other investment liabilities 3,040 6,370 4,396 –1,525 –714

Financial-account balance 5,309 11,277 6,498 483 –935

Net errors & omissions –2,094 –2,986 –5,241 –750 –3,307

Overall balance 1,235 4,338 –3,094 1,279 3,659

Memorandum itemsTotal change in reserves and related items (– indicates inflow) –873 –4,037 2,610 –1,938 –3,947Use of IMF credit & loans –362 –301 485 659 288


Reference table 30

Balance of payments, national series(US$ m)

1995 1996 1997 1998 1999

Merchandise exports fob 17,447 20,543 25,228 29,496 35,037

Merchandise imports fob –26,391 –31,885 –36,355 –29,524 –30,742

Trade balance –8,944 –11,342 –11,127 –28 4,296

Non-merchandise trade inflows 14,374 19,006 22,835 13,917 12,883 of which: travel 1,124 1,546 2,341 2,413 2,553 personal income 3,869 4,306 5,742 7,386 6,794 net conversions of foreign-currency deposits 4,827 5,863 6,006 n/a n/a

Non-merchandise trade outflows –9,609 –12,206 –17,139 –12,778 –10,688 of which: interest payments –2,179 –2,206 –2,567 –2,257 –2,728

Services and income balance 4,765 6,800 5,696 1,139 2,195

Inflows of unrequited transfers 1,147 1,185 1,670 758 654 of which: government 449 447 414 408 403

Outflows of unrequited transfers –265 –596 –590 –323 –168

Current-account balance –3,297 –3,953 –4,351 1,546 6,977

continued

Philippines 61


1995 1996 1997 1998 1999

Inflows of direct investment 1,459 1,520 1,249 1,752 1,183

Outflows of direct investment –98 –182 –136 –160 45

Inflows of portfolio investment 1,485 2,101 –406 264 1,372

Outflows of portfolio investment –1,237 78 55 –184 –488

Inflows of medium- & long-term capital 3,927 6,540 7,724 6,025 10,178 of which: multilateral 687 756 808 801 412 bilateral 1,291 1,494 1,629 1,395 1,730

Outflows of medium- & long-term capital –2,651 –3,699 –2,900 –3,285 –4,711

Short-term capital (net) –56 540 495 –1,521 –5,798

Change in commercial banks’ net foreign assets 1,564 4,214 1,188 –1,330 –2,373

Trading of bonds in secondary markets – –37 –676 –1,083 102

Capital- and financial-account balancea 4,393 11,075 6,593 478 –1,807

Monetisation of gold 177 198 105 118 198

Revaluation adjustment –96 –203 –465 –22 82

Overall balanceb 631 4,107 –3,363 1,359 3,839

a Includes other investments (deposits/placements of residents abroad). b Includes unclassified items.

Source: BSP.

Reference table 31

Foreign equity investment inflows by major country of origin and by sector(US$ m)

1995 1996 1997 1998 1999

By countryNetherlands 29.77 52.89 41.08 85.24 384.58Japan 244.49 471.50 330.96 150.37 303.27US 55.82 292.72 116.75 243.39 84.42Singapore 75.48 19.59 67.39 51.30 36.31Hong Kong 235.65 76.26 59.80 21.27 19.89South Korea 8.16 29.34 18.16 12.31 13.94UK 52.69 62.94 17.56 12.55 8.96British Virgin Islands 9.76 105.77 176.47 53.84 2.45

By sectorAgriculture, fishery & forestry 0.16 1.45 0.14 0.30 0.82Mining 41.90 3.21 2.84 161.26 27.34 of which: geothermal n/a 0.50 0.00 141.76 18.06 petroleum & gas 23.06 0.95 0.00 18.58 8.94Manufacturing 337.88 477.69 172.19 245.48 1,049.16 of which: machinery, appliances & supplies 132.91 157.47 68.89 53.46 81.72 petroleum & coal 43.69 0.22 0.08 13.30 0.06 chemicals & products 36.16 52.64 25.40 43.15 15.55 transport equipment 53.03 35.70 23.31 6.53 21.44 food 10.52 19.40 13.99 31.29 852.32

continued

62 Philippines


1995 1996 1997 1998 1999

Construction 2.06 45.36 242.76 6.10 2.04 of which: infrastructure 0.12 3.69 64.72 0.20 0.82 general engineering n/a n/a 109.30 5.13 0.60Public utilities 218.77 120.59 297.75 67.88 339.70 of which: communications 16.90 57.70 292.46 3.72 213.76 electricity n/a 62.22 0.63 63.67 85.80Commerce 94.15 84.83 78.00 161.86 166.15 of which: real estate 36.20 52.76 49.45 37.80 73.93Banks & other financial institutions 89.81 513.26 226.34 193.12 258.28Total incl others 815.00 1,281.00 1,053.38 884.71 1,894.03

Source: BSP.

Reference table 32

External debt(US$ m unless otherwise indicated; debt stocks as at year-end)

1995 1996 1997 1998 1999

Total external debt 37,829 40,145 45,682 47,793 52,022Medium- and long-term debt 31,823 31,770 33,033 39,040 44,454Short-term debt 5,279 7,969 11,794 7,185 5,745 of which: interest arrears on long-term debt 0 0 0 0 0IMF credit 728 405 855 1,569 1,822

Public & publicly guaranteed long-term debt 28,292 26,868 26,199 28,165 33,568 Official creditors 22,196 20,210 18,483 20,221 21,406 Multilateral 8,479 7,928 7,321 7,972 7,787 Bilateral 13,717 12,282 11,163 12,249 13,619 Private creditors 6,096 6,658 7,715 7,944 12,162 of which: bonds 4,666 5,450 6,228 6,357 9,693 commercial banks 650 581 942 1,160 2,081

Total debt service 4,581 4,550 3,827 4,787 6,290Principal 2,737 2,891 2,125 2,837 4,253Interest 1,844 1,659 1,702 1,950 2,036

Ratios (%)Total external debt/GNP 49.7 46.5 53.4 69.9 64.8Debt-service ratioa 16.1 13.4 9.2 11.9 14.3Short-term debt/total external debt 14.0 19.9 25.8 15.0 11.0Concessional long-term debt/ total external debt 29.4 25.9 21.9 23.9 25.6

Note. Long-term debt is defined as having original maturity of more than one year. a Debt service as a percentage of earnings from exports ofgoods and services (including workers’ remittances).

Source: World Bank, Global Development Finance.

Philippines 63


Reference table 33

Net official development assistancea

(US$ m unless otherwise indicated)

1994 1995 1996 1997 1998

Bilateral 942.6 748.8 748.2 567.3 528.0 of which: Japan 591.6 416.1 414.5 319.0 297.6 Germany 56.4 67.6 106.6 56.6 45.4 Australia 33.8 56.0 55.9 42.9 45.0 US 116.0 112.0 46.0 15.0 27.3 France 15.4 35.8 27.4 12.2 24.4 Netherlands 17.9 18.9 22.8 22.4 19.8 Spain 16.8 11.8 4.4 22.7 15.4 Canada 24.1 19.5 16.4 16.5 14.5 Italy 4.5 3.0 8.7 2.1 2.1

Multilateral 110.8 132.6 131.7 115.0 79.6 of which: Asian Development Bank 55.0 54.8 47.2 49.0 21.3

Totalb 1,057.2 883.0 879.2 681.4 606.6

a Disbursements by OECD and OPEC members and multilateral agencies. Official developmentassistance is defined as grants and loans, with at least a 25% grant element, administered with theaim of promoting economic or social development. b Totals do not sum in source.

Source: OECD, Development Assistance Committee, Geographical Distribution of Financial Flows to Aid Recipients.

Reference table 34

Foreign reserves(US$ m unless otherwise indicated; year-end)

1996 1997 1998 1999 2000

Foreign exchange 9,902 7,147 9,101 13,103 12,938

SDRs 2 2 2 7 2

Reserve position in the IMF 125 118 123 120 113

Total reserves excl gold 10,030 7,266 9,226 13,230 13,054

Golda 1,312 1,147 1,190 1,833 1,973

Total reserves incl gold 11,342 8,413 10,416 15,063 15,027

Memorandum itemGold (m fine troy oz) 4.651 4.988 5,432 6,199 7,228

a Year-end holdings valued at 75% of fourth-quarter London cash price.


Reference table 35

Exchange rates(period averages)

1996 1997 1998 1999 2000

P:US$ 26.216 29.471 40.893 39.089 44.192

P:¥100 24.100 24.340 34.596 34.316 41.001

Source: IMF, International Financial Statistics..

Editors: Sophie Lewisohn (editor); Graham Richardson (consulting editor)Editorial closing date: June 1st 2001

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

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