The Republic of the Philippines (Republika ng Pilipinas) has risen to be a country with one of the world's fastest growing GDPs in recent years. Behind this budding developmental success story is a deep history of social diversity, international trade, and finally modernization. The sprawling archipelago of 7,107 islands are home to over 100 million Filipinos and some of the world's greatest biodiversity, which are increasingly leveraged as human and natural capital in a globalized Philippine economy. While issues of corruption and inequality continue to stifle development and markets' efficiency, an active civil society and the relative success of populist leaders may produce more equitable growth and democratic governance.
 World Bank. (2014b).  Ibid.  UNDP. (2014).
Spanish Occupation and Colonization
Recorded history in the Philippine archipelago starts in approximately 900AD, at which point developed civilizations have been identified through select anthropological finds. Until 1521, when the first Europeans arrived, indigenous society was typified by city-states that participated in cultural and economic exchange amongst each other and other accessible areas of Asia. Diversity and resulting tensions between these civilizations were critical faults when Ferdinand Magellan claimed the archipelago for Spain. Although it was to be a fatal visit for Magellan, subsequent expeditions from Spain were able to divide and conquer many key states.
Until the end of the Spanish American War in 1898, Spain would hold supreme political power throughout much of the archipelago. This was facilitated by two key practices of Spanish colonization: (1) cultural consolidation through Christian evangelization, intermarriage, and promotion of Spanish language, and (2) the ready use of force to establish political unity when cultural consolidation failed.
Economically, the Philippines was a very productive asset for Spain. Building around the natural harbours of Manila and Cebu, the Spanish established a vital sector of the modern Filipino economy— agricultural exports. More importantly, this established the Philippines as a centre of eastward-bound Asian trade with North America and Europe, including goods from China, Japan, India, and others.
While several attempts were made by natives and other European powers to supplant Spanish rule, they posed little threat until Spanish naval and colonial power began to fade altogether. Amidst the Spanish-American War, which was an indicator of fading supremacy, a single squadron of the US Navy crippled Spanish defenses in Philippines in the Battle of Manila Bay. Perhaps to avoid further humiliation, the Spanish governor quickly surrendered to the Americans, as a growing wave of Filipino independence fighters, led by Amilio Aguinaldo, had also laid siege to Manila. WIth the fall of Spanish rule imminent, Aguinaldo inaugurated an independent Philippine Republic complete with a democratic constitution. Nevertheless, a hemorrhaging Spain agreed to sell the Philippines to the Americans for $20M in the Treaty of Paris (1898). While this was a major defeat for the nascent Philippine independence movement, it hardened the resolve of many Filipinos to reach independence through any means necessary.
The American Period
Shortly after the realization of American tutelage, the Filipino independence movement set its sights on ending re-colonization before it began. The Philippine-American War was to last roughly three years, and was characterized by exceedingly brutal tactics on both sides. American forces eventually battled their way across islands and through mountains to exact near complete military and political control. Proponents of American interests often rationalized the violence as means to achieving a better alternative to the numerous European powers that would otherwise shackle the Filipinos.
Some of this benevolence was substantiated in the American modus of territorial rule. Breaking with most of their colonizing contemporaries, first the McKinley, then Roosevelt Administrations saw to it that an appointed governor was paired with a popularly elected body, the Philippine Assembly. Despite sincere limits on the legislative power of the institution, the Assembly possessed symbolic and cultural importance. Famously, it repeatedly passed bills requesting independence with annual frequency or higher.
The ripples of industrialization and technological advancement interacted productively with the transition to American administration in the Philippines. Building modern ports, roads, and an extensive healthcare system, the United States established assets that would prove invaluable as independence approached. Furthermore, this infrastructure grew exports from the archipelago immensely. As American consumers’ demand for cheap agricultural products expanded, the Philippines was able to become a major supplier, aided by advances in maritime transport. Although the US had a strong economic interest in having a captive export partner, growing production capacity within a modern economic system positioned the Philippines well for independence. In the first decades of the American period, industrial growth consistently exceeded 6% annually.
While the American administration of the Philippines came with a softer hand than the Spanish, the growing movement for full independence ensured that formal American administration of the archipelago could not be long-lived. In the lead-up to World War I, the US government faced pressure from Filipino nationalists, a growing minority of American voices, and the international community to make independence a reality. In 1912, the Jones Act established measures for a gradual transition to self-governance, conditional upon the establishment of a stable democratic government. However, with war looming, Filipino nationalist leadership voluntarily suspended this process in order to remain under the umbrella of American military protection.
While the War had transformative effects on many global political relationships, little changed between the Philippines and America. The year 1919 marked the voyage of the first of twenty delegations sent to Washington D.C. to request independence. Independently even these very direct gestures made a limited impact on the American executive branch. However, they were well received by a growing contingent of anti-Asian migration Democrats. While the Asiatic Barred Zone Act of 1917 prevented essentially every other nationality of Asia from entering the United States, the special legal status of Filipinos permitted unregulated migration. Thus, an unlikely alliance was wrought between nationalist Democrats and the Philippine freedom movement.
Eventually, a bill was passed in the American legislature providing for independence, while maintaining control of military assets in the Philippines, as well as certain trade arrangements. The Philippine Senate ultimately rejected this bill and successfully pushed for the more complete independence provided for in the Tydings-McDuffie Act of 1934. After passing in the U.S. and Filipino senates, it provided for full independence by 1946.
Not long into this transitional period, World War II brought waves of devastation upon the Archipelago. Alongside Pearl Harbor, the Philippines represented a vital centre of the American military presence in the Pacific. In the same stroke as the Pearl Harbor attack, the Japanese also began an aerial bombardment of American bases in the Philippines. American forces under Douglas McArthur resisted Japanese invasion, rapidly retreating until nearly all leadership and remaining forces operated in an underground tunnel on Corregidor Island in Manila Bay. Callous atrocities committed by the Japanese against Filipino and American soldiers, such as the infamous Bataan Death March, left deep physical and historical wounds. Soon the Americans departed, leaving the underequipped Philippines Armed Forces to cope with Japanese invasion. American forces would eventually return to liberate the Philippines, but not before 1 million Filipinos had died through combat and related causes. On July 4th, 1946, the final treaty rescinded American sovereignty over the Philippines and established Filipino independence.
The post-independence period was dominated by several themes. Like many other successful independence movements of that era, the question of communism loomed large, having massive implications, especially in the area of foreign policy. Given the Philippines' deep and active relationship with the U.S., communism was never likely to succeed. However, American involvement in Filipino elections and the significant support it gave to fight the communist Huk rebel group would have lasting effects on Filipino politics. The Philippines also struggled with corruption and nepotism in its highest offices, a problem that has continued to the present-day. While regional inequity and political competition was and remains a relevant dimension in domestic politics, ethnic conflict was initially a peripheral concern.
The first president elected after independence was Manuel Roxas. While president, he polarized the political environment through flagrant theft of state resources, economic concessions to the U.S., and heavy-handed responses to insurrections. At the time of his death, he had expended most of the euphoria of independence and added to the atmosphere of disaffection. Roxas’s death in office also began a trend of presidents who either failed to win a second term or were not able to run for re-election. His successor, Quirino, did little to improve issues of corruption, but showed greater accountability to the electorate, making large strides in rural development, general economic growth, and public services.
Ramon Magsaysay, a comparatively young candidate successfully defeated Quirino as a reformer and pacifier. While previously serving as Secretary of Defense, he positioned himself as generally pro-American and would repeatedly leverage this North American support throughout his presidency. He is best remembered as a man of the people. His widespread initiatives in rural development, political transparency, and the justice system made him exceeding popular before his unexpected death in an airplane crash.
His outstanding efforts to raise the standard of living and realize democratic governance undermined the recruiting efforts of rebel factions and mitigated political and violent conflict. The subsequent two presidencies, Garcia and Macapagal, were successful in further shaking outstanding American military and economic claims on the Philippines, while otherwise executing few reforms and maintaining general economic stability.
The relatively successful early years of Philippine democracy met a gradual end with the election of Ferdinand Marcos in 1965. While his first term continued many of his predecessors’ efforts in economic and infrastructure development, the path to dictatorship loomed. Implicit in the success of his first term was growing the military, which was legitimated as a labour force and employment initiative. Upon being elected a second time, his designs on an absolute authority were manifest. A developed and efficient propaganda machine soon built a cult of personality around Marcos. This was perhaps most evident in a decree that all public offices were required to post a photo of the president. Growing public discontent led to protests over crime, Marcos’s militarization of politics, and harsh educational reforms. These peaceful protests became conflated with a nascent communist movement, which sought to capitalize on widespread disaffection. While the communists’ designs were unrealized, it granted Marcos ample grounds to declare Martial Law in the name of preserving democracy in the Philippines.
Until 1981 (9 years after declaring Martial Law), Marcos ruled by decree, having swiftly abolished the congress. Freedom of the press and speech were curtailed entirely as opponents and dissident groups were violently censored into silence. Furthermore, countless dissident leaders were suspected assassinated, and their supporters terrorized into submission.
Although economic returns during this period reflect productivity and growth, this was founded on heavy borrowing by the Marcos regime. The Philippines foreign debts grew from around $360M to $28.3B during his reign, for which there would not be sustainable gains in revenue to later service this debt. Although Marcos was able to restructure the massive accounts, economic contraction in the region compounded the Philippines’s inability to pay its creditors. During this very period corruption and graft reached a peak in the Philippines. Funds were commonly diverted not only to personal accounts, but also into networks dedicated to maintaining necessary political alliances.
Despite the well-publicized economic and moral failings of the country, Marcos kept good foreign relations. He was consistently able to court foreign investment, substantial aid packages, and development projects. Similar to many other autocratic regimes, this foreign involvement brought not only political legitimacy, but also revenue to support an economically unsustainable regime. In fact, most of the economic growth that occurred during his presidency was aided by his aptitude in relations. Particularly the “Green Revolution”, which was co-initiated with the Ford and Rockefeller foundations, reflected this. With the help of this coalition, he was able to receive massive grants to develop agricultural lands into centres of production for export, in the process selling these lands as massive concessions to foreign and domestic interests.
In 1981, Marcos allowed for the first presidential election in 12 years, which he won handily. Two years later he had opposition leader Benigno Aquino assassinated, which was publicly attributed to his administration. However, his own physical health was in rapid decline. In 1985, he called for a mid-term “snap election” and ran against Aquino’s widow, Corazon. Marcos won amidst widespread fraud. This prompted opposition, religious, and political groups to take to the streets under the banner of “The People Power Revolution”. Their well-organized demonstrations eventually won the support of some military leaders and forced Marcos to flee to Hawaii. Corazon Aquino immediately replaced him as president on February 25th, 1986.
1986 – Present
Since the end of the Marcos regime, Filipino politics has followed a narrower trajectory. Beginning with the Aquino presidency, deregulation and privatization have been a developing norm. While this began as a response to institutionalized corruption via nationalization during the Marcos era, the pendulum has gradually swung to another extreme. Whereas early measures under Aquino and her successor, Fidel Ramos, generally fostered efficiency and competition, this gradually gave way to capture. Today, significant issues persist due to utilities, especially electricity, water, and fuel, existing as private profit making ventures with little public oversight. Amidst economic crises and rises in fuel prices, rising prices for these vital utilities frequently driven stagnation and left the poorest poorer. However, reformist tendencies of current president (and son of Corazon Aquino), Benigno Aquino III, offer hope that better cooperation between private utilities is possible.
These issues are compounded by institutionalized corruption. While some argue that it was Marcos’s reliance on patrimonialism that made corruption endemic to the Philippines, recent presidents have done little to combat the issue. Each president since Marcos, (in order) Aquino, Ramos, Estrada, Arroyo, and, to a lesser extent, Benigno Aquino, have all been linked to corruption, election fraud, graft, and/or theft of state resources. Despite public outcries, most have been able to exert executive power over the legislature and judiciary to avoid indictment.
Environmental and natural disasters are increasingly an annual reality for the Philippines. While some events, like the eruption of Mt. Pinatubo during Corazon Aquino’s presidency are chance events, many are concerned by the increasing frequency of deadliness of typhoons and tropical storms. Super Typhoon Haiyan (2013) killed as many as 7,000 Filipinos and caused almost $2B USD in damage. The entirety of the Philippines is rated “high risk” or “very high risk” in terms of vulnerability and exposure to natural disasters. While the international community has often been able to supplement aid to compensate victims and repair infrastructure, long-term solutions stemming from disaster management resources and resilient infrastructure need to develop to mitigate losses.
In the wake of Marcos’s regime, where a relatively strong monopoly on military power existed, decentralization and rescaling of the military invited a resurgence of rebels. Almost immediately following Marco’s exit, both Muslim radicals and right-wing extremists began attacking government assets. Aquino’s successor, Ramos, was able to make a peace pact with major Islamic separatist groups in Mindanao, after a quarter-century of rebellion. However, this pact was immediately spoiled by a splinter group that insisted the majority Muslim Moro people could not reconcile with the central government.
That group, the Moro Islamic Liberation Front (MILF), continued to fight for an Islamic sub-state in the expansive southern island. Despite many failed peace agreements with MILF, a robust agreement seems to have been reached between Philippine’s central government and MlLF. In a move with few modern precedents, President Aquino agreed to cede a semi-autonomous sub-region in Mindanao, in return for the full disarmament of MILF. This has been well received by most constituents and for the present time brought an end to decades of violence. However, as with many treaties in modern conflicts, it has not been the final chapter. Entanglements with international terrorists in the region have brought further federal intervention, causing the deaths of 44 Special Forces soldiers on one occasion.
The 1980’s saw the Philippines fall well behind regional growth rates. At the very moment that Korea was investing in a diversified intellectual economy, the Marcos regime was extracting natural resources faster than ever. While this brought short-term solvency, it exacted enormous costs on the environment and failed to capitalize on opportunities in the manufacturing and technology sectors. However, strides in education matched with population growth in lower quintiles have made the Philippines ripe for foreign direct investment and general growth. Increasingly, the Philippines is shifting from agricultural and service economy to manufacturing and tech economy. GDP growth has been around 7% for three out of the last four years and a surging financial sector will be a massive asset in maintaining this trajectory. Remittances from a massive and well-educated diaspora broke $20B USD, which has been made even more valuable by improvements in the Peso-Dollar exchange rate (to a 2013 average of 42.45 Pesos-to-Dollar).
On top of this strong economic performance, current President Benigno Aquino has managed to successfully push his credentials as a populist reformer. He has gone so far as to stake his legacy on the idea, naming the previous administration as guilty of institutionalizing corruption and lead legislative initiatives to this end. The Government Owned or Controlled Corporations Act, which established an independent commission to monitor the activities of such organizations, is one of several examples of successful anti-corruption policies from his administration. However, this has done little to help his image as public trust and approval of Aquino and his party has continued to steadily drop with time. Misconduct of his cabinet secretaries and mishandling of various issues has brought a negative public mood as his presidency winds down.
The 2016 Presidential Elections are scheduled for May. While no clear favourite has emerged several famous names are in the running including the son of Former President Marcos, as well as Mar Roxas, likely Liberal Party nominee and grandson of Former President Roxas.
Conflict and Violence
The roots of conflict in the Philippines are both diverse and multi-layered. Going back to the pre-European settling of Muslims and Islamic evangelization in the Philippines in the 1300’s, religion has been intertwined with politics, land access, and ethnicity. Moving through the centuries, Spanish rule was able to partly integrate most areas of the archipelago into one national identity. However, parts of the southern island of Mindanao have yet to fully yield to the Manila government. While most areas of the Philippines have seen substantial increases in standard of living, income, and security, much of Mindanao has languished through a century of more-or-less open conflict. As the region has fallen further behind, general disaffection towards the central government and outside intrusion capped many deep historical factors.
Particularly in recent years, there has been a media and political tendency to reduce violence to religious conflict. While the emergence of Muslim extremist groups, such as Abu Sayyaf, in the last decade, indicates a small minority who are religious ideologues, this practice distracts from more effective explanations and solutions. Since a massive renewal of conflict during the Marcos era, an estimated 120,000 have died as a direct cause of conflict, with another 2,000,000 displaced. After many failed peace agreements, a more audacious solution from President Benigno Aquino again puts forth an opportunity to sew peace on the mountainous island. Returning to the roots of conflict offers insights into the possibility of a permanent peace and economic growth.
At its peak, the Muslim population in the Philippines existed across wide areas of the archipelago, including present-day Manila. While Islam began as an import from nearby Malaysia and Indonesia, it quickly became a domestic force championed by indigenous peoples. Upon their 1521 arrival, the Spanish met a familiar enemy on new soil. Despite the clear economic incentives, the Spanish state-building effort was very clearly framed around religion. Nevertheless, conquering the resilient Islamic sultanates would allow Spain to implement a political, economic, and religious monopoly on the territory. After several centuries of widespread conflict, most Muslims were isolated in the mountainous regions of Mindanao, with most of them belonging to the Moro tribe. Literally driven to the hills, near complete of these peoples became an anchor of conflict from the end of Spanish rule to the present day.
With the advent of American colonization, the Moro continued to fight for independence, largely because American forces resumed the Spanish project to create a single, politically centralized colony. In the period of, 1903 to 1905, an estimated 15,000 to 20,000 Moro died resisting American colonization. This had the secondary effect of dismantling traditional Islamic society.
The American solution followed its Spanish predecessors in assuming the situation in Mindanao intractable. Moving through the American period, the practice of state-sponsored settlement in Mindanao became far more effective in marginalizing the Moro and other resistance in the region.
Over the first half of the 20th century, numerous laws and programs were instituted that would relocate primarily landless poor from Luzon and the Visayas to Mindanao, granting formal property rights to migrants for land that had informal and ancestral claims by the Moro. This served several purposes for the Manila government: further marginalizing the rebellion, partly “solving” the issue of landlessness and poverty in other provinces, and extending its political and economic power into the mountainous stronghold.
While the Philippines economy as a whole is highly dependent on agricultural production, Mindanao is even more reliant on cultivation for both subsistence and income. As such, following resettlement initiatives the Moro and Muslim groups saw their land access and livelihoods fall sharply. Augmenting this affect was an aggressive campaign by American corporate agriculture interests to capitalize on the opening that formal property rights provided. It became common practice for foreign companies to obtain the good graces of local governors and receive large concessions, again at the expense of those without formal land claims. Together, resettlement and agricultural development succeeded in further displacing the remaining Moro population and seeding poverty.
The ability to appropriate land to corporate or elite interests was closely accompanied by widespread corruption in public office. To this day it remains exceedingly common to see local, provincial, or regional land authorities with outstanding conflicts of interest in the agricultural sector. Landlessness coupled with a status quo of corrupt land management was and remains a central driver of violent rebellion in the region.
While violence in the Philippines has been largely motivated by historical political and land issues, both communism and radical Islam have had a role in propagating violent dissent. In both cases, incipient domestic movements burgeoned in response to domestic and global tensions. In recent decades, radical Islam has risen to the forefront of conflict in Mindanao. Abu Sayyaf, once a force of over 1,000 fighters, represents one of the most poignant ideological actors within the Mindanao insurgency.
In the wake of the 9/11 terrorist attacks the provincial group grew in size and funding, as the United States classified it as a Foreign Terrorist Organization. As a response to being officially named enemy in the War on Terror, international funding for Abu Sayyaf surged from radical Islamic terrorist organizations. Having successfully completed large-scale bombings and kidnappings of international targets, the United States continued to prioritize the elimination of the group, sending 600 American soldiers with permission to engage Abu Sayyaf.
Ostensibly, the goal of the group is the establishment of an independent Islamic state in Mindanao. However, it is particularly worth noting that the larger, also Islamic independence movement, Moro Islamic Liberation Front, identifies Abu Sayyaf as a terrorist group. Although a minority within the broader scope of the Mindanao insurgency, has served to reduce political and violent resistance as terrorism on the national and international level. While the atrocious acts of Abu Sayyaf merit attention, there are strong indicators that the most radical Islamic and communist factions are largely opportunists feeding on extant historical and land issues between the ethnically Muslim Moro people the central government. By prioritizing radical groups, the Filipino government succeeded in further militarizing national policy towards the Moro issue.
Military solutions to bringing a permanent peace to Mindanao have had but limited success. Despite international coalitions to root out insurgent factions, the thick and mountainous terrain of Mindanao has proved ideal for violent resistance. Furthermore, escalations seem to have seeded only more resolute and violent factions in the region. In more recent attempts to intercede, the use of the Philippine military has become more strategic. Rather than pursuing a “stick-only” approach, augmenting military activity has been followed with offering “carrot” of a semi-independent state.
While land reform and more audacious development policy have been pursued, they have also failed to establish lasting gains. The 1988 Comprehensive Land Reform Policy (CARP) was the first major initiative to purchase and reallocate land to smallholder agriculture across the islands. However the failure to distribute large portions of the allotted land, the allocation of land to elite and corporate interests, and insufficient consideration CARP as an inherently political initiative have hampered it. Whereas it may have been directly used to resolve claims of ancestral domain with the Moro, it typically distributed land to those farming on the land or otherwise most proximal.
In general, the establishment of a semi-autonomous region has been supported as essential part of any lasting solution. As early as 1976, the Tripoli Agreement (signed by the government and the Moro National Liberation Front) put forth a framework for independence. However disagreements over the exact nature of this independence has spoiled many peace agreements over the years, beginning with the Tripoli Agreement. While the intractability of some belligerents is to be anticipated in any agreement, failure to be inclusive in peace deals with Moro and Islamic resistance has created splinter groups on several occasions.
However, after several years of negotiations with the reformist Benigno Aquino, a robust peace deal was signed with MILF. Therein is a provision for a new autonomous political entity, Bangsamoro. Despite bearing many resemblances to earlier peace deals, it is accompanied by a greater sense of optimism. Economic gains across the Philippines have passively made violent resistance a less attractive strategy for the Moro. By returning a greater amount of tax revenue to the proposed region and devolving essential powers, such as land distribution, the process has substantial appeal to Moro and Muslim political leadership. Furthermore, a more sensitive approach to disarmament and reintegration appeared to have reduced the likelihood of splintering and spoilers.
However, the continued presence of international jihadists has eroded much of this good faith. Refusals to turnover certain individuals and continued attacks prompted the Manila government to continue to pursue limited military action in certain localities. This eventually resulted in a deadly operation meant to capture or kill Malaysian FBI target, Zulkifli Abdhir. While Abdhir was eventually killed, 44 Philippines Special Forces soldiers died in firefights with the Islamist militants protecting him. The backlash from this event led to the Senate to halt debate on the bill that would otherwise grant the aforementioned autonomy measures, effectively stalling the peace process indefinitely. The policies and priorities of the following executive administration will be key in determining the future of ARMM and peace in the Philippines.
Basic Ethno-cultural Make-up
There are two major ethnic groups in the Philippines: Tagalog and Visayan. These two groups contain roughly 60% of the population.
Roughly 80% of the population is Roman Catholic and 10% is Protestant. Approximately 8% identify as Muslim and 2% following traditional practices.
Linguistically, most Filipinos are multilingual. While English is the lingua franca in major cities, Tagalog, Visaya, and Ilokano are widely spoken, (each associated with regional ethnic groupings of the same names).
After decades of relatively stable growth, the Philippines population growth rate began a slow decline in the 1960’s. While public health programs to slow population growth rate can explain much of this, emigration also drove this trend. This statistic seems to have settled on a floor of around 1.7% annually, with a national population of around 98 million. While the median age in the Philippines is rising at a rate of approximately one year per decade, the archipelago remains one of the youngest nations in Asia, with a median age of 22.3. Today, over 50% of the population is still under 24 years-of-age.
This bulge at the bottom of the age pyramid is projected to move through the age structure, implying that future generations will be tangibly smaller. Given its proportion to earlier generations, the under-24 bracket can determine the future social and geographic structure of the Philippines, vis-à-vis its fertility and migration (domestic and international) trends.
While the Philippines was historically a very decentralized region of Asia, today it manifests the global trend of urbanization. In 2014, 49.3% of the population lives in areas identified by the United Nations Development Program as urban. This is a 1.2% percentage-point increase from 2006. The CIA World Factbook estimates a 2.16% annual rate of urbanization in the coming years.
Driving this steady shift from rural areas is the dire state of governance and economic opportunity in rural areas. Significantly higher fertility rates in rural areas have generated a steady trend of adolescents and young adults who are relocating. This demographic is particularly aware of the general deficiency of rural opportunity and form the majority of Filipinos migrating to urban areas. In these areas, young migrants are often seeking jobs in the rapidly expanding manufacturing and service sectors. These positions, if workers are successful in obtaining them, allow for a more consumer oriented lifestyle and support the practice of domestic remittances.
This has had the secondary effect of “aging” rural populations. Long-term effects on rural populations and livelihoods will become more apparent in the coming years. However, success in developing rural infrastructure may help to re-establish equilibrium.
Migration of Overseas Filipino Workers (OFW’s)
The Philippines has one of Asia’s strongest traditions of working in foreign countries and sending substantial remittances. This occurs across skills levels and sectors, from medical doctors to seamen. The Commission on Filipinos Overseas estimates almost 10.5 million Filipinos are permanently or temporarily working abroad. The two largest destinations are the United States (3.5 million) and Saudi Arabia (1.3 million). However, the migration pattern is changing in the last decade because the three most popular destination of working Filipinos currently are Middle East, other Asian countries, and in a very lesser scale, Europe. While this generally sits well as an archetypal "brain-drain", the shortage of skill domestically has not been helped by the central government. Since 1995, a series of laws have been enacted to enhance the training and protections provided to migrant workers before or while working abroad.
Ultimately, the massive OFW phenomenon is driven by a highly competitive domestic labour market with low compensation. By moving overseas, workers can earn substantially more and often increase their standard of living. In 2011, remittances to family members in the Philippines amounted to over 11% of GDP. This has vital implications on growth as remittances are widely associated with an increase in consumer spending. In the long-term, the central government has publicly stated that it does not view remittances as a sustainable tool for development and will seek to develop and maintain human capital.
After the 1997 crisis, the affected Asian countries (Thailand, Indonesia, Philippines and Malaysia) enjoyed a period of long stability and growth. In 2001-2007 the world economy experienced an unprecedented expansion.
During this period the labour market of Philippines failed to keep pace with the growth that the country was experiencing. However, unemployment and underemployment have improved since the end of the Asian crisis and were stable even during the turmoil of the Great Recession; it began descending from 10.3% (unemployment) and 15.9% (underemployment) in 2002. Since then these numbers fluctuated around 7.5% and 19.5%, respectively. This shows the movement of unemployed workers from into low quality positions, and the ongoing challenge to create better jobs as the economy grows. More than 40% of all employed Filipinos had vulnerable employment, were self-employed, or unpaid workers in a family enterprise. This has left a large share of the working population sensitive to the economic shifts in the region.,
Philippines labour market has an increasingly young profile, where around 60% of the population is less than 30 years old. These young people are especially suffering from unemployment. More than half (51.1%) of people between 15-24 do not have a job, and around 11% of college educated young people because they cannot find a job appropriate to their skills and prefer to wait than to engage in less desirable employment. This has been highlighted as a likely cause for the recent growth in informal unemployment.
While women have strong representation in the work force (5th of 136 countries), young and poorly educated men and women face many struggles with employment.
The services sector employs around 53% of the labour force, the fishery and agriculture sector employs around 32%, and the secondary sector only accounts for a modest 15% of working population. Serious reforms are needed to prevent them from rising, let alone reducing them. Unionization of the labour market remains relatively low (6.7%), which is mostly comprised of government workers and their unions. Furthermore while general trend of union membership is increasing, it continues to decrease amongst private sector employees. While some of this is to be expected in a growing economy, it does speak to the very high levels of informality and poor labour protections.
Due to difficulties in finding a well-paid job in the domestic labour market, many Filipinos prefer to go and work overseas.
The latest statistics available on the subject suggest that the global recession accelerated the outflow of Filipino labour force from the country due to the economic slowdown. In 2007 the growth rate of OWF (Overseas Filipino Workers) was about 1.4%. In the next two years the numbers already were 14.7% and 15.1%.
The three major destinations for the OFWs during this period are the Middle East (684,060), Asia (280,808) and Europe (48,185). In these places, workers seek and find work in many different sectors and skills levels. Particularly in the Middle East, a greater share work as labourers in construction or the shipping industry. Remittances sent by OFW’s are an increasingly relevant factor in economic growth in the Philippines. They have been documented as catalysing a blooming consumer market and these remittances represented a substantial part of the Philippine GNP (between 7 and 10%).
Historically, the Philippines has been a regional outlier in terms of economic growth. Despite having ample natural resources, reasonable infrastructure, and a moderate level of foreign investment, it remained in the shadow of the so-called tiger economies of Asia. However, following improvements in governance, political stability, and rising labour costs in neighbouring countries, Asia’s sixth most populous country is gaining ground. At the heart of these positive economic changes has been a steady shift towards manufacturing and service sectors, a burgeoning domestic consumer market, and the mobilization of a young and educated labour market.
In 2012 and 2013, the World Bank reported a GDP growth rate of 6.8 and 7.2 respectively. This was roughly linked with lifting roughly 2.5 million Filipinos out of poverty over these two years. While GDP growth slowed in 2014, the general economic outlook of the Philippines is rosier than ever. The essential challenge will be translating this growth to meaningful economic and development gains across the breadth of society, such that labour, infrastructure, and investments feed into further growth. Although realizing this target involves many policies, constituents, and metrics, credit access, infrastructure development, and job creation are key three bottlenecks currently being or in need of being addressed.
Credit Access in the Philippines
An essential link into a new era of job and enterprise growth in the Philippines remains making credit available to small and medium enterprises (SMEs). In 2011, 98.3% of the Philippine workforce was employed in micro or small enterprises, where a substantial gap exists between demand and availability of credit. Since the Grameen Bank structure was popularized, the Philippine government has aggressively promoted micro-lending, notably establishing The People’s Credit and Finance Organization. This government owned institution is tasked with providing and coordinating the provision of innovative micro credit products, and has a presence in 73% of all municipalities in the Philippines and around 79,080,000 USD in assets.
While success in developing and meeting micro credit markets is tangible in the Philippines, allowing firms to transition to the small and medium brackets faces extant challenges. One of the chief problems (identified by the Philippine Institute for Development Studies) in this area is lending agencies and banks not being having adequate credit information on loan applicants. Despite almost half of firms desiring a capital to grow, short or undocumented credit histories prevent many from growing. This so-called missing middle phenomenon in developing credit markets has risen to the forefront of policy discussions of growth.
Although certain issues, such as developing telecommunications infrastructure, may prove to be long-term structural barriers in developing credit availability for SMEs, the central government has taken key steps to closing unmet SMEs demand for credit. The Small and Medium Enterprise Development for Sustainable Employment Program (SMEDSEP) has worked with international partners to coordinate a credit information network that will make it easier for different banks to evaluate loan applicants. The secondary mission of the organization is to encourage lending based on local markets and business viability, rather than collateral assets. If successful and sustained, these efforts will close the credit gap, estimated to be at least $1B USD.
During the era of American colonization the Philippines' infrastructure development surged, opening agricultural producers to greater market opportunities. However, a steady decline in infrastructure development since the 1970’s, along with the growth of new infrastructure needs has made this a key bottleneck in economic growth in the Philippines. In particular the steady shift towards service and manufacturing has increased stress on urban roads, facilities, and utilities. Realizing the potential of economic gains in these areas will require substantial investment. Failing to do so could result slowing long-term growth.
Particularly in major cities, such as Manila, Quezon City, and Cebu, simply moving individuals and goods is a daily struggle. One estimate shows that around 20B USD is lost annually from blockages, failures, and delays in metro Manila. Still, the Philippines spends 30-50% less on infrastructure maintenance and development than neighbouring economic competitors. In response, the government has stated plans to double its infrastructure spending to approximately 5% of GDP, which is increasingly feasible as revenues continue to increase. Targeting this neglected growth constraint should spur on firm and job development in urban areas. Infrastructure improvements in more isolated areas may prove to be a greater challenge. In all regions prioritizing better roads, drainage and sewage, and communications will foster disaster resistance, allowing faster economic recovery.
Amidst the strong performance of the Philippine economy in most key metrics, job creation and consumer have been the beating heart of growth in recent years. Historically, GNP growth has had minimal effects on the purchasing power of individuals. However, economic stability leading to greater investment and firm creation, coupled with ever-rising foreign remittances has translated to broad-spectrum socio-economic growth. During the current period of GDP growth, the middle 60% of the population’s share of income has been stable, and the top 20% of the population’s has declined moderately. Furthermore, recent tax reforms have shifted from consumption-based taxes, towards capital and income taxes, ending what has been described as a regressive tax.
This rise in average incomes has seeded a nebulous middle class that enjoys an increasing amount of discretionary spending. The evidence shows that these families and individuals are choosing to consume more and employ (more) service workers. More importantly, a burgeoning manufacturing sector has complemented this uptick in demand. This has had a major part in driving the unemployment down to 6.7% of the workforce or almost half of the pre-2006 rate. This sort of job creation appears to be a highly efficient lever in terms of GDP growth: within the 7.2% growth of the Philippine economy, over half of this growth can explained by a 5.6% increase in private consumption.
Policies directed towards inclusive growth can maximize the return on public investments in infrastructure, education, and public services. With another seven million people under-employed in the Philippines, employment and consumer markets have significant room to grow. However, achieving this in the years to come will require fiscal and monetary policy that will reward firm creation and maintain or promote individuals’ purchasing power. Combined with greater access to credit, strong performance in domestic and foreign firm creation can feed into this cycle of productivity.
Resolving complexity and inefficiency in the process of starting new firms will be a final key in unleashing the wealth of human capital in the Philippines. From 2013 to 2014 the Philippines fell seven places to 161st in the global Doing Business rankings from the World Bank. In general, long turn-around times in a convoluted permitting process are significant deterrents in forming new firms.
The Philippines has followed a regionally divergent path in terms of economic growth and poverty reduction. The 1960’s were more-or-less the “break out” years for many Asian economies. In Korea, which is a clear outlier within East Asia and the Pacific, GDP per capita grew from $91 in 1961 to $316 in 1971. In the same period, the regional average increased from $147 to $335. In contrast to this doubling at the regional level—and tripling in Korea, the Philippines GDP per capita fell from $267 to $201 during this ten-year period.
While other countries were converting capital from extractive and agricultural industries into developing human capital and more diverse economies, the Philippines began to haemorrhage the revenue through institutionalized corruption under Marcos. Although Marcos was able to maintain airs of cooperation in development, the Philippines missed out on most of the foreign investment and market integration that allowed so many countries to flourish at that time.
Over Marco’s terms as president (1965-1986), Official Development Assistance (ODA) per capita grew to over five times regional averages. While this had positive short-term effects on social outcomes, such as education, health, and income, politicians taking a cut of development monies (from the president to local officers) also dulled possible gains, particularly in rural areas. Furthermore, as much of this ODA came in the form of bi-lateral and multi-lateral loans, it saddled the economy with repayments and even caused regression in later years.
In terms of income inequality, the Philippines was polarized above regional averages at a more-or-less stable rate from the 1980s to the 2000’s, when a slow reversal began. During this period, most countries in East Asia and Pacific saw inequality remain static, while incomes increased across all brackets, but the Philippines had minimal gains in inequality, even during brief periods of per capita income growth. In 2012, the Philippines GINI coefficient was 43.03. Although this is three points improvement from the 1997 rating, it is still two points worse than the 1985 rating and within the region is better than only Malaysia (in countries where the GINI is available).
Approximately 20% to 25% of the Philippines’ population lives below the poverty line. Of these approximately 25 million people, a disproportionate amount of rural residents are living in poverty. In total, around 55% of the Philippines’ population live in rural areas, relying mostly on farming, fishing, and forestry. Around 39% of both farmers and fishermen are considered poor, with an overall rural poverty incidence of 43%. In contrast, current analysis identifies only 13% of urban residents living under the same poverty threshold.
Moreover, rural poverty has proven to be much more difficult to ameliorate. From 1985 to 2008, urban poverty decreased by approximately 41% to an overall rate of 19.7%, while rural poverty fell by only 16% over the same period. While urban areas are more likely to underreport, this disparity nevertheless reflects a failure or lack of efforts in affecting rural poverty. Several geographical and social issues have played a significant role in preventing improvements.
While the majority of the Philippines’ population lives in three major regions (Luzon, Mindanao, and Central Visayas), a significant portion resides in far smaller and remote areas. Without a highly decentralized and perhaps redundant administration of development and economic policy, it is often physically difficult to impact communities in these areas. Similarly, decades of rebellion, or more accurately, civil war, in Mindanao was a cutting limit on the development of trade and social institutions. Approximately 39% of the Philippines’ poor live on Mindanao, where the poverty incidence rate is a staggering 42%.
Acting president, Benigno Aquino III has made extreme headway in resolving the latter issue and sincere attempts to address the former. Since the signing of an agreement with major rebel factions and agreeing to create a semi-autonomous region, almost a century of conflict has come to an end. This stability, if sustained, should finally allow for the meaningful development of the Philippines’s largest island.
Successes in growing the GDP and hence national revenues appears to be a central part of the current administration’s approach to improving livelihoods. Higher economic growth rates on the national level have been closely linked to reductions in poverty incidence. These resources have been reallocated to specific programs, like the National Household Targeting System for Poverty Reduction (NHTS-PR), which aids administrators in ensuring that social protection programs serve the most disadvantaged. Furthermore, it creates a baseline for accountability in the allocation of resources, such that public officials and recipients have greater difficulty abusing national poverty programs.
The Conditional Cash Transfer Program is one such program that relies heavily on the reporting of the NHTS-PR. It identifies households with at least one child under 14 and meeting other basic criteria and supplies them with payments of 10-30 USD every two months. This program began in 2012 and now serves around 3 million households.
Aquino has also recommitted to the process of decentralizing and improving governance that began with his mother in the 1980’s, and was spurred onward by the 1991 Local Government Code. In general, this has facilitated an unequal, but efficacious devolution of political and economic power to the local level, while also increasing the proportion of national revenues allocated to these offices. [See ‘Governance’ chapter for further information.] In all, resulting improvements in the ability of rural populations to make claims on their local administrators for more services and less corruption suggests that decentralization and political stability are vital to ending rampant rural poverty.
Education in the Philippines is defined by historical diversity, Eastern and Western influences, as well as a plurality of pedagogies. Structurally, it bears the influences of each Spain, the United States, and Philippine administration since independence. Each of these influences has interacted along a central divide of secular institutions and non-secular institutions. Beginning in the Spanish colonial era, all formal educational institutions were Roman Catholic in principle and curriculum. These institutions were largely without complement until the American administration of the Philippines.
Along with many other infrastructure investments, the American period brought about the state-run Public School system, with the goal of providing free education for all. Since independence, the Spanish and American legacies evolved into one of the Philippines’s greatest social assets. While the demand for quality education grows as the Philippines’s economy is increasingly globalized, the educational system faces additional challenges in providing inclusive opportunity.
Before the arrival of the Spanish, there is no record of formal educational institutions. Nevertheless, the relatively early arrive of the conquistadors and colonization, the Philippines has one of the longest histories of formal education in Asia. Endemic to the Spanish modus of colonization was the cultural and religious incorporation of the natives, including a religious and Spanish language education. During this time, all formal institutions of education were established and run by the Roman Catholic Church, which functioned hand-in-glove with the Spanish crown. The oldest institution of higher education in Asia, the Royal and Pontifical University of Santo Tomas (UST), was established in 1611 during the height of Spanish colonial rule. It was originally administrated by the Archbishop of Manila and to this day is run by the Dominican Order of Preachers. While the line of public and private institutions was non-existent during the Spanish rule, these institutions came to form the core of private education in subsequent centuries.
These schools historically catered to the upper echelons of society, comprised mainly of Spanish rulers and creoles or those of Spanish/European descent who were formed the elites of Philippine society at that time. The Spanish educational system was mostly focused on catechesis and was mostly open to the elite and évolués of colonial society. However during the latter part of 333 years of Spanish rule, the Colonial Government began providing free primary education to all social classes, races, and genders. This was initially a response of the Spanish Colonial Government to the growing resentment amongst Filipinos as a result of socio-economic exclusion. In the end this was mostly symbolic of waning Spanish authority as the Spanish-American War soon resulted in new administration. However, the longevity of the educational institutions established by religious orders during Spanish times, is important to note. Many still exist and comprise a significant resource in developing the human capital of Filipino youth today.
As the Philippines transitioned to American colonization, the American Educational System brought significant changes. Under the American rule of the Philippines, free public education was offered and the medium of instruction was switched from Castilian Spanish to American English. The first set of public school government employed teachers arrived in the Philippines in 1901. This group of 1,000 voluntary educators was conscripted from across the United States of America and was commonly referred to as Thomasites (Roma-Sianturi, 2009). Their stated mission in the Philippines was to help establish a universal formal educational system in the country to rival any colony. It was an essential part of the American experiment of colonization as system of social elevation. Crucially, it also did much to placate large portions of the population who may have otherwise sympathized with Aguinaldo’s freedom fighters.
The new American system contained very apparent forays into the Americanization of Filipinos. Much like the schools in the continental United States, students were taught to sing the American national anthem, the “Star Spangled Banner”, as well as the geography of the United States and national heroes. The term, “little brown brother”, (first used by then governor of the Philippines, William Howard Taft,) aptly captures how these measures fit with the Americans’ goal of advanced cultural assimilation. However, most central to this project was a pointed emphasis on teaching Filipinos to read and write in the English language. Although most markers of Spanish colonization could not be erased, changing the lingua franca to American English served to fully sever the vestiges of three centuries of Spanish rule in business, government, and public institutions.
While this significantly complicated Filipino identity and culture, it was nevertheless successful (from an American perspective) in winning over the hearts and minds of the Filipinos. In line with its own domestic education system, the American administration catalysed the reality of universal education and invited Filipinos to engage culturally and economically with the rest of the world. For the first time in its history, the Filipino people had universal access to basic education. In time, the expansive and inclusive educational system also guaranteed the temporality of American rule. Ideas such as liberty, freedom, equality—classical pillars of American thinking and democracy— swept across the archipelago. As education became accessible to all, regardless of status, many more Filipinos came to see a legislative solution towards independence as the most viable.
Gaining independence from the Americans in 1946, the Philippines was reborn as a new Republic that had to rise from the ashes of war. With the aid of the American’s war reparation funds, there were efforts to rehabilitate educational infrastructure and the restoration of the educational system with the same values and principles that were pervaded before the war.
Japanese invasion greatly strained the already fragile infrastructure of the country and left the educational system in clear crisis. Despite the clear need for investment, the government failed to address this issue resulting in years of neglect of the Philippine educational system. The Public School system lacked teachers and the infrastructure from before the War was either heavily damaged or completely destroyed. The private educational institutions, most of those being of religious Spanish creed, were heavily damaged as well and many clerics and professors of these institutions were killed during the War. Through the 1950s and 1960s, the Philippines saw a rapid economic growth as a newly independent nation in the midst of burgeoning South East Asia. While this may have otherwise enabled greater investments in education, a rapid increase in population began to push the country’s educational system to the limit.
The Marcos Era eventually resulted in a massive centralization of education administration, bringing public and private institutions under a single national body. This allowed the Executive Branch to establish and attempt to raise the standard of achievement. With the establishment of the Fifth Republic in 1987, free primary education, and later secondary were made mandatory. Over the years, fine-tuning of local and national administration helped the System to accommodate ever-growing population. Furthermore, offering funding to private institutions helped to extend quality and affordable education across the country. In the early 2000’s a massive restructuring aimed to increase leadership effectiveness and local accountability and left the System under the new Department of Education.
During the academic year 2006-2007, the Department of Education (DepEd) estimated a total enrolment of 20.1 million pupils at the elementary and high school level for all public schools nationwide. This translates to a shortage of proper infrastructure of 10,549 classrooms, 1.22 million desks, 67 million textbooks, and 12,131 teachers and professors to plug the gap (PhilRights, 2014). These shortages and gaps that have been plaguing the Philippine educational system have been a recurring constraint on human capital investment. While adequate educational facilities and quality education has been a long-standing demand by Filipinos, the aforementioned limits continue to frustrate communities. As local institutions have struggled, middle and upper classes are increasingly sending their children to leading private schools in the country and often even overseas to complete their education. Popular destinations include the United States, the United Kingdom, Australia, Canada, and other Anglophone countries.
In 2012, the Philippines implemented the mandatory K to 12 Program in all public and private educational institutions of the Primary and Secondary level. The Philippine Department of Education conceived this program to modernize the Philippine educational system and to increase the number of years and the quality and content of the education provided to the Filipino youth. Through this initiative, the Philippines aims to achieve global basic education standards in the coming years. The K to 12 Program focuses on the holistic development of the Filipino youth by preparing them for education at the tertiary level, both in the Philippines and in overseas universities, as well as offering high quality courses in a technical or vocational field after their secondary schooling.
The K to 12 program extends from Kindergarden to twelve (12) years of basic education. This includes six (6) years at the Primary level, four (4) years spent in Junior High School, and two (2) years of Senior High School. The aim is to provide students with ample time to acquire proficiency in the necessary skills to advance on to Tertiary Education or direct employment upon completion of basic education.
While the number and enrolment in private institutions has remained largely static, it seems most expanded enrolment has occurred in public institutions. Since 1990, enrolment in public institutions has more than doubled. Furthermore, public investment in higher education has doubled in the last five years, reflecting the gradual shift towards a middle-income status across the Philippines.
Philippine education in numbers (2012-2013):
- Elementary Institutions: 46,403
- Secondary Institutions: 12,878
- Tertiary Institutions: 2,374
- Private of Elementary Institutions: 16.7%
- Private of Secondary Institutions: 39.8%
- Private of Tertiary Institutions: 71.0%
- Elementary Completion Rate: 73.7%
- Secondary Completion Rate: 74.8%
Historically, the Philippines was pushed to political importance for its regional location and the quality of natural ports. Today, there are over 100 major cities in the Philippines located on the sea, including Manila, which leverages its location on Pacific and Asian shipping routes. In 2012, almost 4 million containers passed through Manila alone. However, an even greater natural wealth exists under water.
The Philippines possess an exceedingly diverse population of ocean life, living in its mangrove forests, coral reefs, and open oceans. While seafood exports contribute less than $1B annually to GDP, it is a massive part of Philippine life. More than 50% of animal proteins consumed domestically are derived from marine sources, and nearly 2 million individuals rely on fishing as a livelihood. Different fishing methods practiced in South East Asia have varying impacts on the short-term and long-term sustainability of fishing stocks. While local individual or cooperative fishing typically uses small nets or line and hook techniques, the use of dynamite and cyanide are becoming more common. These practices effectively either kill or stun nearby fish, but in the process kill, poison, or physically dismantle reefs— vital nurseries of ocean diversity that take many decades to recover.
However, such extreme practices are primarily a consequence of depleted stocks in traditional fisheries. Particularly for local fisherfolk, growing coastal populations, rising urban demand, and ecosystem strain from commercial fishing have made traditional methods less viable. The more damaging methods have allowed subsistence fisherfolk to survive without having chasing the remaining fish stock into deeper and deeper waters. On the other end of the spectrum, commercial trawling vessels frequently utilizing trawling methods and nets that are both damaging to the ocean features and are not sufficiently selective in which species are finally brought aboard, known as by-catch.
The east-facing shores of the Philippines also experience steady and substantial wind coming off of the Pacific. Still, even when combined with biomass and solar, these renewables contributed less than 300 of the 75,000Gwh of energy produced in the Philippines. Essential barriers to developing coastal wind farms include the infrastructure development costs to build the diffuse grid needed to connect turbines to population and aesthetic concerns. Furthermore, the government has had far greater success developing geothermal resources, which accounted for over 10% of energy production. However, there are plans to invest in harvesting the ocean winds, including one project that is predicted to produce around 370Gwh of energy.
From the time of the formation of a modern Philippine economy, it has been defined by agricultural production. Typically, between 30% and 60% of livelihoods have been partially or entirely agricultural-based. This has often been responsible for shaping the natural environment, politics, and foreign relations of the Philippines. Land and soil resources are the veritable intersection of poverty, corruption, rebellion, and the export economy. As the relationship between management, land distribution, and subsistence livelihoods is independently discussed in the Poverty, Conflict, and, History chapters, this section will discuss the nature, volume, and (potential) value of land resources.
As a large portion of agricultural production is directly or locally consumed, most measures of the output are frequently an understatement. Within the total area of the Philippines, the Philippines Statistics Authority identifies that 32% of the land is ‘Agricultural Area’. The Food and Agricultural association evaluated the total percent of land area available and suitable to agricultural use to be around 41%. This suggests there is significant room to further advance agricultural production. The expansion of infrastructure and greater political stability within Mindanao represents a new frontier for economic productivity of arable land. Improving infrastructure across the nationa is vital to expanding market access, as much of the best soils exist in rural, mountainous regions.
Ultimately, mismanagement and poor regulation of land use has become increasingly problematic. The steady trend of deforestation, often through slash and burn methods, and the spread of conventional industrial agriculture has been detrimental to the physical stability of topsoil.
While the volcanic geological history of the Philippines endowed many areas of the archipelago with rich soils, destabilization has led to widespread erosion. Conventionally this problem is answered with increased use of industrial fertilizers. However, this is often cost-prohibitive for subsistence farmers and does little to remediate the loss of what is essentially a non-renewable resource. In the late 1990’s, it was estimated that around 600,000 metric tons of soil were being eroded annually. Belonging to a region particularly susceptible to a variety of natural disasters, the risks of rapid erosion and landslides demand decisive policy from the Land Management Bureau.
Land and forest resources in the Philippines have been in tension for much of the last century. Aggressive government policies to grow wood and agricultural exports often gave free license to a range to individual farmers and companies to make use of existing land, as well as clear or log forested areas. Eventually, improvements in allocating property rights and logging/cultivation licenses improved the government’s ability to manage these resources. However, much of the damage to existing forests had been done. Today, the most extreme estimates show only 7% of natural forests remain intact.
As a source of production, forests have been an important part of the Philippine economy. In 2012, wood-based products amounted to 3.4% of exports. Processed products, such as plywood, pulp, and timber, drive this sector. This area of forest production has proven much easier to manage and practice sustainably. Since the 2011 moratorium on harvesting wood products from natural forests, the Forest Management Bureau reports that 99.6% of these products are sourced from timber plantations. Meanwhile, a complement to the moratorium, the National Greening Program, has shown near complete success in its mission to replant 1.5M hectares by 2016, several years early. Amidst these aggressive programs, forest production as a percent of GDP has remained more-or-less stable.
However, local consumption of forest products, as well as illegal logging, continue to strain the multi-sector and biological value of forests. There exists exceedingly little economic or volumetric data on illegal timber trade, but satellite data tracking fires and clearing associated with deforestation show a 200% increase in such events since 2010, compared to the first 11 months of 2014, (from 276 in 2010 to 837 in 2014). Most of this activity is related to farming and the illegal harvesting of trees for household or small business use. The consequences of continued deforestation are manifold. Related industries, particularly the burgeoning eco-tourism sector, will face bleaker long-term outlooks, while other costs are much more tangible. Devastating mudslides have been striking the Philippines with increasing frequency, killing thousands in recent years. These dramatic instances of erosion are the tip of the iceberg that is topsoil erosion across agricultural areas. The human and economic costs of forest mismanagement are real and growing.
While the Philippines has nearly negligible coal and petroleum resources, metallic and non-metallic minerals contribute significantly to national production. Gold exports alone contributed approximately 1.07% of GDP in 2011. The gross value of all mineral production was over 2% of GDP in the same year. As a percent of total exports, minerals accounted for over 6%.
Gold, Nickel, Copper, Zinc and Silver are the primary mineral exports of the Philippines. By share of reserves and demand, Nickel holds the most capacity for growth. From 2007 to 2011, Nickel production nearly doubled to 241,000 metric tons annually. Another notable product is Dolomite, a crystalline mineral with many industrial applications and importantly used in cement production. Particularly within the region, this places the Philippines as a central supplier of this mineral for domestic and international (including Australia and New Zealand) infrastructure development.
The mining industry has significant room to grow in the future. A central barrier to this development is a convoluted application process for mineral rights. In 2011, the Department of Environmental and Natural Resources issued a memorandum that froze the ability to apply for new rights, in order to address the backlog of over 2,000 applications for unique sites throughout the archipelago. While this is a serious impediment to new players hoping to capitalize on these resources, it will hopefully serve to invigorate “stale” sites, where there is minimal or no development of resources and open these to current or future applicants.
Beaches, Forests, and Animals
The Philippines is one of the fastest growing tourism destinations in Asia in the last decade. Since 2005, annual visits to the country have increased by roughly 300 million. In the same period, money spent by tourists in the Philippines grew from $1.5B USD to $6.8B USD in 2012. Much of these gains have followed the slow and steady development and diversification of destinations and amenities.
Beaches alone represent a massive subset of Philippine tourism. The over 7,100 islands provide a full-offering of beach and water related activities, ranging from fishing and scuba diving to luxury resorts and conference facilities. Regularly, areas on Boracay Island and the much larger Palawan Island are rated among the best beaches in the world, typically as the best in South-East Asia. However, as manageable as it is to keep the sand clear, reef destruction is a difficult to manage the issue with immense costs on the tourism industry. In 2000, the World Bank estimated that each square kilometer of coral reef was worth $30,000 to $113,000 in income through tourism.
Long-standing tourism hotspots are increasingly in productive competition with destinations, like Bohol, where tourists can experience the landscapes and extreme biodiversity of the Philippines. Mountains, caves, rainforest, and globally unique formations attract tens of thousands of eco and adventure tourists annually. Many of these locations also offer exposure to many animal species unique to the Philippines, such as the Philippines Eagle, Flying Lemur, and Philippine Tarsier. Each of these species, as well as many others, is listed as threatened or endangered primarily as a product of hunting, habitat destruction, and illegal animal trade in the case of the Tarsier.
The Philippines economy, while shifting form quite rapidly, continues to rely on its time-tested strengths: agriculture, extractives, and service sectors. Most growth in the burgeoning economy is occurring in manufacturing, financial, and construction sectors.
As other sectors have grown, "agricultural, fishing and forestry activities" remains important, but contributes only 11.2% of GDP. The industrial/manufacturing sector contributes with 31.6% and another 57.2% comes from the services sector.
According to the most recent survey data, fishing, forestry and agriculture activities generate P86.2 billion annually (2010). The value share of each activity in the sector is the following:
- Banana growing (38.2%)
- Hog Farming (13.7%)
- Ocean fishing (12.6%)
- Chicken Farming (5.7%)
- Sugarcane (3.9%)
- Pineapple growing (3.6%)
- Other related activities (22.3%)
Despite this sector being the largest employer (32% of Filipino workers) and having further potential to grow, its overall contribution to the country's production does not look to grow much in the near future. In the 2013-2014 the agriculture and fishing sectors growth in output was weaker from the previous year, 1.2% against 2% in the previous year.
Thus, while further opportunities are available in the sector, general urbanization trends and growth in other sectors, suggest that there will be little growth, and overall diminishing share of GDP in the agricultural sector.
Mining and Petroleum
The Philippines archipelago is highly endowed with mineral resources, especially in metals. Mining and quarrying in 2013-2014 experienced the same growth rate as recent years, around 2%. The sector employed almost 27,000 people and generated an output of P157 billion, or 0.008% of GDP. However, these numbers do not represent the exceptionally high potential of the Philippines as a producer of precious metals. Despite having an official strategy to begin capitalizing on reserves that have been estimated to be worth over $1 trillion USD, complications continue to hold growth back. One central issue has been the lack of a clear mineral governance framework. Key issues, such as setting royalty rates and revenue sharing schemes prevent more efficient foreign firms from entering in earnest. Furthermore, many of these resources lie in Mindanao and other southern areas, where regional governments are much more likely to be skeptical of national laws and foreign firms.
As the central government races to establish a new legal code for mineral extraction, it will have several goals. First will be encouraging investor confidence through transparency in the permitting process. Secondly will be assuring communities and mining companies that activities will be conducted legally and to the benefit of all stakeholders.
Currently, gold, copper and nickel ores are the most labour intensive products, employing between 6,300-6,800 each of them. However, in terms of produced output, oil production, which only was employing 465 people in 2010 outpaced the rest of the sectors acquiring a 27.3% share of the whole mining quarrying sector. Copper ore, gold ore and nickel ore had smaller shares of 20%, 15.3%, and 11.2% respectively.
The general “mood” around the industry remains very positive about opportunities for domestic and international development of extractives exports.
Philippines is increasingly fulfilling its title as a newly industrialized economy as it increasing develops an export oriented manufacturing sector. Several factors, including a large, educated, and English speaking workforce, continue to draw foreign manufacturing activities to the country, while domestic operations grow at a slower, but steadier pace. As it grows, the challenge central challenge is to remain competitive while moving up the manufacturing value-chain. To good effect, the Department of Trade and Industry (DTI) has been very active in this area.
In 2013 the growth rate of manufacturing was around 9%, placing the Philippines as the 26th fastest growing sector in the world.
Chief exports have been dominated by electronics components and semiconductors. However, in terms of all production, the dominance of this sub-sector does not hold, as it only represents 14.7% of the total. In the Philippines Statistical Authority’s survey, this is followed by manufacturing of ‘other computer equipment’ (5.4% of all production). While component manufacturing will remain important, much hope is being placed in producing finished goods, specifically automobiles. Currently motor vehicles represent 3.1% of all production. This is expected to following strong initiatives by the DTI, including the implementation of an Executive Order called the Comprehensive Automotive Resurgence Strategy (CARS), which will offer tax breaks and incentives to companies willing to relocate to the Philippines. The DTI Secretary claims this will create around 200,000 jobs and grow the sector by the equivalent of 1.7% of GDP.
Between 2010-2012 the number of individuals employed in the construction sector increased 47.2%, reflecting the steep growth in this area. Proportionate expansion can be observed in the output value, which increased by 56% just in two years, accounting for P247 billion.
The construction of buildings accounted nearly for the half of the total sector output (45.8%), followed by road construction (36.5%) and different installation activities (12.5%). The rest accounts for “other” construction activities.
Its strong growth has been generally attributed to overall growth of the economy, increasing incomes, and the growing financial sector.
However, the construction boom has been flagged by the International Financial Organization, which advised raising the interest rates, as it is has appeared to outpace growth in other areas of the economy. Raising rates may help avoid a possible construction bubble and prevent general overheating of the economy.
Philippines has a steady history of energy sector privatization which started in early 90’s and attracted foreign and national capital into the energy development projects. It employs around 48,000 workers and provides the country with 69,050 GWh of energy.
The new Philippine Energy Plan 2012-2030 seeks to correct supply imperfections and ensure low energy prices through many different programmes that it manages. The biggest challenges today are to meet demand in population-dense Luzon and Mindanao, as well as the implementation of a balanced power generation mix.
Currently, the installed capacity is produced with the following technologies: coal (37%), oil-based (4.8%), gas (29.8%), geothermal (14.4%), hydro (13.7%), and wind and solar (0.3%). The Plan contemplates the further development of renewable energy capacity, as well as their reliability in disaster prone areas.
Water supply and treatment
Around 18 million of Filipinos still lack access to clean water, and around 10 million do not have access to toilets This creates serious costs on human health and water resources.
In order to solve these problems the Philippines government has to overcome some challenges such as regulatory unification, the increasing demand for water, improving the sanitation, and gathering reliable data on water resources.
As incomes have increased in the last decades, the services sector has only increased in relative importance. From the 1980s to 2012, the sector grew from 36% of GDP to 57%, and currently represents around 52% of employment. Its chief components are real estate, business outsourcing activities, and tourism.
While the overall economy continues to globalize, the share of services that was export-oriented, meaning services supplied to foreign companies or individuals represented just over 12% of all services. While these are of higher relative value to domestic services, it reflects just how very reliant the economy and labour market is on strong domestic demand for services.
The growth rate of the sector in the current year is projected to be around 6.2%, much of it driven by growth in export-oriented activities.
Trade by products
During 2013, the most exported products from the Republic of Philippines were electronics, manufactured goods (textile, footwear, pharmaceuticals, and others), furniture and woodcraft, chemicals, machinery and transport equipment.
Electronic products during 2013 represented 42.2% of the total exports from Philippines. In this wide category major subcategories include semiconductors (transistors, diodes, etc.), data processing equipment (laptops, printers, hard discs, etc.), office equipment, telecommunications, medical and consumer electronics. Usually, these products are produced by foreign firms with production facilities located in the Philippines. The exports of electronic products grew in 2012-2013 in 4.5%.
The other three manufactured goods categories, general (textile, footwear, and others), woodcrafts and chemicals also have shown a positive growth rate in 2012-2013. Each one grew in 2012-2013 in 32%, 42.6%, and 53.3% respectively. Although the latter ones had little share in the global Philippine exports composition one year ago, their growth rate remains impressive.
Finally, the fifth biggest export category, Machinery and Transport Equipment, is the sole category that decreased in 2012-2013, by 37.7% from the previous year.
The most imported types of goods in 2013 were electronics, fuels, lubricants, and transport equipment.
Philippines exports are distributed over the following geographical destinations: Japan (21.3%), USA (14.7%), People’s Republic of China (12.4%), Hong Kong (8%), and Singapore (7.3%). The rest (36.3%) arrives in other Asian countries, Europe and the Americas.
Major categories exported to Japan are furniture and electronics, accounting for $17.273 million. The main articles imported from Japan were electronics (assembled devises) and transport equipment (cars, trucks and motorcycles). Japan is the top importer and number three exporter in the trade with Philippines.
The United States, the second largest market for Philippine exported products, mainly imports electronics and apparel articles and clothes, each worth of $3.005 million and $1.009 million respectively. The main imported products from USA were electronics ad transport equipment. Each category was worth of $3.400 and $809 million of the trade volume.
The People’s Republic of China is both the number three importer and number three exporter with Philippines. The main imported products from Philippines were electronics and minerals, each of them worth of $3.443 and $936 million. The main exported products to the Philippines were electronic products fuel and lubricants, worth $1.555 and $824 million respectively.
In order to boost the interregional trade, the Association of Southeast Asian Countries (ASEAN) adopted the ASEAN Free Trade Area (AFTA), the 28th of January of 1992. By way of lowering tariffs and eliminating other trade barriers, the rise of trade volume, economies of scale and country specialization comprise the main goals of AFTA.
The agreement was originally signed by the following countries: Brunei, Indonesia, Philippines, Singapore, Malaysia, and Thailand. Since then, more have joined the list such as Myanmar, Cambodia, Laos, and Vietnam.
The ASEAN is also working with other countries in the region in order to make the AFTA agreement even bigger, and treaties have signed with Australia and New Zealand, China, India, Japan, and Korea.
At the moment, the treaty is being extended to include new products and improved information systems within the association, which is estimated to improve the exports of each country by ten percent. Furthermore, the organization is continuing to look for strategies to develop its collective exports to the rest of the globe.
As the Philippines continues to experience an extraordinary GDP growth rate, the Central Government will need to enact sensitive policy and regulation to capture increases in revenue from the private sector, and moreover do without slowing growth. Although the Corporate Income Tax (CIT) is not currently largest or most important tax in terms of government revenues, it will still be extremely important in mediating growth, especially with Small and Medium Enterprises (SME’s). The general tax rate for any enterprise is currently 30% of their income, with some exceptions when the firm has losses or no profit, and is applied evenly to both domestic and foreign firms operating in the country.
The World Bank’s Doing Business 2015 report provisionally ranked Philippines in 97th out of 189 countries in terms of “ease of doing business”, a fall of six places from the previous year. It averages 29 days and 16 procedures in order to start a formal new business, and 98 days and 24 procedures in order get all construction permits. Compared to the broader region in the Doing Business analysis, the Philippines is marked by a more complicated and slower processes to opening a business there.
According to the Global Competitiveness Report 2015, the five biggest obstacles for doing Business in Philippines are the following: (1) Corruption, (2) Inadequate supply of infrastructure, (3) Tax regulations, (4) Inefficient government bureaucracy, and (5) Tax rates. Ameliorating any of these categories has proven extremely difficult, but especially the issues of corruption and bureaucracy are central to the platform of President Benigno Aquino’s administration.
Philippine private sector is curiously dominated by small and medium enterprises. The 99% of the firms were SMEs (Small and Medium Enterprises) and only 0.4% were identified as big firms. In terms of employment the situation is more balanced: the share of national employment market for micro firms, SMEs and large enterprises are 30%, 32%, and 38%, respectively. The Philippine micro and SMEs enterprises are often operating with very little synergies with large firms, and even so, they find commonly their way to international markets. Regulation will have a massive impact on these figures in the coming years and therefore the future structure of the economy.
The two most areas that have to be improved in order to boost the growth and job creation through the private sector: the quality of institutions that are dealing with firms and the quality of infrastructure necessary to conduct their activities. Regarding the first, many entrepreneurs are facing a very decentralized bureaucratic system where they have to obtain the necessary permits from local, provincial, and state level administrations. The red tape, together with the corruption, slow judiciary system, and subjective taxing pose a constraint on businesses in the country. The latter one highlights the bad quality of the infrastructure. Although the Philippines excels in tech infrastructure, namely internet access, the quality of maritime ports, roads, bridges and airports still has to be improved to aid firms in bringing goods and services to market.
The present constitution of the Republic of the Philippines came into force in 1987 to replace the Freedom Constitution, which was a temporary bridge following the dissolution of the Marcos-era constitution. Having been developed in a closed constitutional commission, the current constitution was ratified by a national referendum on February 11th, 1987.
The general architecture drew heavily on previous constitutions, while also bearing significant influence from the American Constitution. As such, establishes three main branches, the executive, legislative, and judicial, and is officially a constitutional republic with a presidential system.
The executive consists of an elected President, who serves a single six-year term. With each new President, an executive cabinet is formed through the presidential appointment of Secretaries to head each executive department. An appointment review committee checks this process. An elected Vice-President, who may or may not belong to the same party, assists the president in his or her administrative responsibilities. In the event of resignation or any failure of the President to complete the six-year term, the Vice-President is first in line to succeed and complete the term.
The Federal level oversees two branches of local government units, Autonomous Regions and Provincial Governments. This arrangement with Autonomous Regions has only been applicable in select cases. Today the only region that falls into this category is the Autonomous Region of Muslim Mindanao (ARMM), (soon to be re-established as Bangsamoro). Autonomous regions are granted a system of government divergent from the rest of sub-national administration, but still subject to the federal government.
This is generally reflected in that they possess much greater ability to self-govern the tertiary units within them. By inserting this level of governance between the Federal government and local units, essential causes of civil war have been mitigated, in the case of ARMM. Notably, the voluntary application of Shari’ah Law to Muslims living in the region and the greater control over land distribution are essential to the purpose and function of this administrative unit.
There are two generalized units directly beneath the Federal level and also within Autonomous Regions: cities independent from provinces (of which there are 143), and provinces (of which there are 81). Independent Cities represent highly urbanized and population-dense areas that effectively self-govern. This in principle provides for more nimble, local, and representative governance of these areas and adjacent provinces. An urban area can apply for independence from their province to achieve this status, a request that is reviewed and resolved by the President.
The Provincial and City units possess general legislative and executive powers, so long as they do not conflict with the Federal constitution. When such a conflict arises, the matter is referred to the Federal judiciary.
Within both Provincial and City divisions are Municipalities (total: 1494), as well as Component Cities within the former. These divisions bridge the smallest unit of governance (the Barangay) and Provincial/City governments. They also possess legislative and executive branches, just as the next highest level, again with nested legal and administrative abilities.
At the bottom of the local governance structure is the Barangay. This is a group of elected officials that fulfil primary legislative, judicial, and security functions for their constituents. The justice council, while not able to make any legal judgments, serves the vital purpose of resolving disputes and taking burden off of the courts. Terms are three years long, promoting turnover and the democratic use of authority.
All funding for Barangays and a wide majority of funding for all other levels of local government comes directly from the Federal Government’s Internal Revenue Allotment. Barangays have no authority to enact or collect taxes.
At the centre of the Philippines’s justice system is the Supreme Court. This is comprised of 1 Chief Justice and 14 Associate Justices. Justices are appointed by the President and reviewed by the Judicial and Bar Council, which is comprised of private and public officials. Justices serve until the mandatory retirement age of 70. The Court not only oversees all other courts in the Philippines, but also possesses the right of judicial review, meaning it is able to nullify law and federal policy.
Under the Supreme Court are three major courts: the Court of Appeals, Sandiganbayan, the Court of Tax Appeals. The Court of appeals serves the vital function of reviewing cases from Region Trial Courts, and formerly did so for the Court of Tax Appeals as well. The Sandiganbayan is a unique appellate court that was established specifically to handle cases of corruption, graft, or abuse of office by public officials. The Court of Tax Appeals charter is to enforce the fair and accurate assessment of taxes from the local level and up. It works closely with Internal Revenue in investigating cases and providing rulings. All justices in each of these three courts are appointed by the President and reviewed by the Judicial and Bar Council.
Underneath the review of the Court of Appeals are Metropolitan and Municipal Trial Courts, Municipal Circuit Courts, and Shari’ah District Courts. The Shari’ah courts are only applicable in the case of ARMM/Bangsamoro, where Act 9054 allows for their establishment. This legal system “is applicable in the region, only to Muslims or those who profess the Islamic faith”. Furthermore, these courts and all rulings must abide by the Federal constitution and are subject to review by the Court of Appeals.
The Philippines' law-making bodies consist of an upper and lower house, the Senate and House of Representatives respectively. The Senate is comprised of 24 members that represent the entire national population for a six-year term, which they cannot serve more than three times. The House of Representatives has 292 members, where 234 represent a legislative district and the remaining 58 are Party-List Representatives. The Party-List system allows Filipinos to cast one vote for a platform, cause, or minority representative that may not be specific to a single region. Parties can have up to three representatives elected, winning one representative for every two percent of the national vote.
Procedurally, the two bodies function nearly identically to their American bi-cameral counterparts of the same name. In order for any bill to become law, an identical version must pass both houses before reaching the desk of the President for ratification. Bills relating to taxes must originate in the lower house. The right to initiate the impeachment of a member of Congress or the President also lies with the House of Representatives. In turn, the Senate has the authority to approve treaties.
The Philippines is multi-party system consisting of a diversity of parties, with six parties typically accounting for a wide majority of elected positions. The most successful party in the larger lower house is the Liberal Party, which also won the Presidency in 2010. Founded in 1945, the Liberal Party is one of the oldest and most historic parties. Despite originally being the vehicle that brought Marcos to power, it soon became one of the most audible sources of dissent and is now presents a centrist platform. Also of historic note are the Nacionalista Party(social conservatism and economic liberalism), Nationalist People’s Coalition (social conservatism), the National Unity Party (social conservatism and Christianity), and the United National Alliance (social conservatism).
The second major feature of the electoral political tapestry is the local party. These organizations exist to promote candidates and platforms at the sub-national level and typically exist within only one province, city, or municipality. Although they often possess affiliations with national-level parties, they typically maintain localized platforms. They have become increasingly important in the implementation of decentralization and fighting elite capture.
General sentiment in the media around the 2016 presidential is rather cynical. Many commentators report that there is general disaffection with the national government and national parties, with many claiming that major parties simply serve the interests of wealth and powerful families. Current candidates include two children of former presidents, including Senator Ferdinand Marcos Jr., son of the late dictator. Despite making some meaningful changes outgoing President Aquino’s party has not made good on its promises to fight corruption and reform the nature of politics in the Philippines. Major issues currently being debated are corruption and wealth inequality.
The Philippine economy was able to generate a surplus in the recent years and to reduce its debt stock by 39% in 2013. However, in order to implement its wide range of development programmes, revenue and budget execution control systems still have to be improved. Social spending receives the largest share of the expenditure, reflecting the historical desire of the government to spend heavily on development and poverty alleviation.
The Budget drafting process
The Budget of the Republic of Philippines is set annually, except in the case that it is not approved before the expiration of the previous years’ budget. In that event, the previous year’s budget is automatically renewed.
The design of the budget is split up in four stages: preparation, legislation, execution, and accountability.
The preparation stage starts with the Budget Call from the Department of Budget and Management to the agencies in order to discuss their proposals and suggestions for the next budget. There are discussions, engagement with the mains stakeholders, and solving the technical issues before the consolidation. In the end, the proposed document is submitted to the President who delivers the document for the next, legislative stage.
The legislation stage starts when the House of Representatives elaborates on the General Appropriation Bill, including some suggestions and general revisions to the whole document. This bill then is passed to the Senate, which makes its own version of the document, called the Senate Bill. The two chambers debate between each other in order to submit the Ratified General Appropriation Bill.
The President subsequently receives this version of the Bill and has the power to veto it, alter some parts of it, or alter the full document. If he or she approves, the document is enacted and it passes to the implementation by the agencies with authority granted in each chapter of the budget.
The third stage, Execution of the budget comprises carrying out those instructions and disbursing funds to the appropriate departments, allowing them to implement the programmes contained in the new budget.
In the fourth and the last stage, all the departments have an obligation to submit the accountability on the state of the programmes, which is evaluated in the end-of-year results of each department. The auditory and the incentives-systems are also implemented in order to motivate and control the performance of the departments.
The total Philippines budget in 2013 was around $49.7 billion, and the expenditure programme for 2013 was 10.5% higher than in the previous year. More than half of this increase was directed to social services.
The largest part of the budget goes to Social Services (34.9%), accounting for more $16.5 billion. This includes not only the education and healthcare, but also housing and several social programmes.
The second largest allocation of the budget is to economic development. A total of $12.1 billion was designated (25.4%) in 2013. These resources were meant to support different programmes that are aimed at improving the economic performance of the country in different sectors. The agricultural sector was scheduled to receive 22% of this money, the agrarian reform process was to receive 6%, natural resources sector 7.7%, and finally transport and communication infrastructure received 56% of this total.
The third allocation addresses debt burden which receives 18% ($8.5 billion) of the total budget. Although the debt stock has decreased in recent years, a considerable amount of resources is still needs to be directed to interest payments. The Philippines is making an effort to reduce the debt stock, not because the current debt level is critical, but to foster higher fiscal stability.
The fourth allocation destination of the budget is to fund General Public Services. Approximately $8.2 billion (17.3%) out of the total budget for 2013 is directed to the pay of public servants and programmes development (in the judiciary system, police, etc).
Finally, 4.5% of the budget finances defence.
The Philippines budget has a several sources of financing. The main part ($29.3 billion) comes from the Bureau of Internal Revenue. The other part ($9.4 billion) comes from the Bureau of Customs. The rest of the revenues ($3.4 billion) were obtained through privatization ($0.047 billion) and "other" sources ($3.4 billion).
The recent improvements in tax collection have made it possible to decrease the deficit, but there remains substantial improvements to be made the in mining royalties, VAT, and tax administration to carryout the ambitious plans to increase social and infrastructure spending. There is also an outstanding need to improve transparency in tax collection and revenue allocations to foster accountable and effective program administration.
The mandate of the Bangko Sentral ng Pilipinas (BSP) is “to promote price stability conducive to a balanced and sustainable growth of the economy”. It was founded as a replacement to the Central Bank of Philippines in 1993, some years after the fall of the Marcos regime.
The Philippine monetary policy, committed to promote growth-stabilizing prices and inflation, is largely dictated through managing interest rates, as well as exchange rates.
The former means that the BSP has an explicit inflation range targeting in order to keep it low and enable the growth of the economy. For example, in 2013 the target was 4% ± 1%, and for the current year the inflation target is 3% ± 1%. The main instrument used to implement the monetary policy of Philippines is the borrowing rate (REPOs). Other instruments that are also used are related with the trade of government securities, modifying the reserve requirements of the commercial banks and operations with the commercial banks funds that BSP (or related to it entities) holds in its accounts.
The organizational structure of the BSP consists of the Monetary Board, which is responsible for the design and implementation of the monetary policies of the country. The Board has seven members: one of them is the Governor of the BSP (the only one who represents the BSP and has the power to sign contracts in its name), one member of the Executive Cabinet and five appointed members. No members can hold other positions in public or private sector that may create a conflict of interest. Once appointed, the members of the Monetary Board serve for six years and can only be removed in extenuating circumstances. The only exception for the previous two rules is the member of the Cabinet who holds an important position in the executive branch, which does not align with the terms of the rest of the Board.
The Advisory Committee is the other important part of the BSP tasked with discussing and advising the Monetary Board on the monetary policy of the country. The Committee consists of five members: the chairman, the Governor of the Bangko, two deputy governors and two assistant governors. The deputy governors have different responsibilities, like supervising Monetary Policy Sector (Diwa Guiniguindo), or Supervision and Examination Sector (Nestor Espenilla). The assistant governors are in charge of Monetary Policy Sub-Sector (Maria Cyd Tuaño Amador), and of the Treasury Department (Maria Santiago). The Committee holds 8 meetings per year.
The Crisis and the current state of the monetary policy of Philippines
Inflation in 2009-2013 was very low and inside the target range set by the BSP. The low rates and stable inflation helped to exit the Great Recession. Relaxed monetary policy since the beginning of the crisis provided macrofinancial stability for the country. However, recently there are more and more voices advocating against overheating the economy. The amount of credit given by the commercial banks increased dramatically in the last year, especially for the construction sector. As the crisis already passed away from many countries in Asia, the Philippines is still reluctant to raise interest rates fearing how this would interact with the slowdown of the Chinese economy. Many postulate that China’s large share of Philippine exports would shrink drastically in this case.
The Marcos Era
Foreign aid to the Philippines has been both a national lifeline in times of disaster and a source of illegitimate political authority in times of poor governance. The presidency of Ferdinand Marcos, among many other economic and political changes, resulted in a major misuse and manipulation of foreign aid and investment. While graft associated with aid has not and is unlikely to return to such levels of abuse, assuring the transfer of aid to the appropriate and intended recipients is a necessary policy target.
The presidency of reformist Benigno Aquino III has brought higher levels of transparency, while also decreasing incentives for corruption. An official state resource in this effort is the updated Foreign Aid Transparency Hub (FAiTH), which now provides a public and meaningful tool to track all incoming aid allocations in the Philippines. While this platform provides an itemized registry of each transfer and pledge, it fails to approach complete transparency by providing no information on the application and disbursement of aid monies. However, it reflects an ongoing public discourse on theft of aid resources and a measured desire to resolve the issue.
While GDP climbs and aid as a percentage of GDP decreases, the misuse of general foreign assistance is of decreasing consequence. Some commentators posit that the long-term strategy for misuse of aid is to simply rely less on aid. In contrast, graft related to disaster and humanitarian aid, which has foreseeable relevance into the coming decades, is of greater priority in policy discussions.
Any discussion of foreign aid in the Philippines must also explore aid as a primary source of debt. In 2011 net Official Development Assistance (ODA) and Official Aid received was negative, climbing back to a positive $5M USD in 2013. Despite the Philippines receiving substantial amounts of aid from individual and multilateral partners, the generational project of servicing foreign debt eclipsed new grants and loans in these years. Foreign debt in the Philippines had a first major spike during the Marcos Era, when the dictator solicited a significant amount of funding ostensibly to be used for development projects. At the time of the People Power Revolution, debt exceeded 50% of GDP.
President Corazon Aquino did not pursue debt cancellation, preferring to preserve investment ratings by refinancing these accounts. This was successful when the Philippines participated in the 1980’s Brady Plan, which allowed creditors to reduce exposure by discounting the old debt. This had the net effect of halving the principle value of its debt and allowing the Central government to focus on economic development, avoiding therein a default.
In the decades that have followed, foreign-held debt continued to grow to around $45B USD. Annual aid received has grown to between $0.5B and $1B in recent years, an amount that seems to correlate with the frequency and severity of disasters. The far majority of this aid has come in the form of cash payments given directly to domestic, international, and multilateral organizations working in the Philippines. The rest consists of grants and primarily loans made directly to the central government. Both types of allocations have remained at more or less constant levels in the last decade. However, the long-term picture of aid has changed in recent years with the exceptional GDP growth.
The $70B growth in annual GDP since 2011 has coincided with a sharp increase debt repayment, particularly foreign-held long-term debt. This figure hit a local maximum in 2010, which contributed to the net-negative amount of ODA in the subsequent two years. By all indicators, current revenue suggests that the Central Government is willing and able to pay back foreign creditors and will do so in the coming decades. Furthermore, net ODA as a percentage of GDP has fallen sharply since the 1990’s.
A remarkable decrease in debt repayment during the Aquino presidency has led to a rebound in net aid figures in 2012, at a rate of 0.0% of gross national income (GNI). One key explanation of this figure is that the Philippines is repaying long-term (old) debt by taking on new loans. This policy has allowed the Central Government to free-up revenue to invest in areas vital to accelerating economic growth, while still maintaining stable levels of aid-related debt.
Still, the apparently heightened intensity of natural disasters necessitates a base level of liquid revenues that are discordant with the current fiscal state of the Philippines. Events like super-typhoon Haiyan/Yolanda (2013) have exacted massive infrastructure costs on the Philippines (in this case, over $2B). The international community has been relatively nimble in responding to these events, rapidly establishing multilateral, bilateral, and private funds to finance interventions to stabilize and rebuild affected areas. Thus while aid is decreasing in importance and as a share of government revenue, humanitarian and disaster aid appears to be stable and relevant.
Philippines is country where the risk of natural disasters is very high, especially for typhoons, drought and floods. Due to the lack of planning in allocation of the villages and towns, the human and capital costs are high and there is a 0.5% loss of GDP annually as a result of these disasters. The country is located in the middle of the Ring of Fire, around the Pacific basin, where the majority of world earthquakes and eruptions occur. This, combined with the El Niño effect makes out of Philippines a country with very high probabilities of earthquakes, eruptions, typhoons and floods.
Philippines is the country where the largest share of population is living in the high risk areas, taking in account its largest coastline (around 36.000 kilometers) and 22 active volcanoes. Taking in account the preparedness, exposure to the disasters, the flexibility in how the competent organisms react and susceptibility, the Philippines is the third place worldwide in disasters risks index.
The government organism responsible for the design and implementation of the contagion plans in the case if a disaster occurs is the National Disaster Coordinating Council. It advises the government in the policymaking regarding the disaster management, advises the President and supervises the readiness for an eventual disaster.
More than 75% of all natural disasters that occurred since the 70s happened in the Pacific region, affecting widely Indonesia, Vietnam, Philippines and other countries in the zone. As a result, the funds necessary for the development need to be used for the reconstruction of the infrastructure and housing rising the resilience of the poverty in the country.
Main challenges and action guidelines for a sustainable disaster risk management
The country is located right in the middle of the union between the Eurasian and Pacific tectonic plates causing very high seismic activity in the region. In average, there are around 20 earthquakes felt each day, but very few of them are destructive.
Philippines also has the largest coastline in the world because it has around 7.100 islands. But the biggest part of the coastline, especially in the East, is exposed to typhoons and Tsunamis. Each year there is between 20-30 typhoons and only 5-7 of them can be highly destructive.
The way to fight the disaster effects on the poverty has been addressed by the 2011-2028 plan, where some guidelines for future improvement has been set. First, the Disaster Management programmes should receive a larger funding and being incorporated in the regional and municipal development plans. Thus, the new regulations aimed to reduce disaster effect on the human and physical capital can reach a greater number of villages and receive more stable funding. Second, thee organism that should supervise the design and delivery of risk management and reduction policies has to integrate a wide variety of agencies, governmental and private.
The National Risk Reduction and Management Council was funded in 2010 and is aimed to be a multilevel structure that arrives to every village of the country and integrates a big number of government departments and government or private agencies. The main challenge of the agency during next decade is to deliver a well-designed and realistic plans that apart from alleviate disasters can also to boost the sustainable growth.
Philippine Presidential Election Guide
On the 9th of May, 2016, the Philippines heads to the polls to vote for a new government. The Filipino people are poised to choose a new president and vice president. This elections also coincides with the elections as well for a new slate of senators, congressmen, and local government officials. Amid much color and festivity, 130 individuals have stepped and submitted their certificates of candidacy for the position of president, 19 for vice president, and 172 for senator. The Philippine Commission on Elections is set to deliver a quicker more efficient and accurate poll by utilizing automated optical mark recognition machines to count the results of the ballot. This is the second time the election body is utilizing the automated system and is promised to be a key solution to providing a clean and well-organized election to a population which has otherwise been subjected with poverty, corruption, crime, and insurgencies.
The Philippine military buildup amid China tensions
The Philippines has been beefing up its military significantly amid tensions with China in the South China Sea. President Benigno Aquino Jr. has just announced that PHP25Bn (USD522Mn) will be earmarked for the 2016 Philippine defense budget. This marks a single year record investment on military modernization and the national defense budget. Budget Secretary of the Philippines, Florencio Abad, has openly declared “we need to protect what is clearly within our territorial jurisdiction” emphasizing the gravity of the country’s maritime row with China in the South China Sea. This move also comes along with the country stepping joint military exercises with its allies the United States, Japan, and Australia. The region is increasingly said to be the world’s next flashpoint.
Manila: megacity, mega traffic
102 million people call an archipelago of 7,107 islands home. The Philippines tucked away in South East Asia is the 12th largest country in the world by population. In a 1903 census conducted by the then American colonial administration, found that the former Spanish (later American) colony was home to 8 million people spread throughout the archipelago. In a 2015 study by the National Economic Development Authority, the now independent Republic was found to be home to 105 million people. This represents a 1170% population jump in the last 113 years.
Global hack, dirty money heist and OFW remittances
The Philippine financial system was rocked by the country’s largest electronic heist in its history. USD81Mn was hacked, stolen, and laundered from the US dollar account of Bangladesh Bank (Central Bank of Bangladesh) at the US Federal Reserve of New York and remitted to the RCBC (Rizal Commercial Banking Corporation), one of the Philippine’s largest banks. The whole fiasco turned into a firestorm forcing the resignation of Bangladesh Central Bank governor Atiur Rahman to resign from the top post and prompting the Philippine upper chamber, the senate, to start proceedings for a formal investigation into the matter.