PHILIPPINES

COUNTRY OVERVIEW

LOCATION AND SIZE.

Made up of about 7,100 islands, the Philippines is on the southeastern rim of Asia and is bordered by the Philippine Sea on the east, the South China Sea on the west, the Luzon Strait on the north, and the Celebes Sea on the south. Its land area, which is slightly larger than that of Arizona, measures 300,000 square kilometers (115,830 square miles), and its coastline is 36,289 kilometers (22,550 miles). The capital, Manila, is on the island of Luzon in the highly urbanized National Capital Region, which is made up of 12 other urban areas including the cities of Mandaluyong, Marikina, Pasig, Quezon, Kalookan, Valenzuela, Las Piñas, Makati, Muntinlupa, Parañaque, and Pasay. The main financial district is in Makati City.

POPULATION.

The Philippine population has more than tripled since 1948, from 19 million to an official estimate of 81.16 million in 2000. From 1995 to 2000, and the annual population growth rate stood at 2.02 percent, slightly lower than in 1990 and one-third less than the growth rate of 3 percent during the 1960s.

The population of the Philippines is young, with people aged between 15-64 years making up 59 percent of the population, while those under 15 make up 37 percent of the population. Those aged 65 years and above make up only 4 percent of the population.

In January 2000, the U.S. Agency for International Development (USAID) warned of the serious consequences of the booming Philippine population. It predicted the population will double by 2030 based on its 1999 growth rate of 2.3 percent, giving the Philippines "the equivalent of 58 percent of the current population of the United States [living] on 3 percent of its land area," a situation with "grave consequences" for the Philippine economy, society, and the environment.

The country is divided into 3 island groups: Luzon, Visayas, and Mindanao, known together as Luzviminda. These 3 groups are further subdivided into 16 regions. The 2000 National Census lists 61 chartered cities and 73 provinces in the Philippines, with the most populated regions in Luzon. Four out of ten persons in the Philippines lives in the National Capital Region and the adjoining regions of Central Luzon and Southern Tagalog.

OVERVIEW OF ECONOMY

The Philippine economy has experienced repeated boom-and-bust cycles in the 5 decades since the nation achieved independence from the United States in 1946. In the 1950s and early 1960s its economy ranked as the second most progressive in Asia, next to that of Japan. After 1965, when Ferdinand E. Marcos became president, the nation experienced economic problems and social unrest, especially from the 1970s, when corruption and cronyism (the practice of appointing friends to well-paid posts regardless of their qualifications) took hold. In 1972, Marcos declared a state of emergency and placed the country under martial law to stifle unrest and control economic development. By his third term in 1981, democratic institutions in the country had severely eroded, foreign debt ballooned, and the country's economy plummeted. In less than 20 years, the Philippines had gone from relative prosperity to becoming the "sick man of Asia." In 1983, the leader of the political opposition, former senator Benigno Aquino, was assassinated upon his returned from exile in the United States.

Marcos was removed from office in 1986 through a peaceful "People Power" revolution in which millions of people demonstrated in the streets. Aquino's widow, Corazon, became president, and a new constitution was approved in 1987. Meanwhile, the GDP growth rate increased steadily from 3.5 percent in 1986 to 4.3 percent in 1987, peaking in 1988 at 6.7 percent. The Aquino administration endured many troubles, including 6 coup d'etat attempts, many natural disasters (e.g. earthquakes, the Mt. Pinatubo eruption), and a power shortage problem that caused economic activities to stop. During this period, the Aquino administration passed various critical laws such as a liberal Foreign Investment Act, the Comprehensive Agrarian Reform Law, and the privatization of government corporations that brought the economy back to its feet.

Aquino's successor, Fidel Ramos, embarked on an ambitious development plan dubbed "Philippines 2000." Under the plan, several industries critical to economic development were privatized, such as electricity, telecommunications, banking, domestic shipping, and oil. The taxation system was reformed, and external debt was brought to more manageable levels by debt restructuring and sensible fiscal management. By 1996, GNP was growing at a rate of 7.2 percent and GDP at 5.2 percent. The annual inflation rate had dropped to 5.9 percent from its high of 9.1 percent in 1995. By the late 1990s, the Philippines' economic growth gained favorable comparisons with other Asian countries such as Taiwan, Thailand, South Korea, and Malaysia.

The Philippine economy took a sharp downturn during the Asian financial crisis of 1997. Its fiscal deficit in 1998 reached P49.981 billion from a surplus of P1.564 billion in 1997. The peso depreciated (fell in value) to P40.89 per U.S. dollar from its previous rate of P29.47 to a dollar. The annual growth rate of the GNP fell to 0.1 percent in 1998 from 5.3 percent in 1997. Despite these setbacks, the Philippine economy fared better than that of some of its Asian neighbors, and other nations praised the Ramos administration for its "good housekeeping."

In 1998, Joseph Estrada was elected president. Even with its strong economic team, the Estrada administration failed to capitalize on the gains of the previous administration. His administration was severely criticized for cronyism, incompetence, and corruption, causing it to lose the confidence of foreign investors. Foreign investors' confidence was further damaged when, in his second year, Estrada was accused of exerting influence in an investigation of a friend's involvement in stock market manipulation. Social unrest brought about by numerous bombing threats, actual bombings, kidnappings, and other criminal activities contributed to the economy's troubles. Economic performance was also hurt by climatic disturbance that caused extremes of dry and wet weather. Toward the end of Estrada's administration, the fiscal deficit had doubled to more than P100 billion from a low of P49 billion in 1998. Despite such setbacks, the rate of GNP in 1999 increased to 3.6 percent from 0.1 percent in 1998, and the GDP posted a 3.2 percent growth rate, up from a low of-0.5 percent in 1998. Debt reached P2.1 trillion in 1999. Domestic debt amounted to P986.7 billion while foreign debt stood at US$52.2 billion. In January 2001 Estrada was removed from office by a second peaceful "People Power" revolution engineered primarily by youth, non-governmental organizations, and the business sector. President Estrada was the first Philippine president to be impeached by Congress, and his vice-president, Gloria Macapagal-Arroyo, became the fourteenth President of the Republic.

The economy of the Philippines is hampered by huge foreign debt, a low savings rate, inefficient tax collection, inadequate infrastructure, especially outside major cities, and poor agricultural performance. The Philippine economy is vulnerable to oil-price increases, interest-rate shifts by the U.S. Federal Reserve, and the performance of international stock exchanges. Social factors that have a negative impact on the economy include a high crime rate, especially kidnappings and rape, pockets of Communist rebels in rural areas, threats from Muslim separatist movements, high rates of poverty and unemployment, and the government's inability to begin its land-distribution program. Environmental factors also damage economic development, including frequent typhoons and drought. Worker productivity is adversely affected by illnesses brought on by air and water pollution. In metropolitan Manila alone, the effect of pollution on health and labor productivity has been estimated to be equal to a loss of about 1 percent of gross national product annually.

Foreign aid, or official development assistance (ODA) funds, have contributed immensely to the development of the nation's economy. Through grants and loans extended by development agencies and international creditors, the government is able to finance infrastructure development (bridges, roads, highways, railways, transportation systems) and social programs (livelihood projects, training seminars, immunization programs, and environmental projects). Since the late 1990s, ODA funds have helped improve living conditions in the most depressed rural areas, especially in Mindanao, Southern Philippines, mostly via agricultural programs. In 1999 most funds were allocated to agricultural programs. About 95 percent of ODA assistance is distributed in loans, with the remainder in grants.

POLITICS, GOVERNMENT, AND TAXATION

The government of the Republic of the Philippines is composed of 3 equal branches: the executive, legislative, and judicial, with checks and balances on each other.

The popularly elected president is the nation's highest executive official. The legislature is divided into 2 chambers, a Senate (upper chamber) of 24 members and a House of Representatives (lower chamber) of a maximum of 260 members. The Supreme Court, led by the Chief Justice and 14 associate justices, is the highest judicial body, and acts as the final arbiter of the legal validity of any executive or legislative policy. In 1991 a Local Government Code was enacted that transferred some of national government powers to local government officials. Administratively, the country is divided into political subdivisions such as provinces, cities, municipalities, and barangays (villages). Each political subdivision has its own local government, which enjoys a certain level of autonomy (self-governance) and is legally entitled to an equitable share of the national wealth called the Internal Revenue Allotment.

The country practices a multi-party system. Political parties are required to register with the Commission on Elections (COMELEC) to which they must present a constitution, by-laws, and platform. In practice, parties in the Philippines are very weak and merely exist to host individual political ambitions. Hence, it is not unusual for new political parties to crop up just weeks before election time and dissolve after the elections, with winning candidates merely transferring to the dominant party.

Elections in the Philippines are often swayed by patronage (support given by a moneyed or influential individual) and the personality of the candidate. In fact, it is unusual for candidates to discuss their platforms during campaign rallies since many of those who attend such rallies are usually more interested in watching the entertainers that accompany these candidates than the candidates themselves. In 2001, after the ouster of former president Joseph Estrada, formerly a well-known movie star, reformers called for an end to personality-oriented elections and for campaigns built around a relevant discussion of national issues.

The military plays a significant role in the economy by ensuring peace and order in the country, particularly in Mindanao, southern Philippines, where a long-term war against rebels continues to be waged. In special instances, military personnel are partnered with police personnel to patrol the cities and minimize urban crime. The navy also guards the country's coastal borders against poachers and illegal fishing vessels, which deplete the country's coastal resources.

The policies and programs of government are funded by various taxes imposed at the national and local levels, and by borrowing. Taxes are collected by the Bureau of Internal Revenue and the Bureau of Customs. Domestic corporations, resident citizens, and resident aliens are taxed on their net income from all sources, worldwide, while resident foreign corporations are taxed on their Philippine net income. Government also generates funds from other offices, such as the Land Transportation Office, which collect taxes for specific government services. Other sources of revenue are derived from the sale of government corporations to the private sector, fees and service incomes of various government agencies, foreign grants, and proceeds from the sale of transferred, surrendered, and privatized assets.

Revenue earned by government is usually inadequate to finance its programs and activities. Bernardo Villegas, an economist at the University of Asia and the Pacific, explains that for a developing country like the Philippines to remedy this situation, the government must resort to borrowing money either from external or domestic sources, such as via treasury bills, notes, and bonds issued as collateral (property pledged by a borrower to guarantee the investment of a lender) for domestic loans. Foreign sources are used because there is no adequate, long-term source of capital in the country, a situation that is made worse by the country's low savings rate. Funds borrowed abroad are readily available and come with lower interest rates. International lending institutions such as the Asian Development Bank, the International Monetary Fund, and the Japan Bank for International Cooperation are some of the country's foreign creditors. Borrowing has increased the national debt to P2.1 trillion. Domestic debt at the end of 1999 reached P986.7 billion, while foreign debt stood at US$52.2 billion.

In the past, the government has played an active role in influencing the country's economy, often to the displeasure of the business sector, which wants the economy left to market forces with minimal government intervention. Like many developing countries, the Philippines' economic policies include import substitution policies and the promotion of labor-intensive industries to support a burgeoning workforce. The government also exerts control over the economy through the regulation or prohibition of monopolies, the sourcing and formation of capital, the provision of private incentives, and through the regulation of strategic sectors that are vital to national interests.

Government in developing countries, such as the Philippines, must take charge of building strategic infrastructure, such as farm-to-market roads and bridges linking landlocked areas, to stimulate the exchange of goods and services between localities. It is also the govern-ment's function to protect natural resources from illegal exploitation.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

The transport infrastructure includes 492 kilometers (306 miles) of working railroads and 199,950 kilometers (124,249 miles) of roads, of which 39,590 kilometers (24,601 miles) are paved. In the first quarter of 2000, infrastructure projects got the biggest share of official development assistance (ODA) loans, taking 66 percent of the $11.4 billion ODA package extended to the Philippines. Among the projects are plans to decongest traffic by expanding roads and building bridges and highway interchanges.

The Philippine archipelago has more than 1,490 ports that serve to connect its major islands. As of 1996, there were 566 registered cargo and container ships, and total cargo handled was estimated at 140.1 million tons. The busiest national port is in Manila. Ninety percent of the country's imports and more than 20 percent of its exports pass through its South Harbor and the Manila International Container Terminal. In February 2001 the Philippine Ports Authority earmarked US$122 million to upgrade port services here and in even other locations.

As of 1999, there were 266 registered airports and 5 domestic airlines operating in the Philippines. Beginning in 2000, the government and its private-sector partners speeded up the schedule for the construction and upgrading of at least 20 airports to enable them to meet world standards by 2004.

In 1986 the country's economy was severely crippled by continuous power shortages that lasted more than 10 hours daily, paralyzing the manufacturing sector. In 1992 the Ramos administration took steps to resolve this problem by allowing private operators to build more power plants that substantially improved the country's power-generating capacity. By March 2000, 74 percent of the country's households had access to electric service, and dependence on oil-run power plants was reduced to 19 percent from a previous high of 80 percent. Power is now generated from several sources, including coal (38 percent), geothermal (27 percent), and hydro-electric (16 percent). The opening of the offshore Malampaya gas field in Palawan will further reduce dependence on foreign oil with its initial production rate of 145 billion cubic feet annually, which can be used to create 2,700 megawatts of power.

Under the Ramos administration, the monopolistic (one company in control) telecommunications industry was opened up to competition and by 2001 there were more than 50 firms offering service. Telephone density per 100 inhabitants nearly tripled during the 1990s, from 3 lines per 100 inhabitants in 1992 to 8 lines in 1998. In 1999 there were 1.9 million main lines in use and another 1.95 million cellular telephones, plus 93 Internet service providers. In September 2000, Globe Telecom and 7 other telecommunication carriers in the Asia-Pacific region agreed to create the C2C Cable Network, an under-sea fiber-optic-cable system, worth US$2 billion. Upon completion, the C2C network will be able to accommodate 90 million conversations simultaneously.

The Philippines has been recognized as the global capital for text messaging, a feature of digital mobile phones virtually ignored in other countries. This allows the user to type brief messages and send it to another mobile phone. Each day, more than 18 million text messages are transmitted in the country, twice as many as in all of Europe. However, high fees make this service still out of reach for most people.

ECONOMIC SECTORS

In the Philippines, the 3 largest economic sectors are industry, service, and agriculture, in terms of contribution to GDP. In past years, the service sector has exhibited continuous growth. Agriculture, although still substantial, continues to decline. Estimates from 1997 reveal that agriculture contributed 20 percent to GDP, industry contributed 32 percent, and services dominated the economy with 48 percent of GDP.

In 1999 the rate of growth of the GDP stood at 3.2 percent. Economists blamed the sluggish growth on the lackluster performance of the industry sector, which grew by 0.5 percent. With the end of the dry spell brought about by El Niño weather conditions, the agriculture sector's performance rebounded and grew 6.6 percent, the highest rate in decades. Services grew by 3.9 percent that year because of the strong performance in retail.

Maximum economic growth for 1999 and 2000 was slowed by successive political crises in the Estrada administration that caused foreign and international lending agencies to lose confidence. In 2000 GDP posted a 3.9 percent positive growth rate, with industry growing 4 times faster than it did in 1999. Services continued its strong performance, with a 4.4 percent increase over its 1999 figures.

AGRICULTURE

The Philippines is still primarily an agricultural country despite the plan to make it an industrialized economy by 2000. Most citizens still live in rural areas and support themselves through agriculture. The country's agriculture sector is made up of 4 sub-sectors: farming, fisheries, livestock, and forestry (the latter 2 sectors are very small), which together employ 39.8 percent of the labor force and contribute 20 percent of GDP.

The country's main agricultural crops are rice, corn, coconut, sugarcane, bananas, pineapple, coffee, mangoes, tobacco, and abaca (a banana-like plant). Secondary crops include peanut, cassava, camote (a type of rootcrop), garlic, onion, cabbage, eggplant, calamansi (a variety of lemon), rubber, and cotton. The year 1998 was a bad year for agriculture because of adverse weather conditions. Sector output shrank by 8.3 percent, but it posted growth the following year. Yet, hog farming and commercial fishing posted declines in their gross revenues in 1999. The sector is burdened with low productivity for most of its crops.

The Philippines exports its agricultural products around the world, including the United States, Japan, Europe, and ASEAN countries (members of the Association of Southeast Asian Nations). Major export products are coconut oil and other coconut products, fruits and vegetables, bananas, and prawns (a type of shrimp). Other exports include the Cavendish banana, Cayenne pineapple, tuna, seaweed, and carrageenan. The value of coconut-product exports amounted to US$989 million in 1995 but declined to US$569 million by 2000. Imported agricultural products include unmilled wheat and meslin, oilcake and other soybean residues, malt and malt flour, urea, flour, meals and pellets of fish, soybeans and whey.

One of the most pressing concerns of the agricultural sector is the rampant conversion of agricultural land into golf courses, residential subdivisions, and industrial parks or resorts. In 1993 the nation was losing irrigated rice lands at a rate of 2,300 hectares per year. Small land-holders find it more profitable to sell their land to developers in exchange for cash, especially since they lack capital for seeds, fertilizers, pesticides, and wages for hiring workers to plant and harvest the crops. Another concern is farmers' continued reliance on chemical-based fertilizers or pesticides that have destroyed soil productivity over time. In recent years however, farmers have been slowly turning to organic fertilizer, or at least to a combination of chemical and organic inputs.

Environmental damage is another major concern. Coral-reef destruction, pollution of coastal and marine resources, mangrove forest destruction, and siltation (the clogging of bodies of water with silt deposits) are significant problems.

The agriculture sector has not received adequate resources for the funding of critical programs or projects, such as the construction of efficient irrigation systems. According to the World Bank, the share of irrigated crop land in the Philippines averaged only about 19.5 percent in the mid-1990s, compared with 37.5 percent for China, 24.8 percent for Thailand, and 30.8 percent for Vietnam. In the late 1990s, the government attempted to modernize the agriculture sector with the Medium Term Agricultural Development Plan and the Agricultural Fisheries Modernization Act.

The fisheries sector is divided into 3 sub-sectors: commercial, municipal, and aquaculture (cultivation of the natural produce of bodies of water). In 1995, the Philippines contributed 2.2 million tons, or 2 percent of total world catch, ranking it twelfth among the top 80 fish-producing countries. In the same year, the country also earned the distinction of being the fourth biggest producer of seaweed and ninth biggest producer of world aquaculture products.

In 1999 the fisheries sector contributed P80.4 billion at current prices, or 16 percent of gross value added in agriculture. Total production in 1999 reached 2.7 million tons. Aquaculture contributed the most, with 949,000 tons, followed closely by commercial fishing with 948,000 tons, and municipal fisheries with 910,000 tons. Domestic demand for fish is substantial, with average yearly fish consumption at 36kg per person compared to a 12kg figure for consumption of meat and other food products.

INDUSTRY

In 2000 following the Asian economic slump of the late 1990s, industrial sectors (manufacturing, transportation, communication and storage, mining and quarrying) all posted positive growth rates, lifting the entire economy from the previous year's lackluster performance. Yet, the construction industry suffered because of the lack of long-term investments by the private sector. Although public construction grew by 15 percent from 1998 to 1999, private construction sank to 11 percent because of real estate oversupply. Mining and quarrying continued to suffer from low metal prices in the world market.

In the Philippines, small and medium enterprises make up 99 percent of all manufacturing companies. Revenue of the top 420 manufacturing firms increased by 9.9 percent in 1998. In 2000 manufacturing accounted for almost a quarter of the country's production. According to the Labor Department's January 2001 Labor Force Survey, 9.8 percent of all workers were employed in this sector.

The manufacturing sector produces the country's top export products such as semiconductors, electronics, machinery and transport equipment, and garments. Exports of electronics and semiconductors generated US$17.4 billion in 1998 and US$21.6 billion in 1999. Other chief imports of this sector include paper and paper products, textile yarn and fabrics, nonmetallic minerals, iron and steel, and metal products. Most of the large and medium manufacturing companies are in special export-processing zones or industrial parks. Some provinces have been specially designated to host these companies, such as the CALABARZON area which is made up of 4 provinces: Cavite, Laguna, Batangas, and Quezon.

SERVICES

According to the 2001 Labor Force Survey, employment in the service sector rose to 13.2 million in 2000, up from 12.7 million in 1999. The proportion of workers in the Philippines service sector increased accordingly, from 45.8 percent to 46.8 percent.

RETAIL.

The Philippines has a variety of retail establishments scattered throughout the country, from small village-based general stores that supply all the needs of a small community to a web of specialized stores in the larger cities. The wholesale and retail sector was affected by the economic slowdown in 1998, so retailers and wholesalers tried to increase consumer spending with aggressive marketing campaigns, quarterly sales, and discount promotions. In 1999 revenue rose to P145.41 billion from a low of P138.64 in 1998. Around this time, the retail sector was opened to foreign competition by the Retail Trade Liberalization Act, which allows foreign retailers to conduct business and fully own enterprises as long as they meet certain capitalization (available funds) requirements.

TOURISM.

According to the Department of Tourism (DOT), which works with other government agencies to improve infrastructure and guarantee peace and order in the country, the Philippines was the twelfth ranked tourist destination in Asia in 1997. In Southeast Asia, the Philippines ranked fifth, behind Thailand, Singapore, Malaysia and Indonesia. In 1999, 2.17 million tourists visited the country, mostly from East Asia, followed by North America and Europe. These tourists spent $2.55 billion in the country. The country offers nearly 12,000 rooms in numerous hotels. To attract more tourists, as well as to encourage locals to travel to other areas of the country, the government implemented 5 major programs in 1999. Among these programs were the promotion of community-based tourism, the rehabilitation of the world-renowned Ifugao rice terraces, and the promotion of Manila as a multi-faceted destination. Also introduced were programs geared toward overseas workers and attracting expatriate (living abroad), third-and fourth-generation Filipinos to visit their homeland, and programs highlighting cultural artifacts and national heritage. The Philippines boasts some of the best scuba diving in the world, and its World War II sites are also major tourist attractions.

COMMUNICATIONS.

In the early 1990s, the monopoly of the Philippine Long Distance Telephone Company (PLDT) was abolished and the sector was opened to competition. Two telecommunications companies, Globe Communications and Smart Communications, are locked in battle over mobile-phone market share. By 1999, Globe was leading with 720,000 subscribers, but Smart followed closely behind. The call-center service business is thriving with the entry of foreign companies like America Online, Etelecare International, People Support, and Getronics. Although still in its infancy, the industry is expected to expand, aided by the availability of workers proficient in English, suitable facilities, and government incentives.

INTERNATIONAL TRADE

EXPORTS.

The growth and stability of the Philippine economy is dependent on foreign trade, particularly on the dollar revenue generated from export. For this reason, the Department of Trade and Industry (DTI) has established an Export Development Council to oversee the growth of this sector as guided by the Philippine Export Development Plan. The plan uses a comprehensive approach in promoting Philippine exports to world markets. Another organization that assists the DTI in export promotion is the Center for International Trade Exposition Missions (CITEM), which assists Filipino exporters in marketing and promoting their products through regular trade fairs, trade missions, and other export-promotion programs and activities at home and abroad.

The primary trading partners of the Philippines have always been the United States and Japan, both former colonizers. Trade with these 2 countries has accounted for 50 to 60 percent of Philippine exports for the last 10 years. The Philippines also trades with Singapore, the

Netherlands, Taiwan, Hong Kong, the United Kingdom, Malaysia, Germany, and Thailand.

Labor-intensive industrial manufacturers dominate the Philippine export scene. Electronics and semiconductors continue to lead the country's top-10 export products, generating US__BODY__.74 billion in 1998 and US$2.16 billion in 1999. Officials of the Department of Science and Technology predict that earnings from electronic exports will reach US$4.7 billion by 2004. A 1997 government survey revealed that 75 percent of the 784 firms in the country's export-processing zones were electronics manufacturers, and that these firms account for 59 percent of the country's exports. Other important export products are machinery and transport equipment, garments and coconut products, furniture and fixtures, bananas, processed food and beverages, and textile yarns.

Trade officials have forecast that Philippine merchandise exports are likely to hit the US$50 billion mark by the end of 2001, up from $35 billion in 1999. Philippine foreign trade continues to increase every year. In 1998 and 1998, the Philippines posted positive export growth rates—16.9 percent and 18.8 percent—when those of other Asian countries were in decline.

IMPORTS.

Imports for 1999 were $30.7 billion. The country's top 10 imports are electronic components, telecommunications equipment and electrical machinery, mineral fuels and lubricants, industrial machinery and equipment, textile yarn and fabric, transport equipment, iron and steel, and organic and inorganic chemicals. The Philippines has attempted several strategies to correct the trade imbalance where imports exceed exports. These strategies range from exchange and import controls to raising tariffs for imported products. Despite these efforts, imports have continued to surpass exports for the last 30 years, except in 1973. This forces the government to borrow from international lending agencies to pay for the products that it imports, which are paid for in foreign currencies, commonly in U.S. dollars. These loans are compounded by interest, which further increases the national debt. Over the last 2 decades, this imbalance has been eased somewhat by the money sent by Filipinos working abroad to their families, estimated at US$6.8 million in 1999, a substantial rise over the US$4.5 million figure for 1998.

The major countries importing goods to the Philippines are the United States (22 percent), Japan (20 percent), South Korea (8 percent), Singapore (6 percent), Taiwan (5 percent), and Hong Kong (4 percent), according to 1998 estimates.

MONEY

In the late 1950s, the exchange rate for the Philippine peso against the U.S. dollar was 2 to 1. Because the

country's economy was undermined by flawed economic policies, innumerable political crises, and a ballooning foreign debt, the peso continued to weaken so that by 1972, the average exchange rate was P6.67 to __BODY__ and, by 1982, at P8.54 to __BODY__. By 1986, the peso had depreciated (lost its value) further and the average exchange rate was P20.39 to US__BODY__, sinking to P40.8 during the 1997 Asian financial crisis. In 2000, at the height of the political crisis that hit the Estrada administration, the peso hit rock bottom at P55 to US__BODY__. Immediately upon Estrada's ouster, the peso gained strength against the U.S. dollar and stabilized at the average exchange rate of P48.50 to a dollar.

In the late 1980s, the government began a series of financial reforms aimed at strengthening the banking sector. One of the most important was the restructuring and infusion of fresh capital to the nation's central bank, Bangko Sentral ng Pilipinas, which had become bankrupt following successive political and economic crises in the 1980s. Under the New Central Bank Act of 1993, the central bank was granted "increased fiscal and administrative autonomy (self-government) from other sectors of the government." The act also prohibits the Central Bank from engaging in development banking or financing.

The most important of the agencies overseeing the monetary policy of the Philippines are the Department of Finance, the Department of Budget and Management, and the Bangko Sentral ng Pilipinas (Central Bank of the Philippines).

The Department of Finance is the government's central finance office, which manages and mobilizes resources to insure that government policies inspire confidence in foreign investors. This Department manages the bureaus of Internal Revenue, Customs, Treasury and Local Government Finance, and supervises the Securities and Exchange Commission and the Philippine Deposit Insurance Corporation, charged with overseeing the stock market and guaranteeing bank deposits. The Department of Budget and Management is responsible for the formulation and implementation of the national budget and for the sound utilization of government funds to achieve the country's development goals. The re-organized Bangko Sentral ng Pilipinas conducts monetary policy, issues currency, supervises lending to other banks and the government, manages foreign currency reserves, determines exchange rate policy, and provides other banking functions to the government.

BANKING SECTOR.

There are 5 types of banks in the Philippines: universal banks (also called "expanded commercial banks"), commercial banks, thrift banks, rural banks, and government-owned banks. Thrift banks, which include savings and mortgage banks, private development banks, and stock and savings associations, service mainly the consumer retail market and small- and medium-size enterprises. The rural banking system services the needs of the agricultural sector, farmers, and rural cooperatives. There are 3 fully government-owned banks: the Land Bank of the Philippines, the Development Bank of the Philippines, and the Al Amanah Islamic Investment Bank of the Philippines. The banking sector encountered great difficulty during the Asian financial crisis in 1997, but owing to past reforms, the financial condition of the Philippine banking system has been more stable compared to several of its neighboring countries, and major bank failures have been avoided.

STOCK EXCHANGES.

The Manila Stock Exchange was established by American businessmen in 1927 after a gold boom. In order to protect its investors, the Securities and Exchange Commission (SEC) was set up in 1936, making it the oldest securities regulatory body in Asia. The Makati Stock Exchange was founded in 1956 by some Filipino brokers who felt dominated by the Americans. For many years, the 2 stock exchanges competed against each other for clients, but they merged in 1992 after a Supreme Court ruling. The newly merged stock exchanges commenced commercial operations in March 1994. Standard and Poor's estimated the market capitalization of the merged exchanges at US$48.105 million and trading value was at US$19.673 million.

POVERTY AND WEALTH

Poverty remains a serious problem in the Philippines, which is the only populous country in East Asia in which the absolute number of people living on less than __BODY__ a day remained constant over the 1981-1995 period, according to figures compiled by the World Bank. That body estimates that even if the Philippine economy posts a 6 to 8 percent growth through 2005, it will still not be possible to bring the poverty level below 15 percent. Economists believe that it may take some 20 years of continuous economic reforms and implementation of social programs before the country can match the single-digit poverty figures of its more wealthy neighbors. In general, widespread poverty in the country is a direct result

of inappropriate and unresponsive economic policies, mismanagement of resources, corruption, and failure of the government to implement anti-poverty programs.

Economic policies from the 1960s to the 1980s focused on a capital-intensive, import-substituting strategy, which bred inefficient industries and contributed to the neglect of the agricultural sector. Policies promoting industrialization favored the development of urban areas to the detriment of rural areas, most of which remained underdeveloped. At the outset, urban areas, especially Metro Manila, cornered major infrastructure and social projects, thereby attracting most of the investments and jobs in the manufacturing and industrial sectors. In contrast, living standards in the rural areas continued to decline, leaving most of the peasant communities to subsist on a hand-to-mouth existence.

Starting in the mid-1980s, policies adopted by the government moved toward a more open, market-friendly economy. However, as government continued to pursue industrialization, the country's foreign debt ballooned and most of the government's resources went for debt and interest payments. This greatly hindered the govern-ment's ability to finance infrastructure and social programs for the neglected sectors of the population.

The mid-1990s witnessed a significant increase in income inequality. Only the top 10 percent of the population increased its share of total income, while the remaining 90

percent lost income share. A 1997 government survey revealed that more than a third of the population (36.7 percent) lived below acceptable standards. Still, the incidence of extreme poverty had declined since 1985, when the comparable figure was 49.2 percent. In 1999, the National Statistics Office estimated that, of the 14.7 million families in the Philippines, the top 20 percent earned 14 times more (P502.1 billion) than the lowest 20 percent (P35.8 billion).

A survey by the National Statistics Office of income distribution in the period from 1991 to 1997 shows the combined earnings of 80 percent of Filipino families amounted to only 44 percent of total income in the country, while the top 10 percent of families owned 39.3 percent. In 1999, almost half (46.6 percent) of the total income, or P417.9 billion, came from wages and salaries, and about a quarter (23.5 percent), or P210.3 billion, from entrepreneurial activities.

Among the poorest Filipinos, most family income is derived from entrepreneurial activities such as selling food on street corners or collecting recyclable materials to sell at the junkyards. Those belonging to the higher income strata obtain a bigger share of their incomes from wages and salaries. Most of the poor are lowland landless agricultural workers, lowland small farm owners and cultivators, industrial wage laborers, hawkers, micro-entrepreneurs, and scavengers. Most poor Filipinos live in rural areas, where they are subject to the low productivity of agricultural employment. Urban poverty is caused by low household incomes and the internal migration of poor rural families to urban areas.

Due to inadequate access to community health centers, members of poor households are not able to maximize health services benefits, such as family planning, the lack of which results in larger families with more mal-nourished and uneducated children. The condition of the poor is made worse by lack of housing, clean water and electricity, especially in the urban areas.

In 1987 Congress enacted the Cooperative Code of the Philippines in order to improve income opportunities, promote self-reliance, and encourage the entrepreneurial spirit in the countryside. As of December 2000, there were 57,470 cooperatives (a collective organization owned and operated by the people drawing benefits from it) registered with the Cooperative Development Authority. In 1991, Congress enacted the Local Government Code, which expanded basic social services on the grass-roots level. The Social Reform Agenda (1993), formulated during the Ramos administration, is one of the government's most comprehensive development frameworks for combating poverty; its strategies aim at improving access to basic social services, increasing opportunities for employment, income generation, and self-reliance. The Estrada administration established the National Anti-Poverty Commission and allocated P2.5 billion for suitable programs.

WORKING CONDITIONS

Working conditions in the Philippines are closely related to one's social class. Those belonging to the upper class enjoy the best opportunities in terms of job satisfaction, facilities, advancement, and choice of career. Those from the middle class are usually able to land white-collar jobs with some room for advancement by capitalizing on education, company loyalty, and hard work. Those belonging to the lower class, due to their lack of education or capital, largely engage in poorly paid manual labor or blue-collar jobs, viewed as menial in Philippine society.

The unemployment rate in the Philippines rose to 10.1 percent in October 2000 during a political crisis provoked by President Estrada's impeachment trial on charges of graft (illegal or unfair gain) and corruption. The performance of the manufacturing industry sank to an historic low and investor confidence hit rock-bottom. Nearly 3 million Filipinos were unemployed and the unemployment rate in Metro Manila reached 17.8 percent.

The Department of Labor and Employment is the main agency making and implementing labor policies and government programs. Guidelines set by the Labor Code of the Philippines guarantee equal work opportunities to all, equal compensation for work of equal value, secure work tenure, overtime and vacation benefits, safe working conditions, the right to collective bargaining, and social-security benefits.

OVERSEAS FILIPINO WORKERS (OFWS).

Beginning in the 1980s, lack of employment opportunities and inflation at home caused many Filipinos to seek employment in Europe, the Middle East, and neighboring countries in Southeast Asia through legal and illegal means. According to labor statistics released in January 2001, a total of 789,000 documented OFWs left to work abroad from January to November 2000 as information technology workers, engineers, seafarers, housekeepers, and nurses, among others. As of December 2000 labor statistics released by the Inter-Agency Committee on Tourism and Overseas Employment Statistics reveal that there are 7,383,122 Filipino professionals working abroad. Money sent home by the OFWs in 1999 amounted to US$6.8 million, a big jump from US$4.5 million in 1998. The social costs of this phenomenon were also substantial, for it caused the breakdown of the family unit, carrying with it attendant problems such as extramarital affairs and increased delinquency among unsupervised children. An equally disturbing problem was the rampant sexual and physical abuse of OFWs, especially women, and those victimized by illegal recruiters.

WOMEN AND CHILDREN IN THE WORKFORCE.

On one hand, economic growth has opened up more opportunities for women, particularly in export industries; on the other hand, women are first to be terminated when industries are forced to downsize. Since the Asian financial crisis in 1997, women have been forced to seek additional sources of income to supplement their meager take-home pay and are thus working longer hours than men. A 1998 study revealed that the number of women employed in the manufacturing sector had decreased by 12 percent, while those engaged in mining and quarrying increased by more than 16 percent.

A government agency, the National Commission on the Role of Filipino Women (NCRFW), is mandated to conduct gender consciousness-raising programs among government policymakers, planners, implementers, women in government, and non-government institutions. Through its initiative, the Philippine Development Plan for Women was formulated and adopted by the government. Another agency, the Bureau of Women and Young Workers, a subordinate agency of the Department of Labor and Employment, looks after the interests of working women and children. There are laws in place protecting women from gender discrimination and sexual harassment and establishing community day-care centers for children, but the implementation of these laws is not always strictly monitored.

Though the minimum age of employment is 18 years for hazardous jobs and 15 years for non-hazardous jobs, it is not unusual to see children engaged in some form of labor to contribute to their family's daily survival. A government survey in 1995 estimates that 3.6 million children, mostly boys aged 5 to 17 years, were engaged in some form of child labor. At least 1 in 10 of them is engaged in heavy physical work.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1521. In his search for the Moluccas, Ferdinand Magellan docks in the Philippines and is slain by native chieftain Lapu-Lapu in battle.

1543. Spanish conquistador Ruy Lopez de Villalobos names the islands Filipinas after Spain's Philip II.

1565. Miguel Lopes de Legazpe establishes his base in the province of Cebu and later moves it to Manila.

1575. Spain takes control of non-Islamic areas and monopolizes trade.

1896. Nationalist Jose Rizal is executed by the Spaniards. He is later honored as a national hero.

1898. Spain sells the Philippines to the United States for $20 million after a mock battle in Manila Bay.

1900. The United States establishes a commonwealth government and enacts a law that will grant the Philippines independence by 1944.

1935. Manuel L. Quezon is elected president and a new constitution is adopted.

1941. Japanese forces invade Luzon.

1942. Japanese forces conquer Manila as U.S. troops on the Bataan peninsula surrender to Gen. Yamashita.

1945. Japanese occupation ends. The Philippines joins the United Nations as a charter member.

1946. The Philippines gains independence from the United States on July 4, becoming an independent republic with Manuel Roxas as president.

1947. The Philippines and the United States sign a Military Bases Agreement.

1948. President Roxas dies and is succeeded in office by Elpidio Quirino.

1950S. The Communist Hukbalahap Movement collapses. The country rebuilds itself and earns the distinction of becoming the second most prosperous nation in Asia, next to Japan.

1953. Ramon Magsaysay is elected to the presidency as standard bearer of the Nacionalista Party.

1957. President Magsaysay dies in an air crash and is succeeded in office by Vice President Carlos P. Garcia.

1961. Vice President Diosdado Macapagal is elected president over incumbent Garcia.

1965. Ferdinand E. Marcos is elected president, defeating incumbent Macapagal.

1967. The Philippines joins the Association of Southeast Asian Nations (ASEAN).

1969. President Marcos is re-elected and becomes the first president ever to be sworn in for a second time. The New People's Army is founded.

1972. President Marcos declares martial law in the guise of controlling a Communist rebellion. He orders the arrest of all opposition leaders, suspends the constitution, and dissolves the National Assembly. A new constitution is approved in a national referendum that proposes a return to a parliamentary form of government. President Marcos serves as president while Cesar Virata serves as prime minister. Muslim insurgency in the South intensifies.

1981. President Marcos ends 8 years of martial law and wins elections for a second 6-year term.

1983. Senator Benigno S. Aquino Jr. returns from exile in the United States and is assassinated on his arrival at the Manila airport. Marcos calls for a quick election to quell domestic unrest and international pressure.

1986. Millions of Filipinos hold a peaceful "People Power" revolution protesting President Marcos's victory amidst charges of ballot tampering. Marcos and his family are exiled to Hawaii, and Corazon C. Aquino, wife of the slain Senator Aquino, assumes the presidency. A new constitution is soon ratified.

1989. Limited autonomy is granted to Muslim provinces. Dispute escalates with China over the Spratly Islands. Military stages a coup d'état.

1990. A destructive earthquake, measuring 7.7 on the Richter scale, kills more than 1,600 and destroys property amounting to hundreds of millions of pesos. Typhoons batter the Visayas region.

1991. Eruption of the volcano Mount Pinatubo, burying many towns under lava including the ones where 2 American bases, Clark Air Base and the Subic Naval Bay Station, were located.

1992. Fidel V. Ramos is elected president. He unveils his blueprint for development called Philippines 2000. The Philippine Senate votes against the continued presence of U.S. military bases in the country.

1990s. The Philippine economy registers positive growth. International agencies express optimism about the country's development and dubs the country as one of Asia's "tiger cub" economies.

1998. Joseph E. Estrada, running under a social-justice platform, wins the presidency by a wide margin. The Philippines' fiscal deficit balloons to P111.66 billion from a deficit of P11.14 billion in 1986.

2000. President Estrada becomes the first Philippine president to be impeached by Congress. After mass "People Power" demonstrations, vice president Gloria Macapagal-Arroyo becomes the fourteenth President of the Republic.

FUTURE TRENDS

The greatest task at hand for the government of President Gloria Macapagal-Arroyo is to stimulate the economy to sustained growth and reduce poverty by ensuring that the benefits of development are evenly distributed. In order to achieve this, government must manage its huge budget deficit and the national debt, and both the private and public sectors must reduce unemployment by attracting more foreign investors or generating employment locally through entrepreneurship. The new president is an economist by training, and it is believed she can inspire confidence in investment. By 2001, forecasters were revising upward their predictions of GDP growth from 2.7 percent to 4 percent.

In May 2001, voters will elect 13 senators, 209 representatives, 53 party-list representatives, and 79 governors and vice-governors. The outcome of the elections is crucial to the political and economic stability of the country. Any perception of election irregularities such as vote-buying or cheating will diminish investor confidence. In fact, most foreign investors are postponing business decisions until the outcome of the elections is known. In addition, it is crucial that the candidates of the current administration win a majority of the positions in order to affirm its mandate and ensure the smooth passage of its priority bills in both the Senate and the House of Representatives.

Some of the existing problems that can cause destabilization are the remaining pockets of Communist insurgency, the continuing struggle by Muslim separatists, and the feeble, but divisive, attempts of the former president to regain the presidency. The precarious state of the country's environment and natural resources can also hurt political stability and economic growth. In 2000, the government was severely criticized for not being able to effectively address the crisis in waste management. Dozens of slum dwellers living near the Payatas dumpsite were buried alive under mountains of trash that collapsed on their houses after continuing rains. A temporary shutdown of the dumpsite resulted in the accumulation of uncollected garbage in Metro Manila and added to public perceptions of the government as incompetent and ineffective. The continuing degradation of the environment is negatively affecting health and livelihood. The heavily polluted air in Metro Manila is the primary cause of respiratory illnesses, which harms labor productivity. Water pollution disrupts marine-dependent livelihoods, as well as the country's source of food. Although initiatives for resource conservation and environmental protection have gone a long way, there is still much to be done in terms of strict implementation of the laws and instilling respect for the environment.

DEPENDENCIES

Philippines has no territories or colonies.

BIBLIOGRAPHY

Aganon, Marie E. National Report, Philippines: Changing Labor Market and Women Employment. Tokyo: Asian Productivity Organization, 2000.

Asian Development Outlook 2000. New York: Oxford UniversityPress, 2000.

Austria, Edna Villencio et. al. Philippines: Asian Approach to Resource Conservation and Environmental Protection. Tokyo: Asian Productivity Organization, 2000.

Cabanilla, L.S. et. al. Measuring Sustainability, Efficiency and Equitability of Philippine Agriculture. Working Paper No. 98-05. Institute for Strategic Planning and Policy Studies, 1998.

Chew, Victor T. Southeast Asian Tax Handbook. InternationalBureau for Fiscal Documentation, 1996.

De Leon, Hector S. The Fundamentals of Taxation. 11th ed.Manila: Rex, 1993.

Department of Labor and Employment. <http://www.info.com.ph/~dolemis>. Accessed July 2001.

Department of Tourism. <http://www.tourism.gov.ph>. AccessedJuly 2001.

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Gonzales, Felix R. Updates on Philippine Fisheries. PhilippineChamber of Food and Agriculture, 2000.

Harrison, Matthew. Asia-Pacific Securities Markets. Hong Kong:Financial Times, 1997.

Hoorway, James. "Philippines, Asian Economic Survey." The Asian Wall Street Journal. 23 October 2000.

Hutchcroft, Paul D. "Sustaining Economic and Political Reform:The Challenges Ahead." The Philippines: New Directions in Domestic Policy and Foreign Relations. David G. Timberman, ed. Asia Society, 1998.

Lamberte, Mario B. The Philippines: Challenges for Sustaining the Economic Recovery. Discussion Paper Series No. 2000-02. Philippine Institute for Development Studies, January 2000.

Mana-Ay, Ambrocio. "Philippines." Rural Poverty Alleviation in Asia and the Pacific. Tokyo: Asian Productivity Organization, 1999.

Panganiban, Artemio V. "An Introduction to the SupremeCourt." Law. Vol. XXIV, No. 8, Integrated Bar of the Philippines, 1998.

Rodlauer, M. et. al. Philippines: Toward Sustainable and Rapid Growth. Occasional Paper 187. Washington: International Monetary Fund, 2000.

U.S. Central Intelligence Agency. The World Factbook, 2000. <http://www.cia.gov/cia/publications/factbook>. Accessed December 2000.

Villegas, Bernardo M. Philippine Economic Prospects under the Estrada Administration. <http://www.asiasociety.org/publications/update_cris_villegas.html>. Accessed December 2000.

—Maria Cecilia T. Ubarra

CAPITAL:

Manila.

MONETARY UNIT:

Philippine peso (P). Paper money is printed in bills of 1,000, 500, 100, 50, 20, and 10 pesos. There are coins of 5 and 1 pesos and 25, 10, and 5 centavos. There are 100 centavos in 1 peso.

CHIEF EXPORTS:

Electronic equipment, machinery and transport equipment, garments, and coconut products.

CHIEF IMPORTS:

Raw materials and intermediate goods, capital goods, consumer goods, and fuels.

GROSS DOMESTIC PRODUCT:

US$282 billion (1999 est.).

BALANCE OF TRADE:

Exports: US$34.8 billion (1999 est.). Imports: US$30.7 billion (1998 est.).