More than 90% of the people are Christian; most were converted and became Westernized to varying degrees during nearly 400 years of Spanish and American rule. The major non-Hispanicized groups are the Muslim population, concentrated in the Sulu Archipelago and in central and western Mindanao, and the mountain groups of northern Luzon. Small forest tribes still live in the more remote areas of Mindanao.
About 87 native languages and dialects are spoken, all belonging to the Malay-Polynesian linguistic family. Of these, eight are the first languages of more than 85% of the population. The three principal indigenous languages are Cebuano, spoken in the Visayas; Tagalog, predominant in the area around Manila; and Ilocano, spoken in northern Luzon. Since 1939, in an effort to develop national unity, the government has promoted the use of the national language, Pilipino, which is based on Tagalog. Pilipino is taught in all schools and is gaining acceptance, particularly as a second language. Many use English, the most important nonnative language, as a second language, including nearly all professionals, academics, and government workers. In January 2003, President Gloria Macapagal-Arroyo ordered the Department of Education to restore English as the medium of instruction in all schools and universities. Only a few Filipino families use Spanish as a first language.
The Philippines has one of the highest literacy rates in the East Asian and Pacific area. About 92% of the population 10 years of age and older are literate.
A war of resistance against U.S. rule, led by Revolutionary President Aguinaldo, broke out in 1899. This conflict claimed the lives of tens of thousands of Filipinos and thousands of Americans. Although Americans have historically used the term "the Philippine Insurrection," Filipinos and an increasing number of American historians refer to these hostilities as the Philippine-American War (1899-1902), and in 1999 the U.S. Library of Congress reclassified its references to use this term. In 1901, Aguinaldo was captured and swore allegiance to the United States, and resistance gradually died out. The conflict ended with a Peace Proclamation on July 4, 1902. However, armed resistance continued sporadically, with heavy casualties on both sides, until 1913, especially in Mindanao and Sulu.
U.S. administration of the Philippines was always declared to be temporary and aimed to develop institutions that would permit and encourage the eventual establishment of a free and democratic government. Therefore, U.S. officials concentrated on the creation of such practical supports for democratic government as public education and a sound legal system.
The first legislative assembly was elected in 1907. A bicameral legislature, largely under Philippine control, was established. A civil service was formed and was gradually taken over by the Filipinos, who had effectively gained control by the end of World War I. The Catholic Church was disestablished, and a considerable amount of church land was purchased and redistributed.
In 1935, under the terms of the Tydings-McDuffie Act, the Philippines became a self-governing commonwealth. Manuel Quezon was elected president of the new government, which was designed to prepare the country for independence after a 10-year transition period. World War II intervened, however, and in May 1942, Corregidor, the last American/Filipino stronghold, fell. U.S. forces in the Philippines surrendered to the Japanese, placing the islands under Japanese control. During the occupation, thousands of Filipinos fought a running guerilla campaign against Japanese forces.
The full-scale war to regain the Philippines began when Gen. Douglas MacArthur landed on Leyte on October 20, 1944. Filipinos and Americans fought together until the Japanese surrender in September 1945. Much of Manila was destroyed during the final months of the fighting. In total, an estimated one million Filipinos lost their lives in the war.
As a result of the Japanese occupation, the guerrilla warfare that followed, and the battles leading to liberation, the country suffered great damage and a complete organizational breakdown. Despite the shaken state of the country, the United States and the Philippines decided to move forward with plans for independence. On July 4, 1946, the Philippine Islands became the independent Republic of the Philippines, in accordance with the terms of the Tydings-McDuffie Act. In 1962, the official Independence Day was changed from July 4 to June 12, commemorating the date independence from Spain was declared by General Aguinaldo in 1898.
In 1972, President Ferdinand E. Marcos (1965-86) declared martial law, citing growing lawlessness and open rebellion by the communist rebels as his justification. Marcos governed from 1973 until mid-1981 in accordance with the transitory provisions of a new constitution that replaced the commonwealth constitution of 1935. He suppressed democratic institutions and restricted civil liberties during the martial law period, ruling largely by decree and popular referenda. The government began a process of political normalization during 1978-81, culminating in the reelection of President Marcos to a 6-year term that would have ended in 1987. The Marcos government's respect for human rights remained low despite the end of martial law on January 17, 1981. His government retained its wide arrest and detention powers. Corruption and favoritism contributed to a serious decline in economic growth and development under Marcos.
The assassination of opposition leader Benigno (Ninoy) Aquino upon his return to the Philippines in 1983, after a long period of exile, coalesced popular dissatisfaction with Marcos and set in motion a succession of events that culminated in a snap presidential election in February 1986. The opposition united under Aquino's widow, Corazon Aquino, and Salvador Laurel, head of the United Nationalist Democratic Organization (UNIDO). The election was marred by widespread electoral fraud on the part of Marcos and his supporters. International observers, including a U.S. delegation led by Sen. Richard Lugar (R-Indiana), denounced the official results. Marcos was forced to flee the Philippines in the face of a peaceful civilian-military uprising that ousted him and installed Corazon Aquino as president on February 25, 1986.
Under Aquino's presidency progress was made in revitalizing democratic institutions and respect for civil liberties. However, the administration was also viewed by many as weak and fractious, and a return to full political stability and economic development was hampered by several attempted coups staged by disaffected members of the Philippine military.
Fidel Ramos was elected president in 1992. Early in his administration, Ramos declared "national reconciliation" his highest priority. He legalized the Communist Party and created the National Unification Commission (NUC) to lay the groundwork for talks with communist insurgents, Muslim separatists, and military rebels. In June 1994, President Ramos signed into law a general conditional amnesty covering all rebel groups, as well as Philippine military and police personnel accused of crimes committed while fighting the insurgents. In October 1995, the government signed an agreement bringing the military insurgency to an end. A peace agreement with one major Muslim insurgent group, the Moro National Liberation Front (MNLF), was signed in 1996, using the existing Autonomous Region in Muslim Mindanao (ARMM) as a vehicle for self-government.
Popular movie actor Joseph Ejercito Estrada's election as President in May 1998, marked the Philippines' third democratic succession since the ouster of Marcos. Estrada was elected with overwhelming mass support on a platform promising poverty alleviation and an anti-crime crackdown.
Gloria Macapagal-Arroyo, elected Vice President in 1998, assumed the Presidency in January 2001 after widespread demonstrations that followed the breakdown of Estrada's impeachment trial on corruption charges. The Philippine Supreme Court subsequently endorsed unanimously the constitutionality of the transfer of power. National and local elections took place in May 2004. Under the constitution, Macapagal-Arroyo was eligible for another six-year term as president, and she won a hard-fought campaign against her primary challenger, movie actor Fernando Poe, Jr. in elections held May 10, 2004. Noli De Castro was elected Vice President. Impeachment charges were brought against Macapagal-Arroyo in June of 2005 for allegedly tampering with the results of the elections after purported tapes of her speaking with an electoral official during the vote count surfaced. The Congress rejected the charges in September 2005.
GOVERNMENT AND POLITICAL CONDITIONS
The 24-member Philippine Senate is elected at large. There are currently 23 senators, however. The May 2004 national election produced 12 new senators, although, because current Senator Noli De Castro was elected Vice President, he will leave his seat empty until the next Senate elections in 2007. Of a maximum 250 members of the House of Representatives, 212 are elected from single-member districts. The remainder of the House seats are designated for sectoral party representatives elected at large, called party list representatives; currently there are 24 such representatives in the House.
When Macapagal-Arroyo assumed the Presidency, her "People Power Coalition," led by the Lakas-CMD party, became the dominant group in Congress. The 75-member Lakas party leads the "Sunshine Coalition," which also includes the 61-member Nationalist People’s Coalition, the 22-member Liberal Party, and several other major and minor parties. The LDP party leads the 20-member opposition bloc. In the Senate, the pro-administration coalition controls 12 of the 22 seats. Members of the Philippine Congress tend to have weak party loyalties and change party affiliation easily.
The government continues to face threats from both Muslim separatist groups and communist insurgents, and rising crime and concerns about the security situation have had a negative impact on tourism and foreign investment. The terrorist Abu Sayyaf Group (ASG), which recently gained international notoriety with its kidnappings of foreign tourists in the southern islands, is a major problem for the government. In May 2001, the ASG kidnapped several Americans, beheading one of them in June 2001. In a June 2002 rescue attempt, another American hostage was killed. Efforts to track down and destroy the ASG have met with some success, especially on Basilan, where U.S. troops advised, assisted and trained Philippine soldiers in counterterrorism. ASG elements remain active on Jolo Island and elsewhere in the southwestern Philippines. Philippine security forces captured an Indonesian terrorist with links to Jemaah Islamiyah in 2002; he escaped from custody in July 2003, but police pursued and killed him in October.
In August 2001, the government reached a cease-fire agreement with the separatist Moro Islamic Liberation Front (MILF); negotiations on a final peace agreement continued at a very slow pace amid sporadic fighting. At President Arroyo's May 2003 State Visit to Washington, President Bush pledged diplomatic and financial support for the peace process, a move that both sides embraced. In June 2003, the MILF issued a formal renunciation of terrorism. An ensuing cessation of hostilities has held into mid-2005, and talks between the two sides continue, with the Government of Malaysia acting as principal mediator. The United States Institute of Peace has also made proposals for assisting the peace process, in cooperation with the Philippine Government and the MILF. The Department of State in August 2002 added the Communist Party of the Philippines/New People’s Army (CPP/NPA) to the U.S. Foreign Terrorist Organization list. Negotiations between the government and the CPP’s political arm, the National Democratic Front, were suspended in 2001 after the NPA assassinated two members of Congress, although "back-channel" and exploratory talks have continued since then.
Principal Government Officials
The Republic of the Philippines maintains an embassy in the United States at 1600 Massachusetts Avenue NW, Washington, DC 20036 (tel. 202-467-9300). Consulates general are in New York, Chicago, San Francisco, Los Angeles, Honolulu, and Agana (Guam).
Important sectors of the Philippine economy include agriculture and industry, particularly food processing, textiles and garments, and electronics and automobile parts. Most industries are concentrated in the urban areas around metropolitan Manila. Mining also has great potential in the Philippines, which possesses significant reserves of chromite, nickel, and copper. Significant natural-gas finds off the islands of Palawan have added to the country's substantial geothermal, hydro, and coal energy reserves.
Agriculture generally suffers from low productivity, low economies-of-scale, and inadequate infrastructure support. Agricultural output fell in 1997 and 1998 due to an El Niסo-related drought but increased by 6.0% in 1999 (over 1998's low base). Growth reverted to more normal rates in 2000 (4.0%) and 2001 (3.7%). Agricultural output (affected by another, albeit milder, dry spell) expanded by 3.9% year-on-year in 2002 and 3.2% in 2003. Agricultural output increased by 4.9% in real terms during 2004 but stagnated during the first semester of 2005 due to drought and intermittent weather disturbances.
The Philippines relies heavily on electronics shipments for about two-thirds of export revenues. Although there has been some improvement, over the years, local value added of electronics exports remains relatively low at about 30%. Overall export receipts expanded by 9.6% in 2004, led by an 11.2% increase in foreign exchange receipts from electronics shipments. Year-on-year export growth slowed to 3.6% during the first half of 2005, with receipts from electronics shipments up by a lethargic 1.2%.
Although less severely affected than its neighbors, the Philippines' banking sector was not spared from high interest rates and non-performing asset (NPA) levels during the Asian financial crisis and its aftermath. Increases in minimum capitalization requirements, increasing loan-loss provisions, and generally healthy capital-adequacy ratios have helped temper systemic risk. The Special Purpose Vehicle (SPV) Act of January 2003, which provides time-bound fiscal and regulatory incentives to encourage the sale to private asset management companies, has helped to reduce banks’ portfolios of non-performing assets (NPAs). As of July 2005, the ratio of the commercial banking system’s NPAs to total assets had declined to under 9.5% (from 12.3% as of July 2004). Banks had until April 2005 to conclude notarized agreements to sell their NPAs to qualify for incentives under the law. A bill supported by the Philippine Central Bank and the banking sector seeks to extend the deadline towards further reducing the NPA ratio to pre-crisis levels of under 5%. Circumstances surrounding bank closures continue to highlight remaining impediments to more effective bank supervision and timely intervention--including stringent bank secrecy laws, obstacles preventing bank regulators from examining banks at will, and inadequate legal protection for Central Bank officials and examiners. The government faces another important challenge in addressing threats to the long-term viability of state-run pension funds. The monetary authority’s adoption since January 2002 of an inflation-targeting framework has enhanced transparency in the conduct of monetary policy. The government--which has targeted lower fiscal deficits since 2003 toward balancing the budget before the end of President Macapagal-Arroyo’s term--contained the full-year 2004 budget deficit to 3.9% of GDP (down from 2002’s 5.3% record high) and is on track thus far to containing the 2005 deficit to 3.4% of GDP in 2005, reflecting spending restrain and more vigorous efforts by tax collection agencies to improve administration, enforcement, and governance. However, the current 13% tax-to-GDP ratio remains well below the 17% peak ratio achieved in 1997.
The Aquino and Ramos administrations opened up the relatively closed Philippine economy and provided a firmer base for sustainable economic growth. After a slow start, President Estrada and his cabinet continued with, and expanded, liberalization and market-based policies and reforms. Efforts to reform the constitution to encourage foreign investment, particularly foreign ownership of land, were abandoned amidst nationalist opposition. Initial optimism about prospects for economic reform also had dimmed amid concerns of governmental corruption. Scandals involving the Philippine Stock Exchange, and the President's close ties to certain businessmen, shook confidence of investors and the business community and ultimately led to successful efforts to impeach and remove President Estrada.
The Macapagal-Arroyo Administration enacted an anti-money laundering law in September 2001 and followed through with amendments in March 2003 to address remaining legal concerns posed by the OECD Financial Action Task Force (FATF). The Financial Action Task Force (FATF) removed the Philippines from its list of Non-Cooperating Countries and Territories in February 2005, noting the significant progress made to remedy concerns and deficiencies identified by the FATF to improve implementation. The Egmont Group, the international network of financial intelligence units, admitted the Philippines to its membership in June 2005. The Macapagal-Arroyo government is pushing for congressional approval of an anti-terrorism law to strengthen its campaign against terrorism and terrorist financing.
Although encountering implementation hitches, the Macapagal-Arroyo administration also enacted legislation in 2001 to rationalize the electric power sector and privatize the government’s debt-saddled National Power Corporation (NPC). The government has achieved some success in establishing an independent regulatory system for electricity pricing which will benefit NPC finances. In addition to the Special Purpose Vehicle law, President Macapagal-Arroyo also signed into law in 2003 a priority initiative to reform the government procurement system (the Government Procurement Reform Act). During the first quarter of 2004, she signed into law legislation to rationalize and plug leakages in the Philippines’ convoluted documentary stamp tax system and encourage secondary trading of financial instruments, as well as legislation (the Securitization Act) towards establishing the necessary infrastructure and market environment for a wide range of asset-backed securities. She also signed legislation to institutionalize Alternative Dispute Resolution for civil cases to help address the problem of overburdened court dockets.
Notwithstanding a number of favorable policy developments, the Philippine economy continues to juggle extremely limited financial resources while attempting to meet the needs of a rapidly expanding population and address intensifying demands for the current administration to deliver on its anti-poverty promises. Over 80% of the government budget is gobbled up by non-discretionary expenses (i.e., debt service, government salaries and benefits, and legally-mandated revenue transfers to local government units). The current high level of government debt, the substantial share of foreign obligations, the emerging risks posed by contingent liabilities (particularly those of the government’s debt-saddled NPC), and the worrisome deterioration in the tax collection performance from the 1997 peak (still low by regional standards) have increased the country’s vulnerability to severe external and domestic shocks. More recent reforms include laws increasing excise taxes on tobacco and liquor products and establishing a system of rewards and penalties in revenue collection agencies. An amended Value Added Tax law (which would reduce VAT exemptions and increase the VAT rate from 10% to 12% in 2006 represents the most significant measure thus far in the Macapagal-Arroyo Administration’s efforts to raise revenues from legislative measures to balance the budget two years ahead of schedule (2008 vs. 2010) while expanding investments in infrastructure and improving the delivery of essential social services. As of end-September 2005, the amended VAT law--originally scheduled for implementation in July 2005 but challenged by opposition lawmakers and other groups before the Supreme Court--was on hold pending a final ruling by the Court.
Reflecting weaknesses in intellectual property rights protection, the country remains on the U.S. Trade Representative's Special 301 Priority Watchlist. Potential foreign investors, as well as tourists, continue to be concerned about law and order, inadequate infrastructure, and governance issues. While trade liberalization presents significant opportunities, intensifying global competition and the emergence of low-wage export economies also pose challenges. Competition from other Southeast Asian countries and from China for investment underlines the need for sustained progress on structural reforms to remove bottlenecks to growth, lower costs of doing business, and promote good public and private sector governance. The government has been working to reinvigorate its anti-corruption drive and the Office of the Ombudsman has reported improved conviction rates. Nevertheless, the Philippines will need to do more to improve international perception of its anti-corruption campaign--an effort that will require strong political will and significantly greater financial and human resources.
Agriculture and Forestry
Decades of uncontrolled logging and slash-and-burn agriculture in marginal upland areas have stripped forests, with critical implications for the ecological balance. The government has instituted conservation programs, but deforestation remains a severe problem.
With its 7,107 islands, the Philippines has a very diverse range of fishing areas. Notwithstanding good prospects for the agriculture subsector, the marine fishing industry continues to face a bleak future due to destructive fishing methods, a lack of funds, and inadequate government support.
The industrial sector is concentrated in the urban areas, especially in the metropolitan Manila region and has only weak linkages to the rural economy. Inadequate infrastructure, transportation and communication have so far inhibited faster industrial growth, although significant strides have been made in addressing the last of these elements.
Despite its rich mineral deposits, the Philippine mining industry is just a fraction of what it was in the 1970s and 1980s when the country ranked among the ten leading gold and copper producers worldwide. Low metal prices, high production costs, and lack of investment in infrastructure have contributed to the industry’s overall decline. A December 2004 Supreme Court decision upheld the constitutionality of the 1995 Mining Act, thereby allowing up to 100% foreign-owned companies to invest in large-scale exploration, development, and utilization of minerals, oil and gas.
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