Philippines - Country Profile

Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010

Datamonitor. This brief is a licensed product and is not to be photocopied Page 1

OVERVIEW

Catalyst

This profile analyzes the political, economic, social, technological, legal and environmental structure in the Philippines.

Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and

future risks.

Summary

Key findings

Positive response to Aquinos win in the presidential elections; threat from communist rebels remains high

The outcome of the presidential elections in May 2010 has raised hopes for reform. Benigno Aquino III of the Liberal Party

won with a large majority and assumed office as the countrys 15th president on June 30, 2010. Aquinos core electoral

platform was based on improving governance and reducing corruption and poverty. Given Aquino's reputation for honesty,

investors are particularly positive about his victory in the elections.

The Philippines continue to face serious threats from the communist rebels as they have refused to disarm and resume

peace talks. In August 2010, the communist rebels on Panay Island (who are part of the National Democratic Front) stated

that they were not willing to end hostilities with the government unless an agreement on major reforms was reached. The

National Democratic Front (NDF) in Panay demands the government to sign a precise agreement under which major

political, economic and social reforms will be implemented. In addition, the NDF seeks the investigation and the prosecution

of government officials allegedly accused of corruption and human rights violations. The NDF has threatened that it would

strengthen its forces and continue to attack the government troops if these conditions are not met.

Remarkable growth in the first quarter of 2010, but a high deficit level is an immediate challenge

The Philippines economy posted impressive growth in early 2010. The countrys GDP expanded 7.3% year-on-year in the

first quarter of 2010. Robust growth was supported largely by strong election-related spending. Other factors such as a

rebound in global trade, growth in manufacturing and investment activity, and private consumption also supported growth in

Q12010. After a strong first-quarter performance, the Philippine economy is set to grow faster than estimated. While strong

COUNTRY ANALYSIS REPORT

Philippines

In-depth PESTLE Insights

Publication Date: August 2010

Overview



economic growth in the coming months will help to manage deficit levels, the government will still need to lay out a prudent

fiscal strategy to order to bring its deficit and debt levels under control.

The Philippines ran a fiscal deficit of 3.9% of GDP in 2009. In the first half year of 2010, the budget deficit reached 60.5% of

the full-year target of $7 billion. Despite this, the new government has maintained its earlier target of achieving a budget

deficit of PHP325 billion ($6.9 billion), corresponding to 3.9% of GDP for 2010. For 2011, the government targets to reach a

budget deficit level of PHP290 billion ($6.48 billion), or 3.2% of GDP. The countrys debt in 2009 reached around 58.7% of

GDP, compared to 56.9% in 2008. At a debt level of almost 59%, the countrys debt level is comparable to the levels of

some of the more vulnerable European economies.

The country's population is young, but plagued with poverty

Recent official estimates indicate that more than 60% of the population belongs to the 1564 age group, 34.9% of the

population to the 014 age group and 4.2% of the population to the 65-and-over group. As per 2010 estimates, the

Philippine population has a median age of 22.7 years, which means that half of the population is below that age. While

many developed nations are faced with the problem of ageing population and rising social expenditure, the Philippines

demographic structure works in its favor by providing a regular boost to its labor force.

Stark poverty in the Philippines against the backdrop of robust economic growth is a serious concern. According to an

Asian Development Bank study (2009), the Philippines' poverty reduction rate of 0.47% per year is slower than those of

neighboring Cambodia, Indonesia, the Lao People's Democratic Republic, Thailand, and Vietnam. Among Southeast Asian

nations, the Philippines is the only country which has recorded an increase in the absolute number of poor people since

1990. It is estimated that poverty rates have increased even further due to the global economic crisis and natural disasters

in 2008 and 2009. Lack of employment opportunities especially in the agriculture sector is identified as the main reason for

the slow decline in poverty rates. Although the government has implemented several poverty reduction measures, low

investment and structural weaknesses have constrained development.

A strong BPO sector, but low R&D spending is a key challenge

The Philippines has a strong Business Process Outsourcing (BPO) sector due to an abundance of human resources with

excellent English language skills; the similarity of the Philippines legal, accounting, medical, and other social systems with

those of the US; and greater cost-competitiveness. The outsourcing industry of Philippines offers several services ranging

from voice and IT services to several value-added services such as finance, animation, engineering, medical transcription

and architectural services. According to Business Processing Association Philippines (BPAP), the country could increase

its share of the global outsourcing and offshoring market to 10%. In the BPO sector, the country generated revenues of

$7.3 billion in 2009 and is expected to generate revenues of about $13 billion with direct employment of approximately 1

million by the end of 2010. The countrys strong BPO sector is further evidenced by a recent award by the National

Outsourcing Association, the UK. The Philippines received the Best Offshoring Destination of the Year award for 2009 for

its BPO sector. The growing strength of the BPO market is expected to attract more and more foreign companies to shift

their operations to Philippines.

The spending on R&D in the Philippines has been very low. According to a report by the Department of Science and

Technology (published in April 2010), the countrys R&D expenditure was just 0.14% of the GDP, is well below the 2% of

GDP recommended by the United Nations Educational, Scientific and Cultural Organization (UNESCO). Low R&D funding

has negatively impacted innovation in the Philippines, which is reflected in the low number of patents received by local

firms; the number granted by the USPTO came down from 35 in 2006 to 25 in 2009. In comparison, Singapore and South

Overview



Korea were granted 493 and 9,566 patents in 2009, respectively. The low number of patents indicates the low level of R&D

expenditure and strengthens the perception that that country does not foster innovation. This is a big risk in the current

scenario, which is characterized by the dominance of the knowledge economy.

The Philippines ranks poorly as a business-friendly country, but there has been significant progress in

privatization

The Philippines ranks poorly as a business-friendly country in the World Banks Doing Business report (2010). In terms of

the ease of doing business, the country was ranked 144th out of 183 economies. The Philippines also ranked in the 162

nd

place in terms of starting a business, falling behind all countries in East Asia except Cambodia. Starting a business takes

an average of 52 days, compared to the world average of 35 days. Closing a business can also be a difficult and lengthy

process. The Philippines is one of the most difficult countries to close a business (ranking 153rd in the world and the lowest

in the East-Asia region). The government needs to work towards simplifying processes and removing impediments to

investment.

The government is looking to privatize government-owned entities and make government corporations profitable. In 2007,

the governments Power Sector Assets & Liabilities Management Corporation (PSALM) made significant progress in

privatization. PSALM sold a major power station and succeeded in giving a 25-year old concession to operate the national

power grid; it also sold around 39% of the state-owned National Power Corporations (NPC) power generation assets. The

brisk pace set by PSALM is expected to continue in the near term. The Aquino government is expected to privatize

television firms Radio Philippines Network (RPN-9) and Intercontinental Broadcasting Corporation (IBC-13) in the near

future. The government is also likely to privatize the operation and maintenance of the Ninoy Aquino International Airport

Terminal 3. Privatization initiatives in various sectors are expected to open up business opportunities and increase

competition.

Steps towards climate change adaption are in place, but air pollution levels are high

The Post-Disaster Needs Assessment (PDNA) estimated that the damage and losses from the two major typhoons in 2009

amounted to about $4.4 billion. To counter this situation, the Philippine government has invested in climate change

adaptation. Philippines is the only country in Southeast Asia with a dedicated agency on climate change. The department of

agriculture introduced a rainwater harvesting technology to irrigate water during the dry season and control floods in the

rainy season. In addition, the non-governmental institutions are also educating the farmers to use organic methods of

farming, which can be productive without depending too much on water and fertilizers. These initiatives taken by the

government will help deal with natural calamities.

The country faces increasing levels of air pollution. The poor air quality in urban areas and indoor air pollution is affecting

health of the people. For instance, an estimated 5% of all reported disease cases and 4% of all reported deaths in the

country are attributed to increasing pollution levels. There has been a surge in the number of respiratory diseases such as

acute and chronic bronchitis, pneumonia, and cardiovascular diseases. The government needs to curb the levels of air

pollution which translates into an increase in costs in terms of productivity and increase in health care expenditure.

Overview



PESTLE highlights

Political landscape

There might be resistance to President Aquino's efforts to improve the political administration and in particular, to

investigate former president Macapagal Arroyo's administration for alleged corruption.

In April 2010, the then President Gloria Macapagal-Arroyo expressed the view that stake holders could work

towards a win-win solution to the territorial dispute in the Spratlys. However, a permanent resolution of the issue

remains a far cry.

Economic landscape

In the aftermath of the global economic crisis, the growth in remittance from overseas foreign workers slowed

down to 5.4% in April 2010, compared to more than 10% annual growth in recent years.

Despite robust growth in Q12010, unemployment in the Philippines economy is on the rise. Unemployment

increased to 8% in April 2010 (or 3.1 million people) from 7.5% (or 2.8 million people) during the same period in

2009.

Social landscape

The Philippines faces a dearth of health care professionals. According to 2010 estimates, the country has a

doctor-to-population ratio which is as low as 1:15,000. Moreover, a large majority of the doctors reside in the

urban areas.

President Aquino aims to strengthen social services through increased spending. The education sector will be

allocated the highest appropriations in the national budget for 2011.

Technological landscape

In 2010, the government took key initiatives to encourage start-up companies through the technology business

incubation (TBI) program.

Legal landscape

Corruption has long been an issue of concern in the Philippines. The country lags behind most of its neighbors in

the Asian region in terms of combating corruption. In the Transparency Internationals Corruptions Perception

Index for 2009, the Philippines was ranked 139th out of the 180 countries.

The Philippines has a convoluted tax structure that not only requires too many transactions but also takes a lot of

time to fulfill. A company has to make 47 tax payment transactions in the Philippines, which is higher than the

East Asia average of 25. Moreover, in the Philippines, it takes 195 hours to prepare, file, and pay taxes.

Environmental landscape

According to 2010 Environmental Performance Index (EPI), the Philippines was ranked 50th among 163 countries

with a score of 65.7.

CO2 emissions came down during 200608 but rose again in 2009 to reach 75.1 million metric tons during the

year. Datamonitor forecasts suggest that CO2 emissions will increase to reach 80 million metric tons by 2011.

Overview



Key fundamentals

Table 1: The Philippines key fundamentals

2008 2009 2010 2011 2012 2013 2014

GDP, constant 2000 prices ($ billion)

110.8 111.9

116.3

121.3

126.4

131.6

136.9

GDP growth rate (%) 4.2 1.0 3.9 4.3 4.2 4.1 4.0

GDP, constant 2000 prices, per capita ($) 1,153.1 1,141.9 1,164.1 1,191.2 1,218.1 1,244.7 1,271.1

Inflation (%) 9.3 3.2 3.9 4.6 4.4 4.4 4.4

Exports, total as % of GDP 34.8 33.4 31.8 30.8 29.9 29.1 28.2

Imports, total as % of GDP 40.4 38.7 38.2 36.3 35.6 34.4 33.5

Mid-year population, total (million) 96.1 98.0 99.9 101.8 103.8 105.7 107.7

Unemployment rate (%) 7.4 7.5 7.3 7.3 7.3 7.2 7.2

Mobile penetration per 100 people 71.5 81.5 88.9 94.2 97.9 100.5 102.2

Source: Datamonitor D A T A M O N I T O R

Table of Contents



TABLE OF CONTENTS

Overview 1

Catalyst 1

Summary 1

Key facts and geographic location 10

Key facts 10

Geographical location 11

PESTLE analysis 12

Summary 12

Political analysis 13

Economic analysis 16

Social analysis 18

Technological analysis 20

Legal analysis 23

Environmental analysis 26

Political landscape 28

Summary 28

Structure and policies 30

Performance 32

Outlook 33

Economic landscape 35

Summary 35

Evolution 35


Performance 39

Outlook 49

Social landscape 51

Summary 51

Evolution 51


Performance 54

Outlook 56

Table of Contents



Technological landscape 57

Summary 57

Evolution 57


Performance 58

Outlook 61

Legal landscape 62

Summary 62

Evolution 62


Performance 65

Outlook 65

Environmental landscape 66

Summary 66

Evolution 66


Performance 67

Outlook 68

Appendix 69

Ask the analyst 69

Datamonitor consulting 69

Disclaimer 69

Table of Contents



TABLE OF FIGURES

Figure 1: Map of the Philippines 11

Figure 2: The Philippines: political events timeline 29

Figure 3: The Philippines key political figures 30

Figure 4: Composition of the Philippines House of Representatives, 2010 31

Figure 5: The Philippines historical GDP growth (19912009) 36

Figure 6: Market capitalization of the Philippines stock Exchange, 200208 38

Figure 7: GDP and growth rate in the Philippines, 200213 (real GDP at constant 2000 prices) 39

Figure 8: GDP composition by sectors in the Philippines, 2009 40

Figure 9: Agricultural output of the Philippines, 200209 41

Figure 10: Industrial output of the Philippines, 200209 42

Figure 11: Services output of the Philippines, 200209 43

Figure 12: Current account balance of the Philippines, 200208 44

Figure 13: External trade of the Philippines, 200209 45

Figure 14: Balance of trade in the Philippines, 200108 46

Figure 15: Total foreign investment in the Philippines, 200308 47

Figure 16: Consumer price index and CPI based inflation in the Philippines, 200213 48

Figure 17: Unemployment in the Philippines, 200213 49

Figure 18: The Philippines composition of religion 53

Figure 19: Healthcare expenditure in the Philippines, 200213 55

Figure 20: Government expenditure on education in the Philippines, 200213 56

Figure 21: Growth rate of mobile and fixed line subscribers in the Philippines, 200213 59

Figure 22: Internet users and growth rate in the Philippines, 200213 60

Figure 23: Carbon dioxide emissions in the Philippines, 200213 68

Table of Contents



TABLES

Table 1: The Philippines key fundamentals 5

Table 2: The Philippines key facts 10

Table 3: Analysis of the Philippines political landscape 13

Table 4: Analysis of the Philippines economy 16

Table 5: Analysis of the Philippines social system 18

Table 6: Analysis of the Philippines technology landscape 20

Table 7: Analysis of the Philippines legal landscape 23

Table 8: Analysis of the Philippines environmental landscape 26

Table 9: Mid-year population by age (millions), 2009 52

Table 10: Patents granted by USPTO, 200209 58

Table 11: The Philippines : individual income tax rates, 2009 63

Key facts and geographic location



KEY FACTS AND GEOGRAPHIC LOCATION

Key facts

Table 2: The Philippines key facts

Country and capital

Full name Republic of the Philippines

Capital city Manila

Government

Government type Republic

Chief of state and head of government President Gloria Macapagal-Arroyo

Vice president Manuel Noli de Castro

Population 97,976,603

Currency Philippine peso

GDP per capita (PPP) $3,300

Internet domain .ph

Demographic details

Life expectancy 71.4 years (total population)

68.5 years (men)

74.5 years (women)

Ethnic composition Tagalog 28.1%, Cebuano 13.1%, Ilocano 9%, Bisaya/Binisaya 7.6%, Hiligaynon Ilonggo 7.5%, Bikol 6%, Waray 3.4%, other 25.3%

Major religions (2006 census)

Roman Catholic 80.9%, Muslim 5%, Evangelical 2.8%, Iglesia ni Kristo 2.3%, Aglipayan 2%, other Christian 4.5%, other 1.8%, unspecified 0.6%, none 0.1%

Country area 300,000 sq km (total)

Languages Filipino (based on Tagalog) and English are the two official languages

Exports Semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, fruits

Imports Electronic products, fuels, machinery and transport equipment, iron and steel, textile fabrics, grains, chemicals, plastic

Source: CIA, The World Factbook D A T A M O N I T O R

Key facts and geographic location



Geographical location

The Philippines is located in Southeastern Asia, on the archipelago between the Philippine Sea and the South China Sea,

east of Vietnam.

Figure 1: Map of the Philippines

Source: CIA The World Factbook D A T A M O N I T O R

PESTLE analysis



PESTLE ANALYSIS

Summary

In the 1980s and 1990s, the Philippines was part of the East Asian growth miracle, emerging as a leading destination for

inwards investment. However, growth never quite matched the economic dynamism of Singapore, Taiwan or Korea. The

economy was hit by the 199798 regional financial crisis, but returned to a reasonable level of growth, recording a CAGR

of 6% over 200107.

Gloria Macapagal Arroyo assumed presidency of the Philippines in 2001 after the impeachment of her predecessor. She

was re-elected in 2004, although she herself had to face a number of impeachment attempts. Release of tapes showed

former President Arroyo having a conversation with an election official, which dented her governments credibility. Another

troubling feature of her reign was political killings. Although this was not unique to Arroyos tenure as president, the number

of incidents were reported at over 800 and ongoing killings of politicians and journalists are a major problem in the country.

On June 30, 2010, Benigno Aquino III of the Liberal Party won with a large majority and assumed office as the countrys

15th president. The Philippine military forces have been engaged in conflict with the Moro National Liberation Front (MNLF)

and Abu Sayyaf, and the country continues to face high risk in terms of terrorism.

As a result of the global economic crisis, the countrys GDP growth came down to 4.2% in 2008 and to 1% in 2009. The

Philippines will continue to be in a strong position in terms of social security, as its population is very young. Most people in

the country are of working age, which precludes the increased social security expenditures advanced countries have to

bear. More than 10% of the countrys population lives on less than $1 per day, which is a far higher percentage than in

other countries in the region, such as Vietnam and Indonesia. A large amount of people live below the poverty line, and it is

unlikely that the country will achieve the Millennium Development Goal of halving poverty by 2015, given its current rate of

progress. With regard to technology, the country has a strong BPO sector. However, the countrys expenditure on R&D is

meager and it has been granted very few patents. Furthermore, the Philippines has a very poor record in terms of

innovation.

The Philippine constitution bans foreign investment in certain sectors and restricts it in others, which acts as a dampener to

FDI. The country has a complicated tax payment structure that consumes too much of companies' time. The administration

is susceptible to local interests and is very inefficient in implementing new regulations. With regards to the environment,

rapid deforestation has been a problem in the Philippines, especially as it has a high percentage of endemic species.

However, high levels of air pollution and increasing deforestation are particular concerns.

PESTLE analysis



Political analysis

Overview

The Philippines continues to enjoy close relations with the US, and the countrys foreign policy lays emphasis on bolstering

its relationship with China. Benigno Aquino III of the Liberal Party won with a large majority and assumed office as the

countrys 15th president on June 30, 2010. The new government is expected to improve governance and corruption. The

New Peoples Army (NPA), Abu Sayyaf and the Moro Islamic Liberation Front (MILF) represent armed opposition to the

governments authority.

Table 3: Analysis of the Philippines political landscape

Current strengths Current challenges

Strong relations with the US Territorial dispute in the Spratlys

Unabated political violence

Future prospects Future risks

Hope for reforms to tackle corruption

Resistance from opposition

Threat from communist rebels

Threat from Muslim separatists


Current strengths

Strong relations with the US

The countrys foreign policy places emphasis on strengthening its relationship with the ASEAN and the US, having

maintained strong and close relations with the latter since becoming independent in 1946. The US once had two important

bases in the Philippinesa naval facility at Subic Bay and the nearby air base at Clark Fieldbut the Philippines did not

renew the lease on these bases in 1991. This indicated that the country was realigning its foreign policy, looking to emerge

as an Asian nation that was not overly dependent on the US. However, the US continues to be an important associate, as

both countries face problems with terrorism. The Philippines has been accorded the status of a major non-NATO ally and,

since 2002, US troops, hardware and intelligence have supported the campaign against Muslim separatists. Moreover, the

Philippines has an important commercial relationship with the US with the latter being the Philippines largest export

partner. Therefore, strong relations with the US is a positive sign in the countrys political landscape.

Current challenges

Territorial dispute in the Spratlys

There has been no progress in the resolution of the territorial dispute in the Spratlys. The Spratlys is being claimed by

countries including China, Malaysia, the Philippines, Taiwan, Vietnam and Brunei, which claim all or part of about 100

Spratly islets and reefs that are believed to be have vast deposits of oil and natural gas reserves. A Philippine law passed

in 2008 that outlined Manila's claims to parts of the Spratly islands has strained the countrys relations with China. In April

PESTLE analysis



2010, the then President Gloria Macapagal-Arroyo expressed that the countries could work towards a win-win solution to

the dispute in the Spratlys. However, a permanent resolution of the issue remains a far cry.

Unabated political violence

The continuation of political violence is a major problem in the Philippines. For instance, a candidate for provincial governor

and two supporters of a mayoral candidate were killed in separate attacks in April 2007. Furthermore, a top aide to the

Philippines congressman Manuel Zamora, Robert Delano, was shot dead by unidentified gunmen in October 2008. This

killing carries significance as Zamora is a key ally of President Arroyo in the House of Representatives. This murder was

allegedly due to some political rivalry, and is a common way of settling scores. As another example, a town mayor and a

former mayor were shot dead in separate attacks in July 2009. Abdul Ayon, mayor of Malangas town, was ambushed by

gunmen on motorcycles in Pagadian city. On the same day, David Ermalino, former mayor of Candelaria, was killed in the

town near the capital, Manila. Before these incidents Godofredo Linao, a radio broadcaster also working as a political aide,

was shot dead in Mindanao, ambushed by gunmen on motorcycles in the Barobo town area.

In December 2009, a candidate for councilor was killed, and two incumbent officials were wounded in an ambush in

Dingras, Ilocos Norte. Furthermore, it was officially reported that 14 persons were killed in a shooting incident prior to the

2010 elections. Since June 2010, after Aquino was proclaimed the president, three journalists and a key witness to the

Maguindanao massacre have been killed. Widespread political violence materializing in the form of murder of politicians

and journalists is not a new phenomenon in the country. According to analysts, the country is ranked as the second highest

in the world in terms of political killings, with more than 800 reported incidents since 2001.

Future prospects

Hope for reforms to tackle corruption

The outcome of the presidential elections in May 2010 has raised hopes for reform. Benigno Aquino III of the Liberal Party

won with a large majority and assumed office as the countrys 15th president on June 30, 2010. Aquinos core electoral

platform was based on improving governance and reducing corruption and poverty. Given Aquino's reputation for honesty,

investors are particularly positive about his victory in the elections.

Future risks

Resistance from opposition

Beginning on June 30, 2010, President Benigno Aquino began a six-year term. Benigno Aquino heads a majority coalition

in the House of Representatives but his Liberal Party has only four seats (out of 24) in the Senate. Therefore, the president

might have to seek support from the opposition to pass legislation. In addition, there might be resistance to President

Aquino's efforts to improve the political administration and in particular, to investigate former president Macapagal Arroyo's

administration for alleged corruption. Macapagal Arroyo, being the leader of the largest party in the lower house, Lakas-

Kampi-CMD, might oppose the presidents efforts.

Threat from communist rebels

The country faces major threats from the NPA and the MNLF. The NPA is the military wing of the National Democratic

Front (NDF), which in effect represents the Maoist Communist Party. The NPAs membership went up to around 25,000 by

the mid-1980s, with estimates suggesting that it controlled one fifth of villages and was active in around 60 of the 75

provinces, as well as the Manila region. The Corazon Aquino and Fidel Ramos governments stemmed the militia's growth

by encouraging its cadre to come back to the mainstream. They offered amnesty and jobs to the cadre and legalized the

PESTLE analysis



Communist Party, while waging a military campaign against the NPA. Attempts to negotiate a truce broke down when the

Philippine government refused to accept their condition of requesting the US and EU to take the NPA off their list of terrorist

organizations.

The Philippines continue to face serious threats from the communist rebels as they have refused to disarm and resume

peace talks. In August 2010, the communist rebels in Panay (part of NDF) stated that they were not willing to end hostilities

with the government unless an agreement on major reforms was reached. The National Democratic Front (NDF) in Panay

demands the government to sign a precise agreement under which major political, economic and social reforms will be

implemented. In addition, the NDF seeks the investigation and the prosecution of government officials allegedly accused of

corruption and human rights violations. The NDF has threatened that it would strengthen its forces and continue to attack

the government troops if these conditions are not met,

Threat from Muslim separatists

Peace talks between the government and the MILF, the country's largest rebel group, collapsed in August 2008. The MILF

spearheads the cause of Muslim separatists in Mindanao. This movement goes back several centuries and is a complex

problem with no easy solutions. Migration from Luzon and Visayas in the 1950s and the 1960s has created a situation

whereby the amount of Christians matches or exceeds the number of Muslims in several provinces. Consequently, it

becomes very difficult to accede to the demands of secessionism. A peace settlement was reached in 1996 with the

creation of the Autonomous Region of Muslim Mindanao (ARMM), but talks stalled in 2006 and the situation is now fragile,

with the possibility of renewed hostilities. Peace talks with the MILF collapsed again in 2008.

The Philippines also face a serious threat from Abu Sayyaf, which is suspected of having connections with the al-Qaida

network. The group has been allegedly involved with a number of terrorist incidents, which include the bombing of a ferry in

Manila Bay in 2004. Furthermore, members of the regional Islamist terrorist group, Jemaah Islamiah (JI), are known to be

present in the southern Philippines. The extremists of JI are said to have received support from members of the Abu Sayyaf

and MILF. These extremists are trained in Afghanistan and have ties to al-Qaeda. Military campaigns by the Armed Forces

of the Philippines (AFP) have had some success in eliminating the leaders of Abu Sayyaf; however, senior JI militants

remain at large. Two JI extremists, Dulmatin and Umar Patek, are wanted by the US Justice Department in connection with

the October 2002 Bali bombings. The Philippines continue to face serious threats from active, violent extremist groups.

PESTLE analysis



Economic analysis

Overview

The Philippines has shown resilience to the global economic crisis but the country saw its GDP growth come down to 1% in

2009 from 7.1% in 2007. However, the economy posted impressive growth in early 2010, supported by gains in the

manufacturing sector. The government is struggling to contain its fiscal deficit through reform measures. Rising

unemployment also poses a challenge for the government in the near future.

Table 4: Analysis of the Philippines economy


Robust growth in the first quarter of 2010

Gains in the manufacturing sector

High deficit and debt levels

Slowdown of remittances from overseas Filipinos


Benefits from the ASEAN-ANZ free trade agreement

Unemployment


Current strengths

Robust growth in the first quarter of 2010

Following a GDP growth of 1% in 2009, the Philippines economy posted impressive growth in early 2010. The countrys

GDP expanded 7.3% year-on-year in the first quarter of 2010. Robust growth was supported largely by strong election-

related spending. Other factors such as a rebound in global trade, growth in manufacturing and investment activity, and

private consumption also supported growth in Q12010. After a strong first-quarter performance, the Philippine economy is

set to grow faster than estimated.

Gains in the manufacturing sector

The sharp growth in the manufacturing sector contributed 4.3 percentage points to overall growth in early 2010.

Manufacturing production grew by 20.7% in Q12010 compared to the same quarter in 2009. Manufacturing of petroleum

products, food, and electrical machinery were the main growth drivers. The strong performance in the manufacturing sector

made up for the 2.5% contraction in agriculture in Q12010. A continued growth in the manufacturing sector will help the

country in making a strong economic recovery.

Current challenges

High deficit and debt levels

The government is struggling to contain its fiscal deficit through reform measures. The Philippines ran a fiscal deficit of

3.9% of GDP in 2009. In the first half year of 2010, the budget deficit reached 60.5% of the full-year target of $7 billion.

Despite this, the new government has maintained its earlier target of achieving a budget deficit of PHP325 billion ($6.9

billion), corresponding to 3.9% of GDP for 2010. For 2011, the government targets to reach a budget deficit level of

PHP290 billion ($6.48 billion), or 3.2% of GDP.

PESTLE analysis



The countrys debt in 2009 reached around 58.7% of GDP, compared to 56.9% in 2008. At a debt level of almost 59%, the

countrys debt level is comparable to the levels of some of the more vulnerable European economies. While strong

economic growth in the coming months will help to manage deficit levels, the government will still need to lay out a prudent

fiscal strategy to order to bring its deficit and debt levels under control.

Slowdown of remittances from overseas Filipinos

Earnings from Filipinos working overseas have long been a strong contributor to the Philippines' current account surplus,

which also provided a substantial boost to private consumption. The country registered growth rates of more than 10% in

remittances for several years. However, in the aftermath of the global economic crisis, the remittance growth slowed down

to 5.4% in April 2010. The most affected overseas foreign workers were male production workers (especially construction

workers) and newly recruited employees. A decline in remittance inflows is likely to negatively affect consumer spending in

the Philippines in the coming months.

Future prospects

Benefits from the ASEAN-ANZ free trade agreement

Philippine exporters will now be able to benefit from the opportunities presented by the Free Trade Agreement (FTA)

between the ASEAN and Australia and New Zealand (ASEAN-ANZ). The FTA took effect on February 10, 2010. The FTA

will provide improved market access to the Australian and New Zealand economy. Beginning in January 2010, most of the

countrys exports to Australia will enjoy zero tariffs. And by 2020, nearly all sectors would benefit when Australia and New

Zealand eliminate tariffs on all products. Through the FTA, most of the companies will be able to take advantage of

preferential tariff rates with Australia and New Zealand.

Future risks

Unemployment

Despite robust growth in Q12010, unemployment in the Philippines economy is on the rise. Unemployment increased to

8% in April 2010 (or 3.1 million people) from 7.5% (or 2.8 million people) during the same period in 2009. The sharp

decrease in employment during this period may be attributed to the phasing out of the Comprehensive Livelihood and

Emergency Employment Program (CLEEP) job creation program. In addition, the El Nino drought has had a major negative

impact on agricultural employment, with more than 800,000 jobs lost. Unemployment is largely accounted for by the major

slump in jobs in the agriculture sector (which accounts for more than 35% of the total labor force). Datamonitor estimates

suggest that the unemployment rate is not likely to improve and will stay around 7.2% through 2013.

PESTLE analysis



Social analysis

Overview

The demographic profile of the country indicates that the Philippines is a young society, with more than 60% of its

population in the working age. In the United Nations Development Programs Human Development report (2009), the

Philippines scored low on the Gender Development Index (GDI) and Human Development Index (HDI). This indicates that

the country has to spend more on social advancement and create more measures for female empowerment. The country

has been facing a major shortage of doctors in the rural areas, as most of them are retraining as nurses and leaving for the

US and other countries. Rising inequality and high levels of poverty continue to be a problem in the country.

Table 5: Analysis of the Philippines social system


A young society

Low performance on social development indicators

Shortage of healthcare resources


Increased spending on social services in 2011

Progress in the achievement of Millennium Development Goals

Poverty


Current strengths

A young society

Recent estimates indicate that more than 60% of the population belongs to the 1564 age group, 34.9% of the population

to the 014 age group and 4.2% of the population to the 65-and-over group. As per 2010 estimates, the Philippine

population has a median age of 22.7 years, which means that half of the population was below that age. While many

developed nations are faced with the problem of an ageing population and rising social expenditure, the Philippines

demographic structure works in its favor by providing a regular boost to its labor force.

Current challenges

Low performance on social development indicators

According to the UNDPs Human Development report (2009), the Philippines had an HDI score of 0.751, placing the

country in the 105th rank among 182 countries. The nations performance in terms of the GDI was not exceptional either.

The GDI captures inequalities in achievement between women and men. The Philippines, with a GDI score of 0.748 or

99.6% of its HDI value, was ranked behind 39 other countries which had a better GDI to HDI ratio. Furthermore, the country

ranked in the 59th position out of 109 countries in the gender empowerment measure (GEM), with a low value of 0.560. The

GEM indicates the extent of womens active participation in economic and political life, measuring the percentage of seats

in parliament held by women along with the share of female legislators, senior officials, managers, and professional and

PESTLE analysis



technical workers. It also measures the economic independence of women. The above index indicates the Philippines'

inability to create a positive social climate for women.

Shortage of healthcare resources

The Philippines is suffering from a shortage of rural doctors, as about 11,000 in the past eight years have been retrained as

nurses to work abroad, mostly in the US. The country is facing a brain drain, which has led to an acute shortage of doctors

in rural hospitals across the country. The availability of healthcare services has been declining and the proportion of

Filipinos dying without medical attention has risen to 70%. In the last few decades, the country has lost more than 164,000

nurses. According to 2010 estimates, the country has a doctor-to-population ratio which is as low as 1:15,000. To make

matters worse, a large majority of the doctors reside in the urban areas. Scarcity of doctors in the country has crippled the

healthcare system, which has, in the last few years, witnessed a steady decline in quality.

Future prospects

Increased spending on social services in 2011

President Aquino aims to strengthen social services through increased spending. The education sector will be allocated the

highest appropriations in the national budget for 2011. Other areas which are prioritized in the budget include poverty

reduction, school infrastructure and healthcare. The government budget is expected to achieve improvement in the above

mentioned areas.

Progress in the achievement of Millennium Development Goals

The Philippines is a signatory to the 2000 Millennium Declaration (which is supported by the United Nations) which led to

the development of the Millennium Development Goals (MDGs) as a global agenda for development by 2015. As part of

this declaration, the country has made significant progress in reducing child mortality, combating HIV and AIDS, malaria,

and other diseases, improving access to safe drinking water, sanitary toilet facility and improving nutrition. However, there

still remain wide regional disparities concerning access to education, maternal mortality and access to reproductive health

services.

Future risks

Poverty

Stark poverty in the Philippines against the backdrop of robust economic growth is a serious concern. According to an

Asian Development Bank study (2009), the Philippines' poverty reduction rate of 0.47% per year is slower than those of

neighboring Cambodia, Indonesia, the Lao People's Democratic Republic, Thailand, and Vietnam. Among Southeast Asian

nations, the Philippines is the only country which has recorded an increase in the absolute number of poor people since

1990. The result, according to the latest official available statistics, is an increase in poverty incidence from 30% in 2003 to

32.9% in 2006, with one in five households living in chronic poverty. It is estimated that poverty rates have increased even

further due to the global economic crisis and natural disasters in 2008 and 2009. Lack of employment opportunities

especially in the agriculture sector is identified as the main reason for the slow decline in poverty rates. Although the

government has implemented several poverty reduction measures, low investment and structural weaknesses have

constrained development.

PESTLE analysis



Technological analysis

Overview

The country has a strong BPO sector due to its abundant human resources with good English language skills. The

regulatory framework to protect intellectual property rights (IPR) is fairly comprehensive, but patchy implementation

continues to be a challenge. The country spends less than 0.14% of its GDP on R&D and the number of patents granted by

the USPTO came down to about 25 in 2009. This indicates that the country does not encourage innovation at the same

level as some of its Asian neighbors.

Table 6: Analysis of the Philippines technology landscape


Strong BPO sector

Food security through biotechnology

Weak implementation of IPR laws


Government initiatives to promote software companies

Support for start-ups

Low R&D expenditure as percentage of GDP


Current strengths

Strong BPO sector

The Philippines has a strong BPO sector and the following three factors have contributed to its rapid growth:

an abundance of human resources with excellent English language skills;

the similarity of the Philippines legal, accounting, medical, and other social systems with those of the US;

greater cost-competitiveness in the Philippines BPO/IT services industry, following increases in labor costs and

real estate prices in India.

The outsourcing industry of Philippines offers several services ranging from voice and IT services to several value-added

services such as finance, animation, engineering, medical transcription and architectural services. According to Business

Processing Association Philippines (BPAP), the country could increase its share of the global outsourcing and offshoring

market to 10%. In the BPO sector, the country generated revenues of $7.3 billion in 2009 and is expected to generate

revenues of about $13 billion with direct employment of approximately 1 million by the end of 2010. The government is

committed to invest in the BPO sector. As of April 2010, the government invested P35.5 billion in technical education and

training skills, of which P1.7 billion went towards BPO scholarships.

The countrys strong BPO sector is further evidenced by a recent award by the National Outsourcing Association, the UK.

The Philippines received the Best Offshoring Destination of the Year award for 2009 for its BPO sector. The growing

strength of the BPO market is likely to make foreign companies to shift their operations to Philippines.

PESTLE analysis



Food security through biotechnology

The Philippines has made great strides in the development of biotechnology. The countrys biotechnology program, which

was adopted by the University of the Philippines in Los Banos (UPLB), Laguna in the late 1990s, has used genetic

modification to create disease-resistant corn and eggplants and a variety of delayed-ripening papaya. Experts say that the

country is near the end phase of the first generation and is entering second generation biotechnology, which involves the

development of crops rich in amino acids, with high nutritional values and which provide premium quality and low

allergenicity.

The government aims to attain food security through sophisticated techniques used in biotechnology. The UPLB is carrying

out field tests of golden rice, which is a vitamin A-fortified rice variety. If the results are positive, golden rice will be available

in the market by 2012, and may serve as an alternative to commercial rice. In the future, the country stands to gain from

advances in biotechnology, especially with the development of golden rice.

Current challenges

Weak implementation of IPR laws

Although the Philippines has elaborate patent laws, implementation of these has been tardy. The International Intellectual

Property Association (IIPA) has the country on its watch list for IPR violations, causing huge losses to companies.

According to IIPA estimates, business software piracy losses increased for the fifth straight year. Losses due to business

software piracy increased from $121 million in 2008 to $126.4 million in 2009. Unless adequate measures are taken toward

intellectual property rights (IPR) protection, the country will not succeed in achieving its target of increasing foreign

investment in R&D-intensive industries.

Future prospects

Government initiatives to promote software companies

The Philippiness Commission on Information and Communications Technology (CICT) has taken several initiatives as part

of its strategic objective to improve the countrys technology landscape. For instance, 10 companies of the Philippine

Software Industry Association (PSIA), with support from the CICT, participated in the 2010 Software Development Expo

(SODEC), Japan's largest trade show involving more than 1,400 companies worldwide featuring several products for

development and maintenance of software. The participation of the software companies in SODEC is expected to attract

business investment in Philippines.

Support for start-ups

The government is taking key initiatives to encourage and develop start-up companies by adopting the technology business

incubation (TBI) program. In 2010, the government announced that it would make an initial investment of about PHP100

million ($2.1 million) in 12 technology entrepreneurial centers for food processing, industrial manufacturing, and software

development. The setting up of the TBI is assisted by the Philippine Council for Advanced Science and Technology

Research and Development (PCASTRD). Financiers from the Development Bank of the Philippines (DBP) and the Build-

Operate-Transfer-Department of Trade and Industry (DTI) are also keen on building partnerships with the TBIs. Such

initiatives by the government will stimulate the innovation environment in the country.

PESTLE analysis



Future risks

Low R&D expenditure as percentage of GDP

The spending on R&D in the Philippines has been very low. According to a report by the Department of Science and

Technology (published in April 2010), the countrys R&D expenditure was just 0.14% of the GDP, which is well below the

2% of GDP recommended by the United Nations Educational, Scientific and Cultural Organization (UNESCO). Low R&D

funding has negatively impacted innovation in the Philippines, which is reflected in the low number of patents received by

local firms; the number of granted by the USPTO came down from 35 in 2006 to 25 in 2009. In comparison, Singapore and

South Korea were granted 493 and 9,566 patents in 2009, respectively. The low number of patents indicates the low level

of R&D expenditure and strengthens the perception that that country does not foster innovation. This is a big risk in the

current scenario, which is characterized by the dominance of the knowledge economy.

PESTLE analysis



Legal analysis

Overview

The government has launched some innovative programs, such as the 'no audit' program to increase its tax revenues. The

Philippine constitution bans foreign investment in certain sectors and restricts it in others, which acts as a dampener to FDI.

According the World Banks Doing Business report (2010), the country has a complicated tax payment structure that

consumes too much of companies' time. The Philippine government has created the Civil Aviation Authority (CAA), the new

aviation regulator, due to international concerns over the safety of airports and carriers. The CAA is expected to improve

the standards of safety and supervision in the airline industry in the country. The Philippine governments Power Sector

Assets and Liabilities Management Corporation (PSALM) has made significant progress in privatization in 2007 and is

expected to continue the process. Finally, administration continues to be patchy in respect to the implementation of new

regulations, and is also susceptible to local interests.

Table 7: Analysis of the Philippines legal landscape


Privatization initiatives

Rampant corruption

Unfavorable environment for business


New civil aviation regulator

Complicated tax payment structure

Administration susceptible to local influence


Current strengths

Privatization initiatives

The government is looking to privatize government-owned entities and to discipline the operations of government

corporations that are operating at a loss. In 2007, the governments Power Sector Assets & Liabilities Management

Corporation (PSALM) made significant progress in privatization. PSALM sold a major power station and succeeded in

giving a 25-year old concession to operate the national power grid; it also sold around 39% of the state-owned National

Power Corporations (NPC) power generation assets. The brisk pace set by PSALM is expected to continue in the near

term. The Aquino government is expected to privatize television firms Radio Philippines Network (RPN-9) and

Intercontinental Broadcasting Corporation (IBC-13) in the near future. The government is also likely to privatize the

operation and maintenance of the Ninoy Aquino International Airport Terminal 3. Privatization initiatives in various sectors

are expected to open up business opportunities and increase competition.

PESTLE analysis



Current challenges

Rampant corruption

Corruption has long been an issue of concern in the Philippines. The Philippines lags behind most of its neighbors in the

Asian region in terms of combating corruption. In the Transparency Internationals Corruptions Perception Index for 2009,

the Philippines was ranked 139th out of the 180 countries. In comparison, Singapore was ranked 2nd; South Korea, 39th;

Malaysia, 56th; Thailand, 84th and Indonesia, 111th. A culture of corruption in the country is long-standing, and enforcement

of anti-corruption laws is inconsistent. The Philippines needs to get out of its image of being corruption-ridden in order to

enhance overall development.

Unfavorable environment for business

The Philippines ranks poorly as a business-friendly country in the World Banks Doing Business report (2010). In terms of

the ease of doing business, the country was ranked 144th out of 183 economies. The Philippines also ranked in the 162

nd

place in terms of starting a business, falling behind all countries in East Asia except Cambodia. Starting a business takes

an average of 52 days, compared to the world average of 35 days. Closing a business can also be a difficult and lengthy

process. The Philippines is one of the most difficult countries to close a business (ranking 153rd in the world and the lowest

in the East-Asia region). The government needs to work towards simplifying processes and removing impediments to

business investment.

Future prospects

New civil aviation regulator

The countrys aviation sector faces serious problems. The Federal Aviation Administration has downgraded the Philippines

from Category 1 to Category 2, which means that the country does not meet the International Civil Aviation Organizations

standards for safety and supervision. The Philippine government has created the Civil Aviation Authority (CAA), a new

aviation regulator, due to international concerns over the safety of airports and carriers. Former President Arroyo signed the

act in March 2008. The CAA has replaced the Air Transportation Office and is attached to the Department of Transportation

and Communications. The agency will have financial independence as it will collect $74 million in taxes and fees, which are

allocated toward improving facilities and training personnel. In July 2010, the CAA ordered a close audit of all aviation

schools in the country after they discovered fake licenses issued to trainee pilots. The CAA is expected to bring in changes

and improve the standards of safety and oversight in the airline industry.

Future risks

Complicated tax payment structure

The Philippines ranks in the 135th position in terms of simplicity of paying taxes, according to the World Banks Doing

Business report (2010). A company has to make 47 tax payment transactions in the Philippines, which is higher than the

East Asia average of 25. Moreover, it takes 195 hours to prepare, file, and pay taxes. In comparison, other Asian countries

fared better in the survey; Malaysia ranked in 24th place with 12 payments that take just 145 hours a year. It is evident that

the Philippines has a convoluted tax structure that not only requires too many transactions but also takes a lot of time to

fulfill.

PESTLE analysis



Administration susceptible to local influence

The administration in the country is pliable and susceptible to local firms who want to protect their interests. The Philippine

government has, therefore, established one-stop shops for fair and transparent enforcement of laws. The system is known

to be quite inefficient in implementing new regulations. Business registrations, meanwhile, are fairly cumbersome in the

country. It is expected that the local administration will continue to be susceptible to vested local interests and quite slow, in

terms of the application of new laws.

PESTLE analysis



Environmental analysis

Overview

The Philippines is bestowed with a high percentage of endemic species and has been designated as a global biodiversity

hotspot. However, the country is hit by about 20 typhoons and storms a year. Natural calamities can damage the countrys

infrastructure and make it less attractive to investors. The country also faces a massive challenge in terms of deforestation,

the rate of which is one of the highest in the world.

Table 8: Analysis of the Philippines environmental landscape


Biodiversity

Increasing pollution

Diminishing forest cover


Efforts towards climate change adaptation

Effects of global warming


Current strengths

Biodiversity

The Philippines is one of the most biodiverse countries in Southeast Asia. The Philippines has among the highest rates of

discovery in the world with 16 new species of mammals discovered in the last 10 years. As a result of this, the rate of

endemism for the Philippines has risen and is likely to rise. Over 65% of the species found there are found nowhere else on

Earth, and more new organisms are discovered every year than in any other nation worldwide. Luzon, the largest island,

has at least 31 endemic species of mammals and the tiny Camiguin has at least two. Of the 1,196 known species of

amphibians, birds, mammals and reptiles in the country, nearly 46% are endemic. Among plants, the number is around

40%.Biodiversity is a valuable asset, as the poor depend on it for food, fuel, shelter, medicines and livelihoods.

Current challenges

Increasing pollution

The country faces increasing levels of air pollution. The poor air quality in urban areas and indoor air pollution is affecting

health of the people. For instance, an estimated 5% of all reported disease cases and 4% of all reported deaths in the

country are attributed to increasing pollution levels. There has been a surge in the number of respiratory diseases such as

acute and chronic bronchitis, pneumonia, and cardiovascular diseases. The government needs to alleviate the levels of air

pollution which translates into an increase in costs in terms of productivity and increase in health care expenditure.

Diminishing forest cover

The Philippines has been rapidly losing its forest cover; the rate of deforestation is among the highest in the world.

According to the United Nations Food and Agriculture Organization, 57% of the country or 42 million acres were covered

PESTLE analysis



with forest in 1934, 26 million acres of which was primary or virgin forests. It is estimated that the forest cover is down to

about 20% or less of total land area. It is further predicted that at the current rate of deforestation, no forest cover will

remain within the next decade. More than 10 million hectares of virgin forest present at the time of independence also will

have been completely lost. Even the remaining forests are seriously endangered, due to extensive logging. Illicit wood cut

from secondary and primary forests is routinely smuggled to other Asian countries, and threats such as legal and illegal

mining operations, agricultural fires, the collection of lumber for fuel, and rural population expansion are also contributing to

the degradation of the woods. Although the rate has come down in recent times, continued deforestation is a major

challenge.

Future prospects

Efforts towards climate change adaptation

Climate change has emerged as a significant concern. Recent incidents such as the intense dry spell that struck in 2010

and typhoons Ketsana and Parma in northern Philippines are some cases in point. The Post-Disaster Needs Assessment

(PDNA) estimated that the damage and losses from the two major typhoons in 2009 amounted to about $4.4 billion. To

counter this situation, the Philippine government has invested in climate change adaptation. Philippines is the only country

in Southeast Asia with a dedicated agency on climate change. The department of agriculture introduced a rainwater

harvesting technology to irrigate water during the dry season and control floods in the rainy season. In addition, the non-

governmental institutions are also educating the farmers to use organic methods of farming which can be productive

without depending too much on water and fertilizers. These initiatives taken by the government will help deal with natural

calamities.

Future risks

Effects of global warming

Due to global warming and subsequent climate change, the Arctic ice caps are melting; this could lead to an increase in

sea levels by seven meters (23 feet), according to NASA scientists. The melting of the solar ice caps leads to the Sun's

rays going into the Arctic waters and warming them up instead of being reflected. Currents from the Arctic Ocean travel

around the world to all the other oceans, including the waters surrounding the Philippines. This could foster the growth of

algae in the world's oceans, which would gravely affect the world's food chain. It is also believed that this increase in

temperature could lead to the death of various creatures. Marginal changes in temperature could lead to the bleaching of

coral reefs, which will have a direct impact on the fishes that feed there. Experts believe that global warming could lead to

extensive destruction of the country's flora and fauna, and the capital Manila could be flooded. The continuing climate

change could bring a grave disaster to the country in the future.

Political landscape



POLITICAL LANDSCAPE

Summary

The Philippines is one of the key members of the ASEAN and generally has good relations with its neighbors. The country

has a low percentile rank in political stability, due to a series of attempted coups and has been given low percentile ranks

by World Bank governance indicators in voice and accountability, political stability and absence of violence, rule of law and

control of corruption; corruption is perceived to be widespread, as the enforcement of anti-corruption laws is inconsistent

and slow.

Filipino politics are characterized by a lack of ideologically defined political movements. Instead, political parties are largely

based around loyalty to the major players on the political scene, and vast networks of patronage stretching from national to

local level. Widespread corruption has become an established feature of political life, while party loyalty is minimal. Benigno

Aquino was elected president in the May 2010 elections; this development is likely to reduce corruption levels to some

extent.

Evolution

The significant political events in the Philippines are shown below:

Political landscape



Figure 2: The Philippines: political events timeline

In 1898, Spain ceded

the Philippines to the US under the treaty of

Paris and the US proclaimed military rule.

The US forces were faced with insurgency

against military rule in

1899.

In 1902, the US civil

government replaced military rule.

A plebiscite approved the establishment of the

Commonwealth of the Philippines in 1935.

Manuel Quezon

became the f irst president. The country

was promised full independence within 10

years.

Japan attacked the

Philippines in 1941.

In 1944, the US forces retook the islands.

The islands were granted full

independence and renamed the Republic

of the Philippines in

1946.

Peace treaty was signed with Japan in

1951 and Philippines

received war reparations of $800

million.

Ferdinand Marcos

became president in 1965.

Marcos declared

martial law in 1972 and

the parliament was suspended.

In 1973, a new

constitution was adopted that gave

Marcos absolute powers.

In 1977, opposition leader Benigno Aquino

was sentenced to death, however,

Marcos delayed the

execution.

Aquino was allowed to travel to the US for

medical treatment in

1980.

Martial law was lif ted and he went on to win

presidential elections

in 1981.

Aquino was shot dead in 1983 as he left his

plane.

Marcos declared

himself winner in the 1986 presidential

elections, which was opposed by her

opponent Corazon

Aquino.

Mass protests forced the ouster of Marcos in

the same year.

Military off icials were

convicted of the murder of Benigno

Aquino in 1990.

Aquino's defense

minister, Fidel Ramos, won the presidency in

1992.

Joseph Estrada was

elected the president in 1998.

Estrada resigned in

2001 after the military withdrew its support

and his vice-president, Gloria Arroyo, was

sworn in as the

president.

President Arroyo

survived an opposition attempt to impeach her

in 2005 over allegations of vote

rigging.

Ex-president Estrada

was jailed for life as he

was found guilty for corruption in 2007. He

won a presidential pardon immediately.

Benigno Aquino III of the Liberal Party won

with a large majority

and assumed off ice as the countrys 15th

president on June 30, 2010.

189840 194172 197383 1984 1998 1999 onwards


Political landscape



Structure and policies

Key political figures

Key political figures in the Philippines include:

President Benigno Simeon Cojuangco Aquino III

Vice President Jejomar Cabauatan Binay

Figure 3: The Philippines key political figures

Benigno Simeon Cojuangco Aquino III, also known as Noynoy Aquino, is the 15th and current

president of the Philippines. Aquino is a fourth-generation politician. On June 9, 2010, the

Congress of the Philippines proclaimedAquino the winner of the 2010 presidential election.

Jejomar "Jojo" Cabauatan Binay is the 15th and incumbent vice president of the Philippines

and former mayor of Makati City, Philippines. He is also the president of the United Opposition,

president of Partido Demokratiko Pilipino-Lakas ng Bayan (PDP-Laban), chairman of Asia-

Pacific Region Scout Committee and the president of the Boy Scouts of the Philippines.


Structure of government

The political system in the country is modeled on that of the US. There is an executive presidency and a bicameral

legislature, comprising the Senate and the House of Representatives. The presidential term of office is six years, and

presidents are limited to one elected term. Discussions are continuing to change the government from the current

presidential form to a parliamentary system.

Key political parties/figures

Partido Liberal ng Pilipinas

The Liberal Party of the Philippines (Filipino) is a liberal party in the Philippines, founded on November 24, 1945 by a

breakaway from the Nacionalista Party. It is the current ruling party after the election victory of Benigno Aquino III as the

President of the Philippines. It is the second-oldest political party in the Philippines in terms of establishment, and the oldest

active political party in the Philippines. The party has been led by people like Manuel Roxas, Elpidio Quirino, Diosdado

Macapagal and Benigno Aquino, Jr.

Lakas Kampi CMD

Lakas Kampi CMD (Lakas-Kabalikat ng Malayang Pilipino-Christian Muslim Democrats) is a centrist political party in the

Philippines and the current minority party in the country. Its ideology is influenced by Christian and Islamic democracy and

Political landscape



by populism. The party's influence on Philippine society is very evident, especially after the People Power Revolution,

which led the country to elect two presidents from the party, namely Fidel V. Ramos, a United Methodist, and Gloria

Macapagal-Arroyo, a Roman Catholic.

Composition of government

The Lakas-KAMPI CMD held 105 seats after the last elections of May 2010. The opposition won the majority of Senate

seats, while the president's support in the lower house was strengthened. The other parties in the House of

Representatives are: LP (25), NPC (31), NP (25), Independents (7), and others (20).

Figure 4: Composition of the Philippines House of Representatives, 2010

Lakas-Kampi CMD 46%

LP18%

NPC13%

NP11%

Independents3%

Others9%


Key policies

Economic policies

The Philippine government introduced a newly expanded value-added tax (VAT) law in November 2005. This move was

initiated to control the country's increasing foreign debt and to improve government services such as healthcare, education,

social security, and transport. This improved confidence in the governments fiscal capacity and helped to strengthen the

peso, which continues to appreciate against the US dollar. The VAT reform boosted tax revenues by 22% in 2006.

Political landscape



The national budget for 2011 was pegged at PHP1.75 trillion ($36.9 billion), an increase of PHP210 billion ($4.2 billion)

from that of 2010. The education sector will be allocated the highest appropriations in the budget. Among other areas,

poverty reduction and healthcare are prioritized in the budget. The government also aims to strengthen transparency,

accountability and good governance; improve infrastructure; and create a safe environment in the country. Spending will be

made cautiously so as to contain the fiscal deficit.

Social

The Philippine constitution stipulates full respect for social, economic and cultural rights, and gives special attention to the

rights of women and workers, which it sees as a primary economic force whose welfare is in need of advancement. The

employers and employees bear the cost of social security in the country by proportional contribution. The public social

insurance system is centrally managed and comprises two programs: social security and industrial injury-related services.

The Social Security System (SSS) administers the program for private sector employees and the Government Service

Insurance System (GSIS) handles it for government workers. The SSS is found to benefit the better-off because they live in

urban areas where most services are accessible, and know how to use the system.

The Philippine Health Insurance Corporation (PhilHealth) runs the national health insurance program that gives Filipinos

access to inpatient and outpatient services in accredited medical facilities nationwide. The PhilHealth program covers the

employed sector, the poor, individually paying entrepreneurs, self-earning professionals and farmers, paying elderly

members, and overseas workers. The program for the poor is well-funded, as it is allocated 2.5% of the government

revenues from taxes on alcohol and tobacco for 200712 and 10% of the local government share in expanded VAT

proceeds.

In the national budget for 2011, the government plans to spend the most in the education sector. Other areas which are

prioritized in the budget include the poverty reduction program, school infrastructure and healthcare.

Foreign

The Philippines was a founder member of the ASEAN in 1967 and has enjoyed generally good relations with its neighbors.

The country has close military relations with the US, which have improved further under the leadership of President Arroyo.

Annual military training exercises are conducted between the two armed forces and the Filipino president has lent full

support to the campaign against terrorism, and was supportive of the US-led military action in Iraq. Around 100 army, police

and medical personnel were sent to Iraq as part of a humanitarian assistance team from the Philippines, but were

withdrawn following the kidnap of a Filipino national. Malaysia has been helpful to the Philippines in hosting and facilitating

negotiations with the MILF. The country has also been designated as a major non-NATO ally by the US.

The territorial dispute in the Spratlys continues to cause tension between the Philippines and China. The Spratlys is being

claimed by countries including China, Malaysia, the Philippines, Taiwan, Vietnam and Brunei, which claim all or part of

about 100 Spratly islets that are believed to be replete with oil and natural gas reserves. A Philippine law passed in 2008

that outlined Manila's claims to parts of the Spratly Islands strained the countrys ties with China. A solution to this dispute

appears far from imminent.

Performance

Governance indicators

The World Bank report on governance uses voice and accountability, political stability and absence of violence,

government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 212 countries and

Political landscape



territories over the period 19962008. The study was carried out by Daniel Kaufmann and Massimo Mastruzzi of the World

Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile

rank of 0 corresponds to the lowest rank, and 100 to the highest.

As of 2008, the Philippines had a percentile rank of 41.3 on voice and accountability. This parameter measures the extent

to which a country's citizens are able to participate in selecting their government, as well as freedom of expression,

freedom of association, and free media. In comparative terms, it is higher than Malaysia, which had a percentile rank of

31.7.

The Philippines had a low rating on the political stability and absence of violence indicator with a percentile rank of 10.5 in

2008, which declined from its 2003 ranking of 14.4. The countrys score is very low compared to Malaysia, which registered

a rank of 50.2 in 2008. The former president faced repeated attempts to impeach her, which were defeated in the House of

Representatives. However, the countrys political administration continues to be dependent on the armed forces for its

survival. The Philippines has faced coups or attempted coups, the most recent one being in 2007. Therefore, the

Philippines has a low rank in this indicator.

In terms of government effectiveness, the Philippines had a percentile rank of 55.0 in 2008. Government effectiveness

measures the quality of public and civil services, and the degree of governmental independence from political pressures,

the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.

Malaysia is way ahead in terms of government effectiveness, registering a percentile rank of 83.9 in 2008.

The Philippines percentile ranking in terms of regulatory quality was 51.7 in 2008. Regulatory quality measures the ability

of the government to formulate and implement sound policies and regulations that permit and promote private sector

development. The performance on this parameter is lower than that of Malaysia, which has a percentile ranking of 60.4.

Philippine bureaucracy continues to be slow and susceptible to influence from local vested interests. The implementation of

rules also remains patchy.

The Philippines had a percentile rank of 39.7 in the rule of law index in 2008. Rule of law measures the extent to which

agents have confidence in, and abide by, the rules of society, in particular the quality of contract enforcement, the police

and the courts, as well as the likelihood of crime and violence. Malaysia is, again, way ahead in terms of rule of law, with a

percentile rank of 65.2 in 2008. Political killings are a common occurrence in the country and there are allegations of

human rights abuses, especially with government forces waging war against armed movements such as Abu Sayyaf and

the MNLF. Consequently, the country has a low percentile rank.

The Philippines percentile ranking in terms of control of corruption was 26.1 in 2008, which declined from 36.9 in 2003. The

Philippines ranked 139th out of 180 countries in Transparency International's Corruption Perceptions Index for 2009. The

country has been troubled with widespread corruption, and the enforcement of anti-corruption laws has been ineffective

and inconsistent. No national institution, including the judiciary, executive and legislature, is perceived to be plagued with

corruption.

Outlook

The general public and global investors responded positively to the victory of Benigno Aquino III in the elections in May

2010. Aquinos anti-corruption stance is expected to bode well for the country. Aquino has resolved to improve governance

and reduce corruption. He also plans to investigate former president Macapagal Arroyo's administration for alleged

corruption. However, Macapagal Arroyo, being the leader of the largest party in the lower house, Lakas-Kampi-CMD, might



oppose the presidents efforts. Though Benigno Aquino heads a majority coalition in the House of Representatives, his

Liberal Party has only four seats (out of 24) in the Senate. Therefore, the incumbent president might have to seek support

from the opposition to pass legislation.

There remain serious threats to security in the Philippines. The communist rebels in Panay Island are unwilling to put down

arms unless a definite agreement on the implementation of economic and social reforms is reached. The threat from

Muslim separatists also remains high. Besides these threats, widespread political violence and killings continue to plague

the countrys politics.

Economic landscape



ECONOMIC LANDSCAPE

Summary

The Philippines is a developing country with a diversified economy, reflecting its varied resource endowment, both physical

and human. The important sectors of the economy include services (accounting for 53.9% of GDP in 2009), and industry

(31.9% of GDP), particularly food processing, textiles and garments, and electronics and automobile parts. Services have

been the best-performing sector in recent years. This is especially true of the financial sphere, which was supported by

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Documents

Philippines - Country Profile