Philippines Country Facts - Tips

PhilippinesCountry Facts Bureau of East Asian and Pacific Affairs
October 2007

Background Note: PhilippinesCountry Facts

Beach in Cebu Province, Philippines,
April 23, 2006. [© AP Images]

Flag of Philippines is two equal horizontal bands of blue (top) and red with
a white equilateral triangle based on the hoist side; in the center of the
triangle is a yellow sun with eight primary rays (each containing three
individual rays) and in each corner of the triangle is a small yellow
five-pointed star.

PROFILE

OFFICIAL NAME:
Republic of the Philippines

Geography
Area: 300,000 sq. km. (117,187 sq. mi.).
Major cities (2005 estimate): Capital--Manila (pop. 11.29 million in
metropolitan area); other cities--Davao City (1.33 million); Cebu City (0.82
million).
Terrain: Islands, 65% mountainous, with narrow coastal lowlands.
Climate: Tropical, astride typhoon belt.

People
Nationality: Noun--Filipino(s). Adjective--Philippine.
Population (2007 estimate): 88.71 million; estimate for 2006: 86.97 million.
Annual growth rate: 1.993%.
Ethnic groups: Malay, Chinese.
Religions: Catholic 85%, Protestant 9%, Muslim 5%, Buddhist and other 1%.
Languages: Pilipino (based on Tagalog), national language; English, language
of government and instruction in education.
Education: Years compulsory--6 (note: 6 years of primary education free and
compulsory; 4 years of secondary education free but not compulsory).
Attendance--94% in elementary grades, 64% in secondary grades.
Literacy--93.4%.
Health: Infant mortality rate (2003)--29 per 1,000. Life expectancy (2005)
--64.10 yrs. for males; 70.10 yrs. for females.
Work force (2006): 35.84 million. Services (including commerce and
government, 2006)--49%; agriculture--36%; industry--15%.

Government
Type: Republic.
Independence: 1946.
Constitution: February 11, 1987.
Branches: Executive--president and vice president. Legislative--bicameral
legislature. Judicial--independent.
Administrative subdivisions: 15 regions and Metro Manila (National Capital
Region), 79 provinces, 115 cities.
Political parties: Lakas-Christian Muslim Democrats, Nationalist People's
Coalition, Laban ng Demokratikong Pilipino, Liberal Party, Aksiyon
Demokratiko, Partido Demokratikong Pilipino-Lakas ng Bayan, and other small
parties.
Suffrage: Universal, but not compulsory, at age 18.

Economy
GDP (2006): $117.6 billion.
Annual GDP growth rate (2006): 5.4% at constant prices.
GDP per capita (2006): $1,352.
Natural resources: Copper, nickel, iron, cobalt, silver, gold.
Agriculture: Products--rice, coconut products, sugar, corn, pork, bananas,
pineapple products, aquaculture, mangoes, eggs.
Industry: Types--textiles and garments, pharmaceuticals, chemicals, wood
products, food processing, electronics assembly, petroleum refining, fishing.
Trade (2006): Exports--$47.4 billion. Imports--$51.8 billion.

PEOPLE
The majority of Philippine people are descendants of Indonesians and Malays
who migrated to the islands in successive waves over many centuries and
largely displaced the aboriginal inhabitants. The largest ethnic minority now
is the mainland Asians (called Chinese), who have played an important role in
commerce for many centuries since they first came to the islands to trade.
Arabs and Indians also traveled and traded in the Philippines in the first
and early second millennium. As a result of intermarriage, many Filipinos
have some Asian mainland, Spanish, American, Arab, or Indian ancestry. After
the mainland Asians, Americans and Spaniards constitute the next largest
minorities in the country.

More than 90% of the people are Christian as a result of the 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 aboriginal groups of northern Luzon. Small
forest tribes still live in the more remote areas of Mindanao.

About 87 languages and dialects are spoken, most 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 widespread acceptance across the archipelago. Many use
English, Fukienese, or Mandarin as second languages. Nearly all
professionals, academics, and government workers speak some English. 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 second language.

The Philippines has one of the highest literacy rates in the developing
world. About 92% of the population 10 years of age and older are literate.

HISTORY
The history of the Philippines can be divided into four distinct phases: the
pre-Spanish period (before 1521); the Spanish period (1521-1898); the
American period (1898-1946); and the post-independence period (1946-present).

Pre-Spanish Period
The first people in the Philippines, the Negritos, are believed to have come
to the islands 30,000 years ago from Borneo and Sumatra, making their way
across then-existing land bridges. Subsequently, Malays came from the south
in successive waves, the earliest by land bridges and later in boats by sea.
The Malays settled in scattered communities, named barangays after the large
outrigger boats in which they arrived, and ruled by chieftains known as
datus. Chinese merchants and traders arrived and settled in the ninth
century, sometimes traveling on the ships of Arab traders, introducing Islam
in the south and extending some influence even into Luzon. The Malays,
however, remained the dominant group until the Spanish arrived in the 16th
century.

Spanish Period
Ferdinand Magellan reached the Philippines and claimed the archipelago for
Spain in 1521, but stayed for only a few days. Christianity was established
in the Philippines only after the arrival of the succeeding Spanish
expeditionary forces (the first led by Legazpi in the 16th century) and the
Spanish Jesuits, and in the 17th and 18th centuries by the conquistadores.

Until Mexico proclaimed independence from Spain in 1810 the islands were
under the administrative control of Spanish North America, and there was
significant migration between North America and the Philippines. This period
was the era of conversion to Roman Catholicism. A Spanish colonial social
system was developed with a local government centered in Manila and with
considerable clerical influence. Spanish influence was strongest in Luzon and
the central Philippines but less so in Mindanao, save for certain coastal
cities.

The long period of Spanish rule was marked by numerous uprisings. Towards the
latter half of the 19th century, European-educated Filipinos or ilustrados
(such as the Chinese Filipino national hero Jose Rizal) began to criticize
the excesses of Spanish rule and instilled a new sense of national identity.
This movement gave inspiration to the final revolt against Spain that began
in 1896 under the leadership of Emilio Aguinaldo (another Chinese Filipino)
and continued until the Americans defeated the Spanish fleet in Manila Bay on
May 1, 1898, during the Spanish-American War. Aguinaldo declared independence
from Spain on June 12, 1898.

American Period
Following Admiral George Dewey's defeat of the Spanish fleet in Manila Bay,
the U.S. occupied the Philippines. Spain ceded the islands to the United
States under the terms of the Treaty of Paris (December 10, 1898) that ended
the war.

A war of resistance against U.S. rule, led by revolutionary General
Aguinaldo, broke out in 1899. This conflict claimed the lives of tens of
thousands of Filipinos and thousands of Americans. 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 U.S., and resistance gradually died out
until the conflict ended with a Peace Proclamation on July 4, 1902. However,
armed resistance continued sporadically until 1913, especially among the
Muslims in Mindanao and Sulu, with heavy casualties on both sides.

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, public infrastructure, and a sound
legal system.

The first legislative assembly was elected in 1907, and a bicameral
legislature, largely under Filipino 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 General Douglas
MacArthur landed on Leyte on October 20, 1944. Filipinos and Americans fought
together until the Japanese surrendered in September 1945. Much of Manila was
destroyed during the final months of the fighting, making it the second most
devastated city in World War II after Warsaw. In total, an estimated one
million Filipinos lost their lives in the war.

Due to 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 U.S. 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 Philippine Independence Day was
changed from July 4 to June 12, commemorating the date independence from
Spain was declared by Emilio Aguinaldo in 1898.

Post-Independence Period
The early years of independence were dominated by U.S.-assisted postwar
reconstruction. The communist-inspired Huk Rebellion (1945-53) complicated
recovery efforts before its successful suppression under the leadership of
President Ramon Magsaysay. The succeeding administrations of Presidents
Carlos P. Garcia (1957-61) and Diosdado Macapagal (1961-65) sought to expand
Philippine ties to its Asian neighbors, implement domestic reform programs,
and develop and diversify the economy.

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 six-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, and corruption and cronyism contributed to a serious
decline in economic growth and development.

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 Senator 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 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, 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 Arroyo in June 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, but
Congress rejected the charges in September 2005. Similar charges were
discussed and dismissed by Congress in the summer of 2006.

GOVERNMENT AND POLITICAL CONDITIONS
The Philippines has a representative democracy modeled on the U.S. system.
The 1987 constitution, adopted during the Aquino administration,
reestablished a presidential system of government with a bicameral
legislature and an independent judiciary. The president is limited to one
six-year term. Provision also was made in the constitution for autonomous
regions in Muslim areas of Mindanao and in the Cordillera region of northern
Luzon, where many aboriginal tribes still live.

The 24-member Philippine Senate is elected at large, and all senators serve
six-year terms. Half are elected every three years. Of a maximum of 250
members in the House of Representatives, 212 are elected from single-member
districts to serve three-year terms. The remainder of the House seats are
designated for sectoral party representatives elected at large, called party
list representatives. All representatives serve three-year terms, with a
maximum of three consecutive terms. On May 14, 2007, legislative and local
elections were held. President Arroyo's coalition won 195 of 220 seats in the
House of Representatives, 72 of 81 gubernatorial seats, and 102 of 118 city
mayoral seats. However, the President's coalition won only two out of 12
vacant seats in the Philippine Senate. Although the election was marred by
some violence and irregularities, civil society monitoring groups played a
welcome and active role in ensuring a relatively fair and democratic process.

The government continues to face threats from terrorist groups, including the
Communist New People's Army and Muslim groups. The terrorist Abu Sayyaf Group
(ASG), which gained international notoriety with its kidnappings of foreign
tourists in the southern islands, remains a major problem for the government,
along with members of the Indonesian-based Jemaah Islamiyah (JI). Efforts to
track down and destroy the ASG and JI have met with some success, especially
in Basilan and Jolo, where U.S. troops advised, assisted, and trained
Philippine soldiers in counterterrorism. In August 2006, the Armed Forces of
the Philippines began a major offensive against ASG and JI on the island of
Jolo. This offensive was remarkably successful and resulted in the deaths of
Abu Sayyaf leader Khadafy Janjalani and his deputy, Abu Solaiman. The U.S.
Government provided rewards to Philippine citizens whose information led to
these deaths in the military operations, as well as to many other operations
against terrorist leaders.

An international monitoring team continues to watch over a four-year-old
cease-fire agreement between the government and the separatist Moro Islamic
Liberation Front (MILF). In June 2003, the MILF issued a formal renunciation
of terrorism. Talks on a peace accord between the two sides continue, with
the Government of Malaysia acting as principal mediator.

Principal Government Officials
President--Gloria Macapagal-Arroyo
Vice President--Noli De Castro
Foreign Secretary--Alberto Romulo
Ambassador to the United States--Ambassador Willie Gaa
Permanent Representative to the UN--Hilario G. Davide

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).

ECONOMY
Since the end of World War II, the Philippine economy has had a mixed history
of growth and development. Over the years, the Philippines has gone from
being one of the richest countries in Asia (following Japan) to being one of
the poorest. Growth immediately after the war was rapid, but slowed over
time. Years of economic mismanagement and political instability under the
Marcos regime eventually harmed economic growth and grossly adversely
affected macroeconomic instability. A severe recession in 1984-85 saw the
economy shrink by more than 10%, and perceptions of political instability
during the Aquino administration further dampened economic activity. During
his administration, President Ramos introduced a broad range of economic
reforms and initiatives designed to spur business growth and foreign
investment. As a result, the Philippines saw a period of higher growth, but
the Asian financial crisis triggered in 1997 slowed economic development in
the Philippines once again. President Estrada managed to continue some of the
reforms begun by the Ramos administration. Important laws to strengthen
regulation and supervision of the banking system (General Banking Act) and
securities markets (Securities Regulation Code), to liberalize foreign
participation in the retail trade sector, and to promote and regulate
electronic commerce were enacted during his abbreviated term. 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 the confidence
of investors and the business community and ultimately led to successful
efforts to impeach and remove President Estrada.

Despite occasional challenges to her presidency and resistance to
pro-liberalization reforms by vested interests, President Arroyo has made
considerable progress in restoring macroeconomic stability with the help of a
well-regarded economic team. Nonetheless, long-term economic growth remains
threatened by widespread poverty, crumbling infrastructure and education
systems, and trade and investment barriers.

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 chromate, 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.

Today's Economy
GDP grew by 5.4% in 2006, marking the first time since the 1970s with three
consecutive years of growth over 5%. Historically, the Philippines has had
difficulty sustaining growth at over 5%. GDP increased by 6% in 2004, a
15-year high, and by 5% in 2005. Growth in 2006 was fueled by increased
electronics exports, growth in the outsourcing industry, and a 20% increase
in remittances from overseas workers to $12.8 billion and about 11% of GDP.
GDP growth is expected to finish 2007 closer to the upper end of the
government's targeted 6.1%-6.7% growth range. Still, it will take a higher,
sustained economic growth path to make more appreciable progress in poverty
alleviation given the Philippines' annual population growth rate of nearly
2%--one of the highest in Asia.

At $3.8 billion, the overall balance of payments ended 2006 with its largest
surplus in nearly a decade. Exports totaled $47.4 billion in 2006, relying
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%. Net foreign direct
investment (FDI) inflow rose to $2.35 billion in 2006, nearly double the 2005
level. The U.S. remains the Philippines' largest trading partner with over
$17 billion in two-way trade, and the largest investor with more than $6.5
billion in total FDI. Increased export revenue, investment inflows, and
foreign remittances helped produce a current account surplus of $5 billion in
2006 (equivalent to 4.3% of GDP).

Increased foreign capital inflows made the Philippine stock market among the
top performers in East Asia during 2006. Similarly, the Philippine peso
appreciated about 7.5% to the U.S. dollar, making it among East Asia's best
performing currencies in 2005-2006. The Philippines maintained reserves of
foreign exchange and gold of $22.97 billion, adequate for 4.3 months of goods
and services imports and equivalent to 2.5 times foreign debts maturing over
the next 12 months.

Determined efforts to avert a fiscal and debt crisis through a combination of
expenditure control and, more recently, new revenue measures have contributed
significantly to positive financial sector indicators and the current air of
cautious optimism. December 2004 legislation provided for biennial
adjustments to the excise tax rates for tobacco and liquor products until
2011, while a law signed in January 2005 seeks to institute a
performance-based rewards and penalty system in the government's revenue
collection agencies. Despite public resistance and initial legal challenges,
the government began implementing an expanded Value Added Tax law in November
2005, which added an estimated 75 billion pesos ($1.5 billion) to national
government revenues during 2006 (equivalent to 1.2% of GDP).

Although still below the 17% peak of 1997 and the performance of most other
countries in the region, the tax-to-GDP ratio--which had slipped to 12.5% by
2004 before improving to 13.0% in 2005--inched up for a second consecutive
year to 14.3%. From a record $4.1 billion (5.3% of GDP) in 2002, the national
government has recorded declining fiscal deficits for four consecutive years
(to 0.6% of GDP in 2006) and targets balancing the budget by 2008.
Consolidated public sector debt (which also includes the Central Bank,
government-owned and controlled corporations, state-run social security
agencies, and local government units) has declined from 2003's peak
118%-of-GDP ratio to under 90% of GDP. Major credit rating agencies raised
their rating outlook for Philippine sovereign debt from "negative" to
"stable" in recognition of fiscal progress. Interest rates on local
government borrowings have come down, and spreads on foreign bonds have
tightened significantly. Looking forward, further reforms are needed to ease
fiscal pressures from large losses being sustained by a number of
government-owned firms. Although steps have been taken to improve their
financial health, challenges still remain to ensuring the long-term viability
of state-run pension funds.

The Philippines was less severely affected by the Asian financial crisis of
the late 1990s than its neighbors, aided in part by its high level of annual
remittances from overseas workers, no sustained run-up in asset prices, and
more moderate debt prior to the crises. Nonetheless, 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 Central Bank has been working with the banking sector for the adoption of
international risk assessment and capital adequacy standards, as well as
international accounting standards. 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. Under the SPV, commercial
banks were able to reduce their NPAs by 14% in 2006. The ratio of
non-performing assets to total commercial banking system assets--which peaked
at 18.3% in October 2001--has reverted to single-digit levels since mid-2005
and had declined to 6.5% of assets by end-2006. Nevertheless, 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 Central Bank's adoption since January 2002 of an inflation-targeting
framework has enhanced transparency in the conduct of monetary policy. The
inflation rate averaged 6.2% in 2006, down from 7.6% in 2005, and is expected
to fall further to under 3% in 2007, comfortably below the Central Bank's
target of 4-5%.

The 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 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.

Although encountering implementation hitches, the 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 that will benefit NPC finances. In
addition to the Special Purpose Vehicle law, President 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.

The U.S. Trade Representative removed the Philippines from its Special 301
Priority Watchlist in 2006, reflecting improvement in its enforcement of
intellectual property rights (IPR) protection. However, sustained effort and
continuing progress on key IPR issues will be essential to maintain this
status.

Despite a number of policy reforms and recent good news, the Philippines
continues to face important challenges and must sustain the reform momentum
to catch up with its regional neighbors and to translate the current cautious
optimism into the long-term confidence required to spur investments, achieve
higher growth, generate employment, and alleviate poverty for a rapidly
expanding population. Absent new revenue measures, sustained fiscal stability
will require more aggressive tax collection efficiency to address the severe
under-spending in infrastructure and social services in recent years of tight
budgets. Addressing delays in power sector privatization remains critical to
the long-term stability of public sector finances, ensuring reliable
electricity supply, and to bringing down the high cost of power.

Potential foreign investors, as well as tourists, continue to be concerned
about law and order, inadequate infrastructure, policy and regulatory
instability, 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,
to lower costs of doing business, and to 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
Arable farmland comprises more than 40% of the total land area. Although the
Philippines is rich in agricultural potential, inadequate infrastructure,
lack of financing, and government policies have limited productivity gains.
Philippine farms produce food crops for domestic consumption and cash crops
for export. The agricultural sector employs more than one-third of the work
force but provides less than one-fifth of GDP.

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.

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 Niño-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 5.1% in real terms during 2004 but stagnated to 2.24% in
2005 due to drought and intermittent weather disturbances. Despite the
adverse effects of successive and very strong typhoons in the last four
months of 2006, the overall annual farm output expanded by 3.8%.

Industry
Industrial production is centered on the processing and assembly operations
of the following: food, beverages, tobacco, rubber products, textiles,
clothing and footwear, pharmaceuticals, paints, plywood and veneer, paper and
paper products, small appliances, and electronics. Heavier industries are
dominated by the production of cement, glass, industrial chemicals,
fertilizers, iron and steel, and refined petroleum products.

The industrial sector is concentrated in 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.

Mining
The Philippines is one of the world's most highly mineralized countries, with
untapped mineral wealth estimated at more than $840 billion. Philippine
copper, gold, and chromate deposits are among the largest in the world. Other
important minerals include nickel, silver, coal, gypsum, and sulfur. The
Philippines also has significant deposits of clay, limestone, marble, silica,
and phosphate. The discovery of natural gas reserves off Palawan has been
brought on-line to generate electricity.

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.

FOREIGN RELATIONS
In its foreign policy, the Philippines cultivates constructive relations with
its Asian neighbors, with whom it is linked through membership in the
Association of Southeast Asian Nations (ASEAN), the ASEAN Regional Forum
(ARF), and the Asia-Pacific Economic Cooperation (APEC) forum. The
Philippines is a member of the UN and some of its specialized agencies, and
served a two-year term as a member of the UN Security Council from January
2004-2006, acting as UNSC President in September 2005. Since 1992, the
Philippines has been a member of the Non-Aligned Movement. The government is
seeking observer status in the Organization of the Islamic Conference (OIC).
The Philippines has played a key role in ASEAN in recent years and also
values its relations with the countries of the Middle East, in no small part
because hundreds of thousands of Filipinos are employed in that region. The
welfare of the some four to five million overseas Filipino contract workers
is considered to be a pillar of Philippine foreign policy. Foreign exchange
remittances from these workers exceed 11% of the country's gross domestic
product.

The fundamental Philippine attachment to democracy and human rights is also
reflected in its foreign policy. Philippine soldiers and police have
participated in a number of multilateral civilian police and peacekeeping
operations, and a Philippine Army general served as the first commander of
the UN Peacekeeping Operation in East Timor. The Philippines presently has
peacekeepers in Haiti and Liberia. The Philippines also participated in
Operation Iraqi Freedom, deploying some 50 troops to Iraq in 2003. (These
troops were subsequently withdrawn in 2004 after a Filipino overseas worker
was kidnapped.) The Philippine Government also has been active in efforts to
reduce tensions among rival claimants to the territories and waters of the
resource-rich South China Sea.

U.S.-PHILIPPINE RELATIONS
U.S.-Philippine relations are based on shared history and commitment to
democratic principles, as well as on economic ties. The historical and
cultural links between the Philippines and the U.S. remain strong. The
Philippines modeled its governmental institutions on those of the U.S. and
continues to share a commitment to democracy and human rights. At the most
fundamental level of bilateral relations, human links continue to form a
strong bridge between the two countries. There are an estimated four million
Americans of Philippine ancestry in the United States, and more than 250,000
American citizens in the Philippines.

Until November 1992, pursuant to the 1947 Military Bases Agreement, the
United States maintained and operated major facilities at Clark Air Base,
Subic Bay Naval Complex, and several small subsidiary installations in the
Philippines. In August 1991, negotiators from the two countries reached
agreement on a draft treaty providing for use of Subic Bay Naval Base by U.S.
forces for 10 years. The draft treaty did not include use of Clark Air Base,
which had been so heavily damaged by the 1991 eruption of Mount Pinatubo that
the U.S. decided to abandon it.

In September 1991, the Philippine Senate rejected the bases treaty, and
despite further efforts to salvage the situation, the two sides could not
reach an agreement. As a result, the Philippine Government informed the U.S.
on December 6, 1991, that it would have one year to complete withdrawal. That
withdrawal went smoothly and was completed ahead of schedule, with the last
U.S. forces departing on November 24, 1992. On departure, the U.S. Government
turned over assets worth more than $1.3 billion to the Philippines, including
an airport and ship-repair facility. Agencies formed by the Philippine
Government have converted the former military bases for civilian commercial
use, with Subic Bay serving as a flagship for that effort.

The post-U.S. bases era has seen U.S.-Philippine relations improved and
broadened, with a prominent focus on economic and commercial ties while
maintaining the importance of the security dimension. U.S. investment
continues to play an important role in the Philippine economy, while a strong
security relationship rests on the 1952 U.S.-Philippines Mutual Defense
Treaty (MDT). In February 1998, U.S. and Philippine negotiators concluded the
Visiting Forces Agreement (VFA), paving the way for increased military
cooperation under the MDT. The agreement was approved by the Philippine
Senate in May 1999 and entered into force on June 1, 1999. Under the VFA, the
U.S. has conducted ship visits to Philippine ports and has resumed large
combined military exercises with Philippine forces. Key events in the
bilateral relationship include the July 4, 1996 declaration by President
Ramos of Philippine-American Friendship Day in commemoration of the 50th
anniversary of Philippine independence. Ramos visited the U.S. in April 1998,
and then-President Estrada visited in July 2000. President Arroyo met with
President Bush in an official working visit in November 2001 and made a state
visit in Washington on May 19, 2003. President Bush made a state visit to the
Philippines on October 18, 2003, during which he addressed a joint session of
the Philippine Congress--the first American President to do so since Dwight
D. Eisenhower. There are regular U.S. cabinet-level and congressional visits
to the Philippines as well.

President Arroyo has repeatedly stressed the close friendship between the
Philippines and the U.S. and her desire to expand bilateral ties further.
Both governments seek to revitalize and strengthen their partnership by
working toward greater security, prosperity, and service to Filipinos and
Americans alike. Inaugurated into office on the same day as President Bush,
President Arroyo lent strong support to the global war on terrorism. In
October 2003, the U.S. designated the Philippines as a Major Non-NATO Ally.
That same month, the Philippines joined the select group of countries to have
ratified all 12 UN counterterrorism conventions.

The annual Balikatan (Shoulder-to-Shoulder) bilateral military exercises
contribute directly to the Philippine armed forces' efforts to root out Abu
Sayyaf and Jemaah Islamiyah terrorists and bring development to formerly
terrorist-plagued areas, notably Basilan and Jolo. They include not only
combined military training but also civil-military affairs and humanitarian
projects. The International Military Education and Training (IMET) program is
the largest in the Pacific and the third-largest in the world, and a Mutual
Logistics Support Agreement (MLSA) was signed in November 2002. Similarly,
law enforcement cooperation has reached new levels: U.S. and Philippine
agencies have cooperated to bring charges against numerous terrorists, to
implement the countries' extradition treaty, and to train thousands of
Filipino law enforcement officers. There is a Senior Law Enforcement Advisor
helping the Philippine National Police with its Transformation Program.

The U.S. is also working closely with the Philippines to reduce poverty and
increase prosperity. The U.S. fully supports Philippine efforts to root out
corruption, to open economic opportunity, and to invest in health and
education. USAID programs support the 'Philippines' war on poverty as well as
the government's reform agenda in critical areas, including anti-money
laundering, rule of law, tax collection, and trade and investment. Other
USAID programs have bolstered the government's efforts to heal divisions in
Philippine society through a focus on conflict resolution, livelihood
enhancement for former combatants, and economic development in Mindanao and
the Autonomous Region in Muslim Mindanao, among the poorest areas in the
country. Meanwhile, important programs continue in modern family planning,
infectious disease control, environmental protection, rural electrification,
and provision of basic services--as well as PL 480 food aid programs and
others, which together totaled $211.3 million. In 2006, the Millennium
Challenge Corporation granted $21 million to the Philippines for a threshold
program addressing corruption in revenue administration.

Nearly 400,000 Americans visit the Philippines each year. Providing
government services to U.S. and other 'citizens, therefore, constitutes an
important aspect of the bilateral relationship. Those services include
veterans' affairs, social security, and consular operations. Benefits to
Filipinos from the U.S. Department of Veterans Affairs and the Social
Security Administration totaled $297,389,415 in 2006. Many people-to-people
programs exist between the U.S. and the Philippines, including Fulbright,
International Visitors, and Aquino Fellowship exchange programs, as well as
the U.S. Peace Corps.

Trade and Investment
Two-way U.S. merchandise trade with the Philippines amounted to $17.3 billion
in 2006 (U.S. Department of Commerce data). According to Philippine
Government data, 16% of the Philippines' imports in 2006 came from the U.S.,
and about 18% of its exports were bound for America. The Philippines ranks as
our 26th-largest export market and our 30th-largest supplier. Key exports to
the U.S. are semiconductor devices and computer peripherals, automobile
parts, electric machinery, textiles and garments, wheat and animal feeds, and
coconut oil. In addition to other goods, the Philippines imports raw and
semi-processed materials for the manufacture of semiconductors, electronics
and electrical machinery, transport equipment, and cereals and cereal
preparations.

The U.S. traditionally has been the Philippines' largest foreign investor,
with about $6.6 billion in estimated investment as of end-2005 (U.S.
Department of Commerce data). Since the late 1980s, the Philippines has
committed itself to reforms that encourage foreign investment as a basis for
economic development, subject to certain guidelines and restrictions in
specified areas. Under President Ramos, the Philippines expanded reforms,
opening the power generation and telecommunications sectors to foreign
investment, as well as securing ratification of the Uruguay Round agreement
and membership in the World Trade Organization. As noted earlier, President
Arroyo's administration has generally continued such reforms despite
opposition from vested interests and "nationalist" blocs. A major obstacle
has been and will continue to be constitutional restrictions on, among
others, foreign ownership of land and public utilities, which limits maximum
ownership to 40%.

Over the last two decades, the relatively closed Philippine economy has been
opened significantly by foreign exchange deregulation, foreign investment and
banking liberalization, tariff and market barrier reduction, and foreign
entry into the retail trade sector. The Electric Power Industry Reform Act of
2001 opened opportunities for U.S. firms to participate in the power industry
in the Philippines. Information and communications technologies, backroom
operations such as call centers, and regional facilities or shared-service
centers are likewise leading investment opportunities.

Principal U.S. Embassy Officials
Ambassador--Kristie A. Kenney
Deputy Chief of Mission--Paul W. Jones
Political Counselor--Tom Gibbons
Economic Counselor--Larry L. Memmott
Public Affairs Counselor--Lee M. McClenny
Consul General--Richard D. Haynes
Management Counselor--Catherine I. Ebert-Gray
Commercial Counselor--Judy Reinke
USAID Mission Director--Jon Lindborg
Agricultural Counselor--Emiko Purdy
Transportation and Safety Administration--Bert Williams
Defense Attaché Office--Colonel Bruce A. West
Joint U.S. Military Assistance Group--Colonel Mathias R. Velasco
Regional Security Officer--Jacob M. Wohlman
Legal Attaché--Stephen P. Cutler
U.S. Drug Enforcement Administration--Timothy C. Teal
Veterans Affairs--Jonathan Skelly
Social Security Administration--Thomas H. Ashley, Jr.
American Battle Monuments Commission--Larry A. Adkison
U.S. Peace Corps--Karl S. Beck

The U.S. Embassy is located at 1201 Roxas Boulevard, Manila; tel. (63)(2)
528-6300; fax 522-4361; website: http://manila.usembassy.gov/. The American
Business Center is located at 25/F, Ayala Life - FGU Center, 6811 Ayala
Avenue, Makati City. It houses the Foreign Commercial Service: tel. (63)(2)
888-4088; fax 888-6606; website: http://manila.usembassy.gov/wwwh3012.html;
and the Foreign Agricultural Service: tel. (63)(2) 887-1137; fax 887-1268;
website: http://manila.usembassy.gov/wwwh3011.html.

TRAVEL AND BUSINESS INFORMATION
The U.S. Department of State's Consular Information Program advises Americans
traveling and residing abroad through Consular Information Sheets, Public
Announcements, and Travel Warnings. Consular Information Sheets exist for all
countries and include information on entry and exit requirements, currency
regulations, health conditions, safety and security, crime, political
disturbances, and the addresses of the U.S. embassies and consulates abroad.
Public Announcements are issued to disseminate information quickly about
terrorist threats and other relatively short-term conditions overseas that
pose significant risks to the security of American travelers. Travel Warnings
are issued when the State Department recommends that Americans avoid travel
to a certain country because the situation is dangerous or unstable.

For the latest security information, Americans living and traveling abroad
should regularly monitor the Department's Bureau of Consular Affairs Internet
web site at http://www.travel.state.gov, where the current Worldwide Caution,
Public Announcements, and Travel Warnings can be found. Consular Affairs
Publications, which contain information on obtaining passports and planning a
safe trip abroad, are also available at http://www.travel.state.gov. For
additional information on international travel, see http://www.usa.gov/
Citizen/Topics/Travel/International.shtml.

The Department of State encourages all U.S citizenstraveling or residing
abroad to register via the State Department's travel registration website or
at the nearest U.S. embassy or consulate abroad. Registration will make your
presence and whereabouts known in case it is necessary to contact you in an
emergency and will enable you to receive up-to-date information on security
conditions.

Emergency information concerning Americans traveling abroad may be obtained
by calling 1-888-407-4747 toll free in the U.S. and Canada or the regular
toll line 1-202-501-4444 for callers outside the U.S. and Canada.

The National Passport Information Center (NPIC) is the U.S. Department of
State's single, centralized public contact center for U.S. passport
information. Telephone: 1-877-4USA-PPT (1-877-487-2778). Customer service
representatives and operators for TDD/TTY are available Monday-Friday, 7:00
a.m. to 12:00 midnight, Eastern Time, excluding federal holidays.

Travelers can check the latest health information with the U.S. Centers for
Disease Control and Prevention in Atlanta, Georgia. A hotline at 877-FYI-TRIP
(877-394-8747) and a web site at http://www.cdc.gov/travel/index.htm give the
most recent health advisories, immunization recommendations or requirements,
and advice on food and drinking water safety for regions and countries. A
booklet entitled "Health Information for International Travel" (HHS
publication number CDC-95-8280) is available from the U.S. Government
Printing Office, Washington, DC 20402, tel. (202) 512-1800.

Further Electronic Information
Department of State Web Site. Available on the Internet at http://
www.state.gov, the Department of State web site provides timely, global
access to official U.S. foreign policy information, including Background
Notes and daily press briefings along with the directory of key officers of
Foreign Service posts and more. The Overseas Security Advisory Council (OSAC)
provides security information and regional news that impact U.S. companies
working abroad through its website http://www.osac.gov

Export.gov provides a portal to all export-related assistance and market
information offered by the federal government and provides trade leads, free
export counseling, help with the export process, and more.
STAT-USA/Internet, a service of the U.S. Department of Commerce, provides
authoritative economic, business, and international trade information from
the Federal government. The site includes current and historical
trade-related releases, international market research, trade opportunities,
and country analysis and provides access to the National Trade Data Bank. ***********************************************************
See http://www.state.gov/r/pa/bgn/ for all Background notes
************************************************************
To change your subscription, go to http://www.state.gov/misc/echannels/66822.htm PhilippinesCountry Facts

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