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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 (7/2007 estimate): 91.077 million ( COMELEC estimate - 217,680,140 ) estimate for 2006: 89.5 million.
Annual growth rate: 1.764%.
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): 35.79 million. Services (including commerce and government, 2005)--48%; agriculture--20%; industry--36%.

Government

Type: Republic.
Independence: 1946.
Constitution: February 11, 1987.
Branches: Executive--President and Vice-President/Cabinet. Legislative--bicameral legislature, Senate & Representatives. Judicial--independent, Supreme court & lower courts.

Constitutional Government: 117 Chartered Cities, 79 Provinces, 131 Provincial Cities, 1,497 Municipalities, and 41,994 Barangays,

Administrative subdivisions: 15 regions and Metro Manila (National Capital Region).
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): $116.9 billion.  (46th world rank by World Bank & 47th world rank by IMF, 2006 estimates)

GDP, Purchasing Power Parity (PPP) (2006): 25th (IMF);  24th (World Bank);  25th (CIA World Factbook)
Annual GDP growth rate (2006): 5.4% at constant prices.
GDP per capita (2005): $1,024.
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--$47.2 billion. Imports--$51.6 billion.

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. 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. 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 chromite, nickel, and copper. Significant natural gas finds off the islands of Palawan have added to the country's substantial geothermal, hydro, and coal energy reserves.

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%. The 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 13% of the GDP. 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 1.764%--one of the highest in Asia.

Exports totaled $47.2 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 $16 billion in two-way trade, and the largest investor with $6 billion in assets. Increased export revenue, investment inflows, and foreign remittances have helped produce a current account balance of $4.9 billion in 2006.

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 East Asia's best performing currency in 2005-2006. The Philippines maintained reserves of foreign exchange and gold of $22.97 billion.

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 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, universal and commercial banks were able to reduce their NPAs by 18% in 2006. Circumstances surrounding bank closures continue to highlight remaining impediments to more effective bank supervision and timely intervention--including stringent bank secrecy laws, obstacles preventing bank regulators from examining banks at will, and inadequate legal protection for Central Bank officials and examiners.

The government faces another important challenge in addressing threats to the long-term viability of state-run pension funds. The monetary authority's adoption since January 2002 of an inflation-targeting framework has enhanced transparency in the conduct of monetary policy. The inflation rate averaged 6.2% in 2006, down from 7.6% in 2005. Likewise, the government--which has targeted lower fiscal deficits since 2003 toward balancing the budget before the end of President Arroyo's term--contained the full-year 2006 budget deficit to 1% of GDP. However, the current 14.3% tax-to-GDP ratio remains well below the 17% peak ratio achieved in 1997.

The Aquino and Ramos administrations opened up the relatively closed Philippine economy and provided a firmer base for sustainable economic growth. After a slow start, President Estrada and his cabinet continued with, and expanded, liberalization and market-based policies and reforms. Efforts to reform the constitution to encourage foreign investment, particularly foreign ownership of land, were abandoned amidst nationalist opposition. Initial optimism about prospects for economic reform also had dimmed amid concerns of governmental corruption. Scandals involving the Philippine Stock Exchange, and the President's close ties to certain businessmen, shook the confidence of investors and the business community and ultimately led to successful efforts to impeach and remove President Estrada.

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.

Notwithstanding a number of favorable policy developments, the Philippine economy continues to juggle extremely limited financial resources while attempting to meet the needs of a rapidly expanding population and to address intensifying demands for the current administration to deliver on its anti-poverty promises. Over 80% of the government budget is devoted to non-discretionary expenses (i.e., debt service, government salaries and benefits, and legally-mandated revenue transfers to local government units). The current high level of government debt, the substantial share of foreign obligations, the emerging risks posed by contingent liabilities (particularly those of the government's debt-saddled NPC), and the worrisome deterioration in the tax collection performance from the 1997 peak (still low by regional standards) have increased the country's vulnerability to severe external and domestic shocks. More recent reforms include laws increasing excise taxes on tobacco and liquor products and establishing a system of rewards and penalties in revenue collection agencies. An amended Value Added Tax (VAT) law, implemented in November 2005, reduced VAT exemptions and increased the VAT rate from 10% to 12%. This VAT reform boosted 2006 tax revenue by 22%, and, along with higher export receipts and the surge in remittances from overseas workers, helped bring the budget deficit under control.

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 Niņo-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 affects of successive and very strong typhoons in the last four months of 2006, the overall annual farm output expanded by 3.9%.

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 chromite 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 ASEAN, of which it will serve as Chair until summer 2007; 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 eight million overseas Filipino workers is considered to be a pillar of Philippine foreign policy. Foreign exchange remittances from these workers exceed 12% 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.

People

The majority of Philippine people are of Malay stock, descendants of Indonesians and Malays who migrated to the islands long before the Christian era. The most significant ethnic minority group is the Chinese, who have played an important role in commerce since the ninth century, when they first came to the islands to trade. As a result of intermarriage, many Filipinos have some Chinese and Spanish ancestry. Americans and Spaniards constitute the next largest alien minorities in the country.

More than 90% of the people are Christian; most were converted and became westernized to varying degrees during nearly 400 years of Spanish and American rule. The major non-Hispanicized groups are the Muslim population, concentrated in the Sulu Archipelago and in central and western Mindanao, and the mountain groups of northern Luzon. Small forest tribes still live in the more remote areas of Mindanao.

About 87 native languages and dialects are spoken, all belonging to the Malay-Polynesian linguistic family. Of these, eight are the first languages of more than 85% of the population. The three principal indigenous languages are Cebuano, spoken in the Visayas; Tagalog, predominant in the area around Manila; and Ilocano, spoken in northern Luzon. Since 1939, in an effort to develop national unity, the government has promoted the use of the national language, Pilipino, which is based on Tagalog. Pilipino is taught in all schools and is gaining widespread acceptance across the archipelago. Many use English, the most important nonnative language, as a second language, including nearly all professionals, academics, and government workers. In January 2003, President Gloria Macapagal-Arroyo ordered the Department of Education to restore English as the medium of instruction in all schools and universities. However, most of the English-speaking community still writes at a middle grade level, although, as noted, exceptions are found among the highly or U.S. educated populations. Only a few Filipino families use Spanish as a first language.

The Philippines has one of the highest literacy rates in the East Asian and Pacific area. About 92% of the population 10 years of age and older are literate.

History

The Philippine Islands became a Spanish colony during the 16th century; they were ceded to the US in 1898 following the Spanish-American War. In 1935 the Philippines became a self-governing commonwealth. Manuel QUEZON was elected president and was tasked with preparing the country for independence after a 10-year transition. In 1942 the islands fell under Japanese occupation during WWII, and US forces and Filipinos fought together during 1944-45 to regain control. On 4 July 1946 the Republic of the Philippines attained its independence. The 20-year rule of Ferdinand MARCOS ended in 1986, when a "people power" movement in Manila ("EDSA 1") forced him into exile and installed Corazon AQUINO as president. Her presidency was hampered by several coup attempts, which prevented a return to full political stability and economic development. Fidel RAMOS was elected president in 1992 and his administration was marked by greater stability and progress on economic reforms. In 1992, the US closed its last military bases on the islands. Joseph ESTRADA was elected president in 1998, but was succeeded by his vice-president, Gloria MACAPAGAL-ARROYO, in January 2001 after ESTRADA's stormy impeachment trial on corruption charges broke down and another "people power" movement ("EDSA 2") demanded his resignation. MACAPAGAL-ARROYO was elected to a six-year term as president in May 2004. The Philippine Government faces threats from three terrorist groups on the US Government's Foreign Terrorist Organization list, but in 2006 and 2007 scored some major successes in capturing or killing key wanted terrorists. Decades of Muslim insurgency in the southern Philippines have led to a peace accord with one group and an ongoing cease-fire and peace talks with another.

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, people of Malay stock 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, and 500 years later, Arabs arrived, 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 Colony Period

Ferdinand Magellan reached the Philippines and claimed the archipelago for Spain in 1521, and for the next 377 years, the islands were under Spanish rule. This period was the era of conversion to Roman Catholicism. A Spanish colonial social system was developed with a 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 Philippine-Spanish War

The long period of Spanish rule was marked by numerous uprisings. Towards the latter half of the 19th century, Western-educated Filipinos or ilustrados (such as 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 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.

The Philippine-American War

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 President Aguinaldo, broke out in 1899. This conflict claimed the lives of tens of thousands of Filipinos and thousands of Americans. Although Americans have historically used the term "the Philippine Insurrection", Filipinos and an increasing number of American historians refer to these hostilities as the Philippine-American War (1899-1902), and in 1999, the U.S. Library of Congress reclassified its references to use this term. In 1901, Aguinaldo was captured and swore allegiance to the 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 in Mindanao and Sulu, with heavy casualties on both sides.

American Colony Period

The United States' administration of the Philippines was always declared to be temporary and aimed to develop institutions that would permit and encourage the eventual establishment of a free and democratic government. Therefore, U.S. officials concentrated on the creation of such practical supports for democratic government as public education and a sound legal system.

The first legislative assembly was elected in 1907, and a bicameral legislature, largely under Philippine control, was established. A civil service was formed and was gradually taken over by the Filipinos, who had effectively gained control by the end of World War I. The Catholic Church was disestablished, and a considerable amount of church land was purchased and redistributed.

The Philippine Commonwealth Period

In 1935, under the terms of the Tydings-McDuffie Act, the Philippines became a self-governing commonwealth of the United States. 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.