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Republic of the Philippines Country Brief - December 2007

Political overview

The 1987 Constitution restored a Presidential-style republican government to the Philippines. The President heads the executive branch of government and can serve no more than a single 6-year term. While the presidency commands great prestige and moral authority, executive powers are constrained by constitutional safeguards designed to avoid a repetition of Marcos-era excesses. Congress may not be abolished by the President and a two-thirds majority in the legislature can override the Presidential veto on legislation. The judiciary determines the constitutionality of presidential and legislative action. Many administration policies and programs require legislative underpinning for which backing from Congress is required.

The bicameral Congress consists of a 24-member Senate and a 236-member House of Representatives. Senators are elected on a nationwide, rather than regional ballot and can serve two terms of six years. Members of the House of Representatives can serve three terms of three years. Party affiliation is not strong in the Philippines and it is common for members of Congress to have belonged to several different political parties at various times during the course of their careers. Personality and patronage form the basis of the Philippines' political system.

Elections were held in the Philippines on 14 May 2007 to elect 12 senators, all members of the House of Representatives and all provincial city and municipal elected officials.  President Arroyo’s Administration claimed approximately 82 per cent of the seats in the House of Representatives and won 86 per cent of Governor positions and 87 per cent of city Mayors.  In the Senate, the President’s Administration won three of the 12 seats with the rest going to the Opposition and Independents.

Muslim Minority in the Southern Philippines

Filipino Muslims have long felt disadvantaged. Unrest in the south has been a constant feature of the post-independence Philippines. In 1996, the Philippines Government (under President Ramos) signed a peace agreement with the Moro National Liberation Front (MNLF). This agreement allowed for the creation of a revitalised Autonomous Region of Muslim Mindanao (ARMM), giving the Moro people, as Muslims in the Southern Philippines are known, limited powers of self-governance.  The Moro Islamic Liberation Front (MILF) and the Philippines Government are engaged in peace negotiations facilitated by the Malaysian government.  As a part of this process, a cease-fire has been in place since 2003 and other confidence building measures are being pursued at the ground-level.  At the conclusion of talks between the Philippines Government and the MILF on 15 November 2007, outstanding territorial issues on ancestral domain were agreed and both sides sought a 12 month extension to the mandate of the International Monitoring Team.  However, prospects for a final settlement are unclear.  The existence in the south of the Abu Sayyaf Group (ASG), a violent splinter group of the MNLF involved in kidnap-for-ransom operations and which is known to shelter and cooperate with members of the Jemaah Islamiyah, may complicate peace efforts. The Philippine Government has had several successes disrupting ASG operations, including the confirmed deaths of ASG leader Khadaffy Janjalani and Abu Solaiman. On 6 March, President Arroyo signed anti-terrorism legislation (the Human Security Act 2007).  The bill came into effect on 15 July 2007.

Economic Overview

The Philippine economy has proven to be resilient and in recent years has exceeded expectations.  In the first half of 2007, the Philippines economy grew by a near record rate of 7.3%.  The primary driver of growth remains business process outsourcing, exports of electronic goods and overseas workers remittances.  A potential new driver is also mining and quarrying which recorded a growth rate of 33% in the second quarter. 

Ongoing progress in the implementation of the fiscal reform program, started in 2005 to address a looming fiscal crisis, has contributed to financial market stability reflected in a stronger currency, a rising stock market, and manageable borrowing costs for the public sector. Government revenue has been further boosted by raising the value-added tax (VAT) to 12 per cent early in 2006 and other tax-enhancement measures.

The improvement in government finances has led to a decline in government debt, which the administration is targeting to fall from 72 per cent of GDP in 2005 to 58 per cent by 2010. Improved fiscal performance has eased pressure on lending rates. Despite progress on the fiscal front, the economy is still vulnerable to financial shocks as current debt levels remain high, with interest payments accounting for one third of total government expenditure.

To sustain economic gains, the government has committed to continue economic reforms in areas such as infrastructure, tax policy and administration, and further deregulation and privatization of the economy. Sustained results in tax administration will be essential in building credibility and will provide the basis for strengthening macroeconomic stability. Notably, tax revenues in 2006 were 19 per cent above 2005 levels.

Economic growth for 2006 was 5.4 per cent. Private consumption was spurred by record levels of remittances from overseas workers which reached US$11.4 billion in the first 11 months of 2006 and remained the primary driver of the economy, with investment and export growth remaining sluggish. The services sector, with the largest share of GDP at 48 per cent, sustained its high growth of 6.0-6.3 per cent for 2006. Unemployment remains high at 8.2 per cent.

During 2006 the Government lowered oil tariffs to counter recurring oil price increases. This kept the annual inflation figure for 2006 at 6.2 per cent.

Agriculture still accounts for 20 per cent of the Philippines’ GDP, with 40 per cent of the workforce employed in the sector, producing crops for both export and domestic consumption. Rice and coconuts are the two largest agricultural sectors (Philippine coconuts account for nearly half the world supply). Other major Philippines export crops include bananas, pineapples and mangoes. Semiconductors and electronic microcircuits, finished electrical machinery and garments are the country's leading exports; electronic goods account for 65 per cent of all exports. The domestic content of manufactured exports has not increased and Philippine manufacturing is still focused on the assembly of imported components. Any further upward growth in exports will depend on global demand for electronic goods, particularly in the US, Japan and China.

Key economic indicators

Key indicators

2006(f)

2007(f)

2008(f)

2009(f)

2010(f)

Real GDP growth (%)

5.4a

5.5

5.4

5.4

5.3

Consumer price inflation (av; %)

6.3a

4.4

4.0

3.9

4.0

Budget balance (% of GDP)

-1.1

-0.7

0.1

0.5

0.5

Current-account balance (% of GDP)

.4.3

4.0

4.0

4.1

4.0

Lending rate (av; %)

9.9

9.4

9.9

9.9

9.9

Exchange rate PhP:US$ (av)

51.2

49.5

49.0

49.0

49.0

Exchange rate PhP:US$ (end-period)

49.1

49.3

49.0

49.0

49.0

Source: EIU Viewswire, 6 February 2007

Bilateral relationship

As a country with a long exposure to Western culture and a comparatively well-educated English-speaking population, the Philippines has much in common with Australia. Australia and the Philippines are geographically proximate and share common perspectives on many regional, economic and security issues. As a result, Australia and the Philippines have a long history of bilateral cooperation. Diplomatic relations were established when Australia opened its first Consulate-General in Manila on 22 May 1946. An Australian Ambassador to the Philippines was appointed in 1957. The Philippines opened an Embassy in Canberra in 1962. The relationship consists of development assistance, defence and law enforcement cooperation, and we have increasing people to people links through trade, investment, cultural exchange, tourism and migration. Significant numbers of Filipinos immigrated to Australia between the 1960s and the 1990s and Filipinos remain one of the fastest growing immigrant communities in Australia. At the 2001 Census, members of the Filipino community in Australia numbered 123,000.

Development assistance

In 2006-07, Australian aid flows to the Philippines are estimated to be $68.8 million.  The May 2007 budget saw an increase of 46% in aid to the Philippines for 2007-08 to an estimated $100.6 million making the Philippines the fourth largest recipient of Australian bilateral development assistance.

Australia's aid strategy for the Philippines, Australia-Philippines Development Assistance Strategy 2007-11, was agreed to in March 2007 and endorsed by the two governments during the visit to Australia by the President of the Philippines, Dr Gloria Arroyo, on 30-31 May 2007.  Australia's overarching objective is to contribute to improving the prospects for economic growth, poverty reduction and national stability.  The Strategy focuses Australia's assistance in three areas: economic growth, basic education and national stability and human security.  In May 2007, Australia also announced it would provide $250,000 for the funding of human rights projects in the Philippines. (see http://www.ausaid.gov.au/).

Defence and Security cooperation

Behind the United States, Australia is the second largest provider of defence training to the Philippines. Australia’s bilateral defence cooperation budget for 2005-06 was $3.526 million,with activities including high level policy talks, training of 80 defence personnel in Australia and visits of senior officials. The defence relationship has recently grown, with a focus on counter terrorism, maritime security and assistance to the Philippines Defence Reform Program.  During President Arroyo’s visit to Australia from 30-31 May 2007, a bilateral Status of Visiting Forces Agreement was signed by Australia and the Philippines. 

Australia and the Philippines signed a bilateral MOU on Cooperation to Combat International Terrorism in March 2003, and another MOU on combating transnational crime (between the Australian Federal Police and the Philippines National Police) in July 2003. In July 2003,  Australia announced a three-year $5 million package of counter-terrorism assistance to the Philippines Government. In October 2004, Australia announced a doubling of this assistance to $10 million over five years. This assistance package provides practical assistance in policing, immigration, port security and cooperation to address regional counter-terrorism issues. The Philippines is also benefiting from elements of the $92.6 million Regional Counter-Terrorism Package announced in the 2006-07 Budget. Australia and the Philippines held counter terrorism consultations in the Philippines in July 2006. In November 2005, DIAC (then DIMA) concluded an MoU with the Philippine Government on border control and migration management cooperation.

Government-to-Government links

In recent years, bilateral visits to and from the Philippines at ministerial level have become more frequent including a state visit by the President of the Philippines, Dr Gloria Arroyo, to Australia in May 2007.  Reciprocal visits by members of parliament of both countries are made regularly.

In October 1997, Manila hosted the inaugural Philippine-Australia Dialogue (PAD). The PAD brought together politicians, business people, academics and journalists from both Australia and the Philippines to discuss the major issues in the bilateral relationship. The second PAD was held in Brisbane in November 1998 and the third in Cebu in November 1999. In light of the increasing importance both countries attach to the bilateral relationship, the PAD was upgraded to a ministerial-level meeting, and the inaugural Philippines-Australia Ministerial Meeting (PAMM) was held in Sydney in August 2005. Ministers agreed to a comprehensive action agenda at the meeting. Good progress has been made on implementing the agenda. The next PAMM is expected to take place in the Philippines in the first half of 2008. There continues to be an active program of visits by senior officials on both sides for discussions on issues of mutual interest, including trade, security, police and defence matters.

Australia and the Philippines share a common interest in cooperating in regional affairs through fora such as APEC and the ASEAN Regional Forum. Both Australia and the Philippines are active members of the Cairns Group, a coalition of 17 agricultural exporting countries. Both countries participated in the inaugural East Asia Summit held in Malaysia in December 2005. The second East Asia Summit was held in Cebu in the Philippines in January 2007.

Bilateral Trade and Economic Relationship

The Philippines maintains a good trading relationship with Australia. Two-way merchandise trade was valued at $1.75 billion in 2006, 10.7 per cent higher than in 2005. Both governments consider there to be significant potential for growth.

Major Australian merchandise exports to the Philippines (2006):

Major Australian merchandise imports from the Philippines (2006):

High mineral prices, good mineral prospects and stronger government support for the mining sector has continued to stimulate interest in mining which is starting to show in production and export figures.  The Philippines Government expects mining investment to approach US$350 million this year and $1.6 billion next year.  Significant Australian investment is already committed and much larger amounts are likely in the future.

The Philippines is keen to export bananas to Australia. On 1 March 2007, Biosecurity Australia released a revised draft Import Risk Analysis (IRA) for cavendish bananas from the Philippines. Commercial shipments of Philippine pineapples to Australia are proceeding following completion of an IRA for Philippine pineapples.

Total trade in services between Australia and the Philippines in 2005-06 comprised $187 million in exports and $207 million in imports. Major Australian service exports to the Philippines were personal travel services ($49 million) and education-related travel ($48 million). Major service imports from the Philippines were personal and business travel ($207 million).

The Australia Philippines Business Council (APBC), established in 1975, provides a focal point for networking between Australian and Philippine business communities. The APBC's counterpart organisation in the Philippines is the Philippines Australia Business Council.

Export Opportunities

Agribusiness

The Philippines' annual population growth rate is currently around 2.3 per cent and its continuing inability to meet the demand for food through domestic production will lead to increasing opportunities for Australian agribusiness exports. Australia has a reputation of being 'clean and green' and is well-positioned to capitalise on this image in the supply of agricultural commodities. Areas of potential include the supply of live cattle, sugar, fruit, vegetables, grains and cotton.

With the Philippine Government's focus on the modernisation of the agriculture sector, prospects for supplying equipment and services to domestic agricultural production projects are also good. Australia has the potential to participate in the country's goal of increasing productivity through the sale of technology in such areas as irrigation, post-harvest facilities and seed production.

Mining

Based on a land mass comparison, the Philippines is considered to be the fifth most mineralised country in the world with mineral resources ranked globally as third in gold, fourth in copper, fifth in nickel and sixth in chromite deposits. The decision in December 2004 by the Supreme Court upholding the constitutionality of the 1995 Mining Act, which was confirmed in January 2005, has led to renewed international interest in the mining sector. There are already around a dozen Australian companies with interests in the mining sector, mostly at the exploration and development stage, making Australia one of the major foreign investors in the Philippines’ mining sector. As well as direct mining investment, there are also export opportunities for Australian mining service providers.