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Republic of the Philippines Country Brief - April 2009

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 prestige and 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. A long-running debate in the Philippines has been the merits of a change to a parliamentary rather than presidential system of government. Under the Philippine Constitution, any amendment to the constitution would need to be ratified by a majority of votes in a plebiscite.

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 are important aspects 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. Candidates aligned to 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 Mayorao seats. In the Senate, candidates aligned to the President's Administration won three of the 12 seats with the rest going to the Opposition and Independents.

Presidential and congressional and barangay (local) elections will be held in May 2010. No clear favourite has yet emerged for President, but among the frontrunners are a number of opposition senators and the current Vice President, Noli De Castro.

Conflict 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. However, unrest has continued since the creation of the ARMM, in particular under the umbrella of the Moro Islamic Liberation Front (MILF), a splinter group of the MNLF.

Peace negotiations between the MILF and the Philippines Government, which had been ongoing since 2003, faltered when fighting broke out in August 2008, resulting in the internal displacement of several hundred thousand people. While efforts are being made to return to negotiations, the future of the peace process is 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 also 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.

Economic Overview

Under pressure from the global economic downturn and decreases in commodity prices, the Philippine economy slowed in 2008 to approximately 4.4 per cent, down from near record growth of 7.3 per cent in 2007. The IMF projects growth of 2.25 per cent for 2009 although some analysts expect growth to be lower than this figure.

Among the sectors directly affected by the downturn, electronics exports slumped by 19 per cent in late 2008. Worker remittances, which account for more than 13 per cent of the Philippine economy, have also stagnated and are projected to fall as host countries for Filipino workers – most notably the United States – face difficult economic times. Prior to the global economic downturn a new driver in the economy was mining which on the back of a booming international resources sector grew by 33 per cent in 2007, while minerals exports in the same year grew by 20 per cent.

The Philippine Government response to the global financial crisis has included a package of support for returning foreign workers and a Php 4.5 billion expenditure plan, as well as a number of technical measures to improve liquidity in the banking sector. President Arroyo has also advocated amending existing bilateral currency swap arrangements within ASEAN + 3 (China, Japan and Republic of Korea) to develop a regional currency reserve pool.

Structurally, 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.

Key economic indicators

 

2003

2004

2005

2006

2007(a)

2008(b)

GDP (US$bn) (current prices):

79.6

86.9

98.7

117.6

144.1

172.3

GDP PPP (US$bn) (c):

211.4

230.9

250.0

271.9

299.7

319.8

GDP per capita (US$):

982

1,040

1,158

1,352

1,626

1,908

GDP per capita PPP (US$) (c):

2,607

2,764

2,932

3,126

3,383

3,539

Real GDP growth (% change YOY):

4.9

6.4

4.9

5.4

7.2

4.4

Current account balance (US$m):

288

1,628

1,984

5,347

6,351

4,208

Current account balance (% GDP):

0.4

1.9

2.0

4.5

4.4

2.4

Goods & services exports (% GDP):

48.6

49.3

45.4

45.1

39.7

41.0

Inflation (% change YOY):

3.5

6.0

7.7

6.2

3.9

12.2

Compiled by the Market Information and Analysis Section, DFAT, using the latest data from the ABS, the IMF and various international sources.

(a) All recent data subject to revision;
(b) IMF/EIU forecast;
(c) PPP is purchasing power parity;
(d) Total may not add due to rounding.

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 2006 Census, 160,000 Australians claimed Filipino ancestry, up from 129,000 in 2001.

Development assistance

In 2008-09, Australian development assistance is estimated at $109.3 million making the Philippines the fourth largest recipient of Australian bilateral development assistance.

The overarching objective of Australia's aid to the Philippines is to contribute to improving the prospects for economic growth, poverty reduction and national stability. Australia's assistance is in four areas: economic growth, basic education and national stability, human security and human rights. (see AusAID website).

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 2007-08 was $5.8 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, and is currently before the Philippines parliament awaiting ratification.

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 and May 2008. 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 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. The Minister for Foreign Affairs, Stephen Smith, and Minister for Trade, Simon Crean, visited Manila for the Second Philipines-Australia Ministerial Meeting on 8-9 October 2008. Ministers issued a Joint Ministerial Statement covering counter-terrorism, defence and security, the peace process in southern Philippines, development assistance, trade and investment, regional and multilateral engagement.

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.

Bilateral Trade and Economic Relationship

The Philippines maintains a good trading relationship with Australia. Two-way merchandise trade was valued at $2 billion in 2007-08, 13 per cent higher than in 2006-07. Both governments consider there to be significant potential for growth.

Major Australian merchandise exports to the Philippines (2007-08):

Major Australian merchandise imports from the Philippines (2007-08):

The Philippines is keen to export tropical fruit to Australia. Biosecurity Australia released a final Import Risk Analysis (IRA) for bananas from the Philippines on 12 November 2008. Commercial shipments of Philippine pineapples to Australia have occurred following completion of an IRA for Philippine pineapples.

Total trade in services between Australia and the Philippines in 2007 comprised $266 million in exports and $306 million in imports. Major Australian service exports to the Philippines were education-related travel ($74 million) and personal travel services ($64 million). Major service imports from the Philippines were personal and business travel ($230 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.

Australia and the Philippines are parties to the recently concluded negotiations on the ASEAN-Australia-New Zealand Free Trade Agreement.  The Agreement was signed on 27 February 2009.

Export and Investment Opportunities

Agribusiness

The Philippines' annual population growth rate is currently around 2.3 per cent which will lead to increasing opportunities for Australian agribusiness exports. 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, led to renewed international interest in the mining sector. While global economic conditions diminish immediate prospects for the sector, there are 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.