POLTIKA

3rd QUARTER

CRITICAL ISSUES OF PHILIPPINE POLITY DECEMBER 2015

Public Opinion Surveys: The Legislative: International Studies:

Presidential, and Vice Updates on Customs 2016 Dong Business Report,
Presidential Preferences, and Modernization Act and Global Innovation Index,
the Senatorial Race Public-Private Partnership Bill and Economic Freedom
CONTENTS

Presidential Vice Senatorial Legislative International

Preferences Presidential Race Updates Studies
Preferences
p.4 p.11 p.14 p.19
p.10

ON THE COVER & CONTENTS

Picture credits to the following: portcalls.com,
en.wikipedia.org, jacobimages.com, philstar.
com, cnnphilippines.com, cebudailynews.
inquirer.net
 POLTIKA
I. The Elections are Coming

As the year 2015 came to a close, the drama and the issues surrounding the 2016 national elections
continue to unfold.

In the hours leading to the deadline of the filing of the Certificate of Candidacy, supporters of Davao City
Mayor Rodrigo Duterte gathered outside the premises of the Commission on Elections (COMELEC) in the
hopes that he would turn up at the last minute to file his candidacy for President. Duterte did not arrive that
day but he eventually made a last minute entry into the Presidential race by way of substitution of another
candidate, Martin Dio who was from the same party. Duterte then chose Senator Alan Peter Cayetano as his
running mate

While the supporters of Duterte cheered, the supporters of Senator Grace Poe had less to cheer about.
The COMELEC En Bank affirmed the decisions of its two divisions that disqualified Poe on residency grounds
prescribed by the Constitution. But before the year ended, Poe successfully secured a Temporary Restraining
Order from the Supreme Court regarding the decision, but the effects of the decision are clearly reflected in
her latest preference ratings.

As Duterte and Poe sort out their issues, the two other leading candidates have also made significant
moves in the past months to boost their chances. Jejomar Binay has reclaimed the top spot in two surveys
released in December. On the other hand, Mar Roxas has seen his numbers continue to rise, putting the top
spot within his reach.

As 2016 begins and the elections get closer, new issues and controversies will continue to develop. For
one, surveys and the ratings will play an important role in the both the candidates strategy and in voters
decision in the upcoming elections.

DECEMBER 2015 QUARTERLY 3

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I. Presidential Preference

Pulse Asia Presidential Preferences

Of the hundreds of individuals who filed their Certificates of Candidacy for President, only five are really being
considered by the voting public: Vice President Jejomar Binay, Sen. Grace Poe, Mayor Rodrigo Duterte, former
Secretary Manuel Roxas II, and Sen. Miriam Defensor-Santiago.

In the most recent surveys, Binay and Poe had emerged as frontrunners, with Duterte and Roxas following
closely behind and Defensor-Santiago pulling up the rear with single-digit preference ratings. The latest
surveys were conducted in light of pertinent news events: Poes disqualification; Dutertes eventual filing and
subsequent issue on his alleged cursing of the Pope; the dismissal of Binays son Junjun as Makati Mayor; and
the countrys hosting of the APEC World Leaders Summit.

Jejomar Binay saw a significant increase in ratings in the December Pulse Asia survey, climbing up to 33%
from just 19% in September 2015, enough for the top spot. The jump is the largest by any candidate in this
survey and is Binays highest preference rating since July 2014. This gives the Vice Presidents campaign much-
needed momentum entering the election year of 2016.

Dutertes numbers have slowly been improving, en route to the 23% in the latest survey. From ranking a
distant third in June last year, his December survey rating is enough for the second spot.

On the other hand, Poe continues to see a gradual decline in her preference rating. She dropped from 30% in
June 2015 to just 21% in the December survey, in the process dropping two spots to third.

While Roxas also saw a drop of 3 percentage points to 17% in the latest survey, he should still be pleased
with the progress his campaign has made over the year. In the March 2015 survey of Pulse Asia, Roxas raked in
a lowly four percent. The jump represents a more than four-fold increase in less than a year.

Placing fifth in the surveys was Miriam Defensor-Santiago. She has been candid about running on a limited
campaign vehicle and budget and is focused on tapping social media to reach voters. She has a four percent
preference as of December 2015 and has to do much more to improve her standing.

SWS Voter Preference for President
SWS December data presents a closer race for the Presidency compared to Pulse Asias with the top four
candidates separated by only six points. According to the survey, Poe was able to maintain her preference
rating of 26%, while Binay improved by two percentage points to tie her for the top spot. Binays two percentage

4 QUARTERLY DECEMBER 2015

point improvement represents his first increase in preference ratings since continuously dropping from a
high of 37% back in December 2014. Like Binay, Mar Roxas also saw a 2 percentage point increase in voter
preference and continues to maintain his position in the middle of the pack with 22%.

Voter preference for Duterte seems to have picked up after he formally entered the race for the Presidency.
He had the biggest improvement in the latest survey, jumping 9 points to 20% in the December survey. Miriam
Defensor-Santiago came in a distant fifth with four percent.

The Standard
In the latest survey released by The Standard, Poe has kept her lead at 28%, closely trailed by Binay, Roxas,
and Duterte, with 23%, 22%, and 19% respectively. Defensor-Santiago obtained only three percent. In a scenario
in which Poe is disqualified with finality (as can be seen in the chart below), The Standards survey show that
Binay would be the main beneficiary, gaining 10 percentage points and topping the survey with 33%. Roxas
and Duterte would closely follow with 29% and 26% respectively and Defensor-Santiago still drew single digit
ratings with 9%.

DECEMBER 2015 QUARTERLY 5

POLTIKA

Profiles of Presidential Candidates

Mary Grace Grace Sonora Poe-Llamanzares
With traditional politicians dominating the 2016 election field, Senator Grace Poe gained early support by
presenting herself as an alternative candidate. She surprised many when she garnered the most number of
votes as Senator in 2013.

With her clean image and relationship to one of the countrys most popular movie actors and a former
presidential aspirant, the late Fernando Poe, Jr., Poe was the clear front-runner for most of 2015. Towards the
end of the year however, her campaign began to lose steam, with legal challenges clearly taking a toll on her
popularity. The COMELECs recent decisions to disqualify her cited her failure to qualify as a natural born citizen
and her failure to meet the ten-year residency requirement needed to run for president.

The COMELEC recognized that Sen. Poe is a foundling (infant abandoned by the biological parents), for which
there is currently no law to determine their status as natural born citizens. Meanwhile, the poll body referred
to her certificate of candidacy when she ran for senator and determined that she would fall several months
short of the ten-year residency requirement. A TRO on the removal of her name from the ballot has been issued
by the SC.

If Poe is ultimately able to hurdle all the legal allegations against her and win, among the projects in her
20-point agenda is increasing the budget for infrastructure to seven percent of the GDP, promoting tourism,
instituting a study now, pay later scheme for students, providing expanded legal support to Overseas Filipino
Workers abroad, and establishing faster internet connection in the country, among others.

Jejomar Jojo Cabauatan Binay, Sr.

Jejomar Binay has had a very colorful political career. Binay began his career as a human rights lawyer who
defended the victims of violence during Martial Law. When Corazon Aquino assumed the Presidency after
Marcos was deposed, Binay became the Mayor of Makati. Serving as mayor for a considerable portion of the
last three decades, Makati has to become the countrys main financial district. His last term as Mayor ended in
2010, when he pulled off an upset victory against Mar Roxas for the Vice Presidency.

Soon after his win in 2010, Binay made his intentions to run for President in the next election clear. For
most of his term as Vice President, Binay was among the most popular top government officials, and was
the frontrunner in early surveys. However, things changed after allegations of corruption during his term as
Makati Mayor surfaced. From record high Performance, Trust and Satisfaction ratings of 87%, 86% and 82%,

6 QUARTERLY DECEMBER 2015

respectively, in March 2014, his approval ratings plummeted to record low levels throughout 2015. With
performance ratings down, Binays Presidential preference ratings also took a hit, and only during the last
round of surveys did his preference numbers finally recover.

If elected, Binay has promised to improve the delivery of basic services, promote social inclusion, and
try to establish a more competitive government through: easing up the process in doing business in the
country, amending the Constitution to allow a greater foreign ownership of businesses, increasing the
budget for education and training, expanding the transportation system of the country, and cutting down
electricity rates, among others.

Manuel Mar Araneta Roxas II

The grandson of President Manuel Roxas and the son of Senator Gerardo Roxas, former senator Mar
Roxas obtained his college degree from the Wharton School of Economics in University of Pennsylvania
and worked as an investment banker in the United States before coming back to the Philippines to enter
politics. Roxas then served as the Representative of Capiz before being appointed as Trade Secretary during
the Estrada administration. Roxas then ran and was elected Senator in 2004, garnering the most number
of votes. During the lead up to the 2010 elections, Roxas was a top contender for the Presidency. However,
the death of Former President Corazon Aquino paved the way for then Senator Benigno Aquino III to run
as President with Mar Roxas instead deciding to run for Vice President.

Roxas would lose to Jejomar Binay but would later be appointed Secretary of Transportation and
Communications, and Secretary of Interior and Local Government, successively under the Aquino
administration. As standard bearer of the Liberal Party, Roxas promises to continue the tuwid na daan
(straight path) platform of the Aquino administration. Roxas campaign depends heavily on the continued
popularity of President Aquino.

Fortunately for Roxas, Aquino has largely kept his Trust, Performance and Satisfaction ratings relatively
high. While Aquinos numbers may have slipped a bit in in the latest survey, his ratings are still higher
than his record low numbers in early 2015 brought about by the botched Mamasapano operations that left
44 members of the Special Action Forces of the Philippine National Police killed.

Barring a major incident, Aquino appears to be on track to step down with the highest Ratings of any
Philippine President. He has a Net Satisfaction rating of +32 as of December 2015, with six months to go
before he steps down. Corazon Aquino exited with a +7 rating, Ramos with +19, Estrada with +9, and Arroyo

DECEMBER 2015 QUARTERLY 7

POLTIKA

with -17. His Trust and Performance ratings also barely moved in the recent months. He enjoys the support of
around 50% of the people based on the data. This figure is considerably high for a President in his final year.
It appears that in the eyes of the people, the positive reforms he initiated and achieved outshadow the erratic
decisions he has made.

Despite the endorsement from the Aquino administration, top-level government officials, and celebrities,
Roxas continues to struggle to impress and connect with voters. He is seen as part of the elite, a scion of the
wealthy Araneta clan. His reputation also took some damage in his recent cabinet posts, where he was viewed
as generally ineffective in the rescue and relief operations during and after the onslaught of Super typhoon
Yolanda and during the botched operations of the Special Action Forces of the PNP against terrorist cells in
Mamasapano.

His public perception troubles may have gotten in the way of some of his successes throughout the years.
His stints as Trade Secretary and as Senator were characterized by high efficiency and impressive output. Roxas
brings with him a stellar academic background, a long public service experience, and a largely clean track
record, characteristics of a present day technocrat.

Roxas has laid down his agenda should he be elected as President, mainly anchored on continuing the
Daang Matuwid platform of Aquino. Mar Roxas seeks to promote transparency and uninterrupted institutional
reforms to curb corruption and ensure inclusive growth even more under his administration. Roxas also believes
that good governance is good economics. Infrastructure improvements, lower electricity rates, job creation, and
minimizing bureaucracy in starting up businesses are some of Roxas programs.

Rodrigo Rody Roa Duterte

Rodrigo Duterte is one of the more colorful Presidential candidates in Philippine history. Having served as
Mayor of Davao City for over twenty years, he takes pride on the stellar peace and order situation in his city. A
lawyer by profession, Duterte is known for his no nonsense approach to problems. He doesnt mind using foul
language and cursing people in public when he believes that the person deserves to be cursed. There are also
stories surrounding Duterte that he has personally, or through orders, killed hundreds, or even thousands, of
suspected criminals.

He recently attracted attention for his irreverent comments on the recent Papal visit to Manila, his purported
admission of killing over a thousand people, and a war of words with Roxas over the authenticity of the latters
Wharton degree and the true crime rate in Davao City.

8 QUARTERLY DECEMBER 2015

 Dutertes iron fist brand of governance has begun to attract supporters who are looking for an alternative
to traditional set of politicians. If he wins, he will be the first Mindanao-raised President in the history
of the Philippines. A victory for Duterte would mean that he will pursue his advocacy to convert the
government into a federal system. Despite his popularity on how he deals with problems, Duterte would
have to overcome several challenges. Having been a local Government official for a long period of time,
Duterte lacks a national-level experience. He has also no formal political machinery to carry out his
campaign in an organized manner as with the other candidates. Lastly, his links to the Davao Death Squad,
a vigilante group in Davao, could become a liability to his campaign later.

If Duterte wins the Presidency, he said that he would bring back the death penalty as punishment for
perpetrators of heinous crimes and push measures to lower the age of criminal responsibility. He said he
will also prioritize the enactment of the Freedom of Information law. The police force should also expect to
get increases in their salaries and benefits to increase morale. He will also focus on ensuring an efficient
mass transportation system, inclusive growth, and eliminating unnecessary bureaucracy in business
transactions. A Duterte administration will also ensure that underdeveloped regions such as Visayas and
Mindanao will receive strong support from the National Government.

Miriam Defensor-Santiago
Miriam Defensor-Santiago, an incumbent Senator, is a highly respected public figure. In 1992 she narrowly
lost to Fidel V. Ramos for the presidency, and has since served several terms as a member of the Philippine
Senate. Defensor-Santiago holds a Doctorate in Juridical Science and several graduate and postgraduate
degrees.

Santiago made news last year when she was diagnosed with Stage IV cancer. According to her, she made
it through and her cancer has shrunk and is practically negligible. Experience wise, Miriam Defensor-
Santiago is highly qualified to become President of the Philippines. She boasts of significant experiences
in all three branches of the Government: the executive (as a Former Agrarian Secretary and Immigration
Commissioner), legislative (as a Senator), and judicial branches (as RTC Judge). She is also popular among
the youth and the students primarily because of her courage and fearlessness.

Defensor-Santiagos platform includes the following measures: investing heavily in infrastructure,

restoring meritocracy in Government, promoting inclusive growth, reforming the tax system, managing
Government deficits, and supporting the Freedom of Information law, among others.

DECEMBER 2015 QUARTERLY 9

POLTIKA
II. Vice Presidential Preference

The Commission on Elections has officially trimmed down the Vice Presidential field and named six
persons in the final list: Francis Chiz Escudero, Ferdinand Bongbong Marcos, Alan Peter Cayetano,
Maria Leonor Leni Robredo, Gregorio Gringo Honasan, and Antonio Sonny Trillanes IV. After having a
comfortable lead for the first few surveys, Escudero now finds himself in a competitive race with Marcos
and Cayetano. Robredo has also gained some ground to end 2015. As the election season goes to a full
gear, the race to the Vice Presidency is getting tighter.

The recently released December surveys are the first surveys to reflect the actual line up of candidates
as issued by COMELEC. It is the first Vice Presidential Preference Survey not to include the name of Grace
Poe, who is now officially a Presidential candidate. With Poe out of the picture, Escudero is now leading
VP candidate in every survey. In the Pulse Asia survey, Escudero received 29%, with Marcos trailing him
with 23%, Cayetano with 18% and Robredo with 14%. Senators Honasan and Trillanes are trailing the Vice
Presidential race with nine percent and four percent respectively.

10 QUARTERLY DECEMBER 2015

 Similar to what the Pulse Asia survey reflected, the survey data released by SWS on December shows
Escudero with a clear lead at 30%. The second place sees a three-way tie with Marcos, Robredo, and
Cayetano at 19%, 19%, and 17% respectively. This survey represents the highest percentage which
Robredo has ever received by far. Honasan sits at a distant fifth with eight percent.

III. Senatorial Race

Along with the President and the Vice President, the voters will elect twelve (12) Senators in the May
2016 elections. In the survey data released thus far, the top twelve is dominated by re-electionists and
Former Senators who seek to return to the Senate. Vicente Sotto III has consistently led the polls and
has even increased his numbers in the latest surveys. In viewing the three different surveys released,
the following names, aside from Sotto, have been included in the Top-12 regularly: Senator Ralph Recto,
Former Senator Francis Pangilinan, Former Senator Miguel Zubiri, Former Senator Panfilo Lacson, Senate
President Franklin Drilon, Senator Serge Osmea, Senator T.G. Guingona, Former Senator Richard Gordon,
Sarangani Representative Manny Pacquiao, and Former Justice Secretary Leila de Lima. Among the
candidates who are flirting with the Top-12 ranking are: Risa Hontiveros, Valenzuela Representative Win
Gatchalian, Former MMDA Chairman Francis Tolentino, Mark Lapid, and Manila Vice Mayor Isko Moreno,
among others. As can be seen in the Top 15 preferred by the respondents in the surveys, only Former
Justice Secretary de Lima and Representative Pacquiao are the Senate outsiders consistently inside
the winning circle. Risa Hontiveros, Win Gatchalian, Francis Tolentino, Mark Lapid, and Isko Moreno, all
of whom have never been elected to the Senate ever, are very close to entering the winning twelve
Senatorial preference.

DECEMBER 2015 QUARTERLY 11

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IV. Legislative Update

In the last few months, Congress has largely been focused on the singular task of approving the 2016
budget. House Bill 6132 or the 2016 General Appropriations Bill (GAB), was approved by the House of
Representatives in October and transmitted it to the Philippine Senate before Session went on break from
October 10 to November 2. Throughout November, the Senate conducted marathon hearings and sessions
to deliberate the proposed P3.002-trillion budget, which it eventually approved on November 26th.

With both Houses of Congress now having approved their respective versions of the budget, a bicameral
conference committee, composed of members from the House of Representatives and the Senate, was
convened to come up with a single version. The bicam version was approved on December 9th and
consequently ratified by both Houses. President Aquino signed it into law on December 22.

In the 2016 budget, the three biggest benefactors are the Department of Education (P411.9 B), Department
of Public Works and Highways (P384.2 B) and the Department of Interior and Local Government (P124
B). Rounding out the list of departments with the highest budgets are the Department of Health (P123.5
B), the Department of National Defense (P117.5 B), the Department of Social Welfare and Development
(P110.8 B), Department of Agriculture (P48 B), State Universities and Colleges (P47.4 B), Department of
Finance (P55 B), Department of Transportation and Communications (P49.3 B) and the Department of
Environment and Natural Resources (P25 B).

12 QUARTERLY DECEMBER 2015

 In the 2016 budget, social services continue to have the biggest allocations. Social services, which
covers housing, livelihood and community-driven projects, account for P1.106 trillion or 36.8 percent of
the budget. Economic services, on the other hand, account for P829.6 billion or 27.6 percent of the 2016
budget, covering areas such as infrastructure, agriculture, transport and communications. General public
services will take in P517.9 billion or 17.3 percent, while defense and security will receive P129.1 billion
which stands as the lowest allocation among sectors at 4.3 percent.

Other Priorities
As the 2016 elections draw near, lawmakers are inevitably becoming busier with more political activities
in their respective districts. Upon resumption of Session on January 18, legislators will only have until
February 5 to pass legislation before going on break again to make way for the campaign period for the
2016 elections. This leaves them a window of just three weeks to move on priority legislation such as the
Salary Standardization Law (SSL) of 2015, the Bangsamoro Basic Law (BBL), and the Customs and Tariffs
Modernization Act, as well as other urgent bills, like the Department of Information and Communications
Technology (DICT) bill, Amendments to the Bangko Sentral ng Pilipinas (BSP) bill and the amendments to
current build-operate-transfer (BOT) law bill.

Salary Standardization Law

The House of Representatives approved on third and final reading the proposed SSL of 2015. House
Bill 6268 mandates a four-year P226-billion compensation increase for the national governments 1.53
million civilian and military uniformed personnel. The amount of P58 billion for the first year of its
implementation has already been appropriated in the 2016 budget.

The SSL law aims to: raise the pay of the government personnel to be competitive with the market
and thereby attract and retain capable and committed personnel; strengthen the link between pay and
performance through an enhanced performance-based bonus system; temper the cost of benefit while
maximizing the benefits of employees; and allow higher take-home pay, especially for government
personnel belonging to the lower salary grades. The bill seeks to increase the basic salary of covered
employees on the average by 27%, while the 14th month pay will further raise compensation by eight
percent.

The Senate, on the other hand, reconsidered its approval of its version of the SSL bill days after initially
approving it on third and final reading before adjournment. The problem arose when the senators
decided to cover retired personnel of the Armed Forces of the Philippines (AFP) and Philippine National
Police (PNP) personnel in the planned salary adjustment. The move is expected to draw strong resistance
from Malacanang and Congress would have to work out a compromise, hopefully, before the resumption
of session, if the bill is to move forward.

DECEMBER 2015 QUARTERLY 13

POLTIKA
Bangsamoro Basic Law

The proposed Bangsamoro Basic Law (BBL) will grant greater autonomy over internal affairs in Muslim
Mindanao to a regional government supported by the Moro Islamic Liberation Front. Critics of the bill
oppose it saying that the bill did not include other stakeholders in the peace process.

Recently, President Benigno Aquino III urged lawmakers to lay the foundations for long term peace
in the country by passing the proposed BBL. Aquino spoke to around 120 members of the House of
Representatives during a two-hour meeting in Malacaang in an attempt to expedite the passage of the
key legislative agenda of the Aquino administration.

After Congress failed to pass the BBL last October, Senate President Franklin Drilon and House Speaker
Feliciano Belmonte set December 16 as the deadline to enact the measure, which it again missed.

Speaker Belmonte said that the House of Representatives will do its best to have the proposed BBL
passed when Congress resumes session on Jan. 19.

Customs Modernization and Tariffs Act

The House of Representatives approved on third reading HB 5525, their version of the Customs
Modernization and Tariff Act (CMTA), on October 9 2015, just before the adjournment session. The bill
was transmitted and received by the Senate on October 15, 2015. The countrys Tariff and Customs Code
was last amended in 1978. Among the planned upgrades for the Bureau of Customs include the full
electronic processing of all documents, forms, and receipts, alongside streamlining methods for the
examination and valuation of imports and exports. The proposed bill also presents simplified Customs
procedures for disposition, forfeiture and seizure of counterfeit goods, and steeper penalties for illegal
shipping practices.

The Philippine Senate is currently deliberating its own version of the CMTA bill. It was approved on
second reading with amendments last December 14, 2015. Several Senators have expressed their support
to pass the measure right after the approval of the 2016 proposed budget.

Department of ICT bill

The Philippine Senate and the House of Representatives have approved their respective versions of
the bill creating the Department of ICT. The bill was identified early in the 16th Congress as a priority.
However, a bicameral conference to consolidate the two versions has not yet been convened. This could
be due to the fact that both Houses were focused on budget deliberations leading up to the break last
December. But at the same time, supporters of the bill fear that opposition from the Executive branch
might leave the DICT to share the fate of the DICT in the 15th Congress when the bicameral conference
never convened despite approved bills in both Houses.

Public-Private Partnership Bill

The measure seeking to amend the current build-operate-transfer (BOT) law, also called the Public-
Private Partnership (PPP) bill, has already been certified as urgent by the President. The certification
allows Congress to pass the bill on both second and third readings on the same day, doing away with
the need for a two-day leeway between the steps.

The House of Representatives Committee on Public Works consolidated their version of the PPP bill
on December 14, after the Committee on Appropriations approved the budget related provisions of the
bill. This now means a committee report can be filed and floor deliberations can be scheduled upon
resumption.

14 QUARTERLY DECEMBER 2015

 The Senate version is already on the floor pending approval on second reading. Senator Ferdinand
Marcos Jr., chair of the Senate Public Works Committee, and co-sponsor Senator Ralph Recto gave their
sponsorship speeches back in December, with the period of interpellation to be held in January.

New Central Bank Act

The New Central Bank Act was approved last year by at the House of Representatives. Among other
changes introduced by HB 5875 is the increase in the capital of the central bank from P50 billion to P200
billion. The national government will provide the additional P150 billion. The bill also provides that the
BSP would make policy directions in the areas of money, banking and credit and would have supervision
and regulatory powers over banks, finance companies, non-bank financial institutions performing quasi-
banking functions, credit card firms, money changing businesses, pawnshops, e-money issuers, money
forwarding businesses, payment and settlement system operators, and other institutions doing similar
business.

Though the bill had been on the Congress list of priorities since early in the 16th Congress, the
New Central Bank Act is still pending with the Senate Committee on Banks, Financial Institutions, and
Currencies. Initially, Banks Chairman Sergio Osmena said that his committee would deliberate the BSP
charter bill once it was approved by the Houses. However, though the House has transmitted their
approved BSP bill to the Senate, the Committee has not yet been able to move on as it was focused on
the budget deliberations.

V. A Year in Review: Successes and Disappointments

in Philippine and Regional Security
The Philippine government left few stones undisturbed by the end of 2015, having filled the year with
movementboth positive and negativein building up the countrys security apparatus and improving
the countrys bargaining position over disputes in the immediate region. By taking steps on its own
and with international partners, the Philippines has, overall, become better positioned to defend its
own interests in the year ahead. The challenge for the incoming administration will be to continue
the momentum begun by the Aquino-led government while pursuing refinements that will expand the
countrys room for maneuver.

The Aquino administration earned successes on some fronts, notably in the favorable ruling on
jurisdiction from The Hagues Permanent Court of Arbitration on the submissions over the South China
Sea disputes; the first delivery of new supersonic jets for the Air Force; and new transfers and pledges
of ships for the Philippine Navy. Over the twelve-month period, the Philippines strengthened its bilateral
relationships with friendly neighbors: adding a strategic partnership with Vietnam, re-commissioning
ships from Australia, and obtaining commitments of material and training support from Japan and the
United States.

On other fronts, however, the administration disappointed. The lack of a well-communicated strategy
by the Department of Defense and the Armed Forces of the Philippines (DND-AFP) for its overall goals
vis--vis the goals of the Modernization Program, and the said programs procurement troubles, for
example, served as a recurring complaint among practitioners and academics at multiple Stratbase-
ADRI roundtable discussions. The painful outcome of the Mamasapano counter-terror operation and the
related inability to pass the long-negotiated BBL showed that for all the countrys external milestones,
the Philippines must do much more to get its own house in order. Finally, the highly publicized lumad
killings and attacks from the New Peoples Army (NPA) and other armed groups highlight the need to
have a well-formulated and coordinated strategy for non-Moro aspects of the peace process.

In taking stock of the year thats passed, the next Philippine government would do well to balance the
efforts toward deep external cooperation by demonstrating the independence of its national interests

DECEMBER 2015 QUARTERLY 15

POLTIKA
from foreign sway. It should not waver on the commitment to resolving the South China Sea disputes,
but nevertheless seek opportunities to rebuild trust in strained relationships so as to facilitate eventual
negotiations. Finally, the Philippine government should pursue broader security sector reform by taking
a look at institutional policies that prevent a steady pace of progress, by investing in human capital,
andin generalthinking about the militarys needs above and beyond acquiring new hardware.

The DND-AFPs Modernization Program Yields Some Fruit in

Enhancing Air/Sea Awareness
Throughout 2015, the DND-AFPs modernization process and capability upgrades proceeded unevenly.
The defense acquisition process is typically opaque to outsiders, with limited public communications
over the foreseen strategic value of new procurement and new deliveries alike. Over the course of the
year, the observed lack of strategic communicationsor even lack of strategy entirelybecame a repeated
concern in discussions with practitioners and academics alike. These concerns reflect a larger domestic
apprehension about the progress of modernization above and beyond financing the administrations
minimum defense goals.

The AFP is in the middle of the first horizon or phase of its 15-year modernization program, which
runs from 2012-2017. In 2015, the Philippine government spent over P18 billion over 15 projects for
upgradessix projects for the Army, four for the Navy, three for the Air Force, and two for General
Headquarters and Wide Support Units. The P18 billion figure represents more than half of all upgrade
spending under the Aquino administration to date, which has now totaled P30.96 billion.1 Among the key
pieces of this years spending went to a few medium-lift aircraft and sixteen combat utility and attack
helicopters for the Air Force, rifles for the Army and Marines, and two naval helicopters.

In a significant development, Defense Secretary Voltaire Gazmin accepted the delivery of the first two
of twelve FA-50 aircraft on November 28. With the FA-50s, the Philippines regained supersonic status
after a decade-long hiatus. (The Philippines formally decommissioned the remainder of its F-5 fighters in
2005the F-5s had been in service since 1965.) The FA-50s are lead-in fighter trainer (LIFT) aircraft, a type
primarily used to train pilots for advanced fighter planes. After fulfilling their training purposes, the FA-50
LIFTs can be refitted to serve patrol, interception and, once ammunitions procurement is complete, light
fighting functions. The jets provide a much needed morale boost to the Air Force, as the service that lost
out the most from decades of weak defense spending. More importantly, however, they should enhance
the Philippines ability to conduct patrols and, if the need should arise, undertake defensive action over
the countrys airspace.

The jets are an important complement to the naval modernization program, which began in earnest
after the re-commissioning of two naval cutters transferred from the United States Coast Guard (the
BRP Gregorio Del Pilar commissioned in 2011 and the BRP Ramon Alcaraz in 2013) that improved the
Philippines presence andespecially important given the distances involvedendurance at sea. Better,
at the Asia-Pacific Economic Cooperation (APEC) meeting in November, United States President Barack
Obama committed to transfer two further ships to the Philippinesa third cutter and a search-and-rescue
vessel.

International cooperation underpins most of the Philippine Navys growing fleet. In July, the Navy
recommissioned two landing craft, heavy (LCH) vessels gifted from Australia, which will help the service
move either troops or cargo, such as aid supplies, more efficiently.2 The two sealift vessels were promised
after Typhoon Haiyan/Yolanda, when the Navys lack of lift vessels made rapid aid transfers more difficult.
In his final State of the Nation Address, President Aquino announced that the Philippines intended to
purchase the three remaining LCH vessels. The Philippines is also waiting to recommission a corvette
from South Korea, in a planned transfer first announced in 2014. Prior to the first transferred ship from
the US, the Philippine Navy had been relying on a single frigate in use since prior to World War II.

16 QUARTERLY DECEMBER 2015

 Less advertised, but similarly important was the inauguration of the National Coast Watch Center in
April. Also built in part with foreign funding, the Coast Watch Center is intended to serve as the Philippine
clearing house for maritime security coordination, including both maritime surveillance consolidation
and overall maritime domain awareness as among its core tasks.3

Overall, the naval and air force developments are directed toward expanding the Philippine Navys
and the Philippine Air Forces reach and endurance, both qualities important for improving the countrys
knowledge base of developments at sea, whether these occur because of illicit transnational groups, rival
states, or natural disasters. Improving surveillance and presence in this regard, however, should not be
mistaken for a military build-up in the warfighting sense. If such capabilities will be acquired, those will
occur at a later stage of the AFPs three horizon modernization processaround a decade from now, if
the process continues without interruption.

In the next year, it will be interesting to watch if the DND-AFP will move forward on bidding for
complementary projects, such as the plans for acquiring a new long-range patrol aircraft (the first round
of bidding failed in August) and air defense radar for the Philippine Air Force; brand new multi-role
frigates and anti-submarine helicopters for the Philippine Navy; and, hope against hope, a shore-based
missile system for the Philippine Army.

The shore-based missile system had been planned to be bid out in 2015 until a change in AFP leadership
led to the postponement of the purchase to an unspecified later horizon in favor of an immediate
purchase of rifles and protective gear for ground troops. In this instance, the decision to re-align the
AFPs purchase list by new leadership provides a clear example of how existing policies on benign topics
like the retirement age affect the Philippine military strategically and from the top-down: the AFP Chief
of Staff rarely stays in position for longer than a years time and often for less than six months at a time.

Enhanced Military Capabilities Boost, Not Replace, the Diplomatic Process

It bears repeating that the objective of the Philippine effort at military modernization is not to succeed
in going toe-to-toe with our regional neighbors any time soon. The small size of even a quickly growing
fleet such as our own will serve two main purposes: first, and foremost, to provide the necessary
knowledge base of developments on the ground in support of the diplomatic effort and, second, to
provide enough presence-on-the-ground to deter harassment, supply outposts, and enforce Philippine
law as needed.

In this context it is easier to monitor developments in the modernization program than it is to test its
actual success absent a serious crisis. The likelihood of a crisis will continue to depend on developments
outside the country: advancements made by our neighbors, like China, into the South China Sea area,
and operations undertaken by other nations, like the United States Freedom of Navigation operations.
Taken together, these steps represent a series of efforts to use the fact of military presence to assert
legal and diplomatic positions. In 2015, the Philippines did not have the ability to change the landscape
of international decision-making unilaterally. As these conditions will continue, the external position of
the present and future presidents of the country should still be to gain support from international actors
on many fronts.

The November decision of Permanent Court of Arbitration (PCA) in The Hague that it had jurisdiction
over the issues that the Philippines submitted to the court is an important step in maintaining better
international standing over the South China Sea issue. If much of the case proves successful when the
final decision is reached in 2016, the Philippine government should gain further confidence in its existing
efforts to exert control over the features within the countrys Exclusive Economic Zone. Although the
court will not rule on matters of sovereignty, its ruling could help clarify and isolate the specific areas
of dispute and, ideally, allow the states interested in the dispute to begin talks to resolve the dispute
with finality.

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POLTIKA
Depending on Philippine success in court and the balance of international opinion, it may be possible
for it to enter talks with claimant states on a multilateral, as opposed to bilateral, basis, that is believed
rightly or wronglyto reduce the advantages to the more powerful side that occurs in a one-on-one
negotiation. Considering negotiation dynamics isnt useful, however, if the relevant negotiating countries
do not have a base of trust to come to the table with sufficient goodwill. With a positive court ruling in
hand, the next Philippine government should consider slowly rebuilding the strained relationship with
China to keep the disputes within the diplomatic arena and prevent a spiral of animosity.

In elevating the issue to a multi-state effort, the Philippines continued to seek cooperation with
regional bodies like the Association of Southeast Asian Nations (ASEAN); with the United States, a treaty
ally; with Vietnam, with Japan, its first strategic partner. In 2015, the most open signs of support came
from the United States and Japan. As weve written earlier, Japan put in place new security legislation
in 2015 that reinterprets its traditional pacifist constitution to allow it to come to the assistance of
friendly states. While that legislation was debated in Japans parliament, talks between the country and
the United States began over the possibility of Japan contributing to patrolling the South China Sea.4

With the United States, cooperation continued through 2015 with the continued hosting of the Balikatan
exercises and the aforementioned pledge by President Obama to transfer two other ships to the Philippine
Navy. The Philippines continued to wait for the Supreme Court to announce its decision on the Enhanced
Defense Cooperation Agreement (EDCA), which the Court began deliberating on in 2014. Despite multiple
reports that the Court would announce its decision at various parts of 2015, the year closed without
further news on the fate of the deal, which allows for the United States to position rotational forces in
the country and make upgrades to Philippine bases. The Court was believed to have waited for a ruling
on the criminal case against Lance Corporal Pemberton to be released prior to taking its own steps. The
Pemberton ruling was handed down in December, strengthening the possibility that the Court will rule
on EDCA in the first quarter of 2016.

The Philippine Government Will Not Be Able to

Take Its Eyes Off Internal Security
The Aquino administration appeared resolved to wrap up domestic security concerns in order for the
military to better focus on strengthening its external defense posture. Contrary to the publics hopes and
expectations, the internal security front did not progress much over the course of the year. In January,
the painful Mamasapano counter-terror operation that resulted in the deaths of 44 police Special Action
Forces (SAF) and more than a dozen other fighters marked the beginning of a weak year overall. The
botched operation spelled the beginning of the end of the passage of the BBL, the cornerstone effort in
the peace process thus far. If the BBL should still pass at all, it is no longer likely to occur in the bills
original negotiated form. The uncertain aftermath of the BBL effort includes the possibility of renewed
internal violence, which will hold the attention of DND-AFP and keep the Philippine Army occupied.

The alternative would have been to shift some of the responsibility to the PNP, which had developed a
specially equipped SAF. With the SAF dealt a bad blow at Mamasapano, however, the PNPs readiness to
take on further responsibility is in doubt. Whether the PNP redoubles its effort to train forces in advanced
counter-terror operations and successfully complete missions will be something to watch for the year
ahead.

Taking the BBL aside, the scope of internal security concerns is far beyond the Moro struggle in
Mindanao. The continued activities of the New Peoples Army and the Abu Sayyaf Group will take the
attention of Philippine military units. In this respect, 2015 was an especially disappointing year, with
few if any reductions in attacks on police stations or military outposts or kidnapping attempts on
civilians. Inauspiciously, the year closed with the military reporting that the NPA violated the agreed-upon
holiday ceasefire.

18 QUARTERLY DECEMBER 2015

 The Philippine Armys highest profile problem in relation to the NPA came with both sides alleged
involvement in killing of indigenous (lumad) leaders and educators. Where the NPA was accused of having
infiltrated and radicalized the lumad youth, the military was accused of supporting the paramilitary
groups alleged to have been behind the attacks. Despite its efforts, the military failed to disentangle
itself from the problem, distance itself from the local armed groups, or match the public communications
abilities of the left-aligned groups that elevated the issue to the national stage. On January 5, 2016, the
military announced that they are still looking for the members of the group accused of the September
attack.5

Forced to be reactive to the issue, the Philippine government reaped the consequences of poor
coordination between the peace process and continued police/military operations. There has been no
movement on a plan to achieve a political solution with the CPP-NDF-NPA over the NPA situation in
parallel with the Moro effort; negotiations with the CPP-NDF had stalled since the arrest of the high-
profile Tiamzon couple and five others in 2014.

Internal violence will not end without a political solution, and both current and incoming Philippine
administrations cannot rely on the Philippine militaryat any strength levelto fight the way to peace.
Nevertheless, the Philippine Army is still the best equipped and trained institution to be at the front-line
of armed component of the governments effort. As a result, the succeeding Philippine government will
continue to deal with both internal and external threat components at which the DND-AFP will be near
the center.

VI. International Studies

2016 Doing Business Report

The Philippines rank in the 2016 Doing Business Report dropped six notches to 103rd from last years
97th spot across 189 economies. The Philippines ranked 95th from the original report published last year
but was revised to 97th to reflect a change in methodology.

Despite slipping in the rankings, the Philippines was recognized by the World Bank Group for making
starting a business easier by streamlining communications between the Securities and Exchange
Commission and the Social Security System and thereby expediting the process of issuing an employer

DECEMBER 2015 QUARTERLY 19

POLTIKA
registration number. Ironically, however, it was in the Starting a Business category that the Philippines
saw its biggest slip in ranking, from 157 in 2015 to 165 in the 2016 report.

Finance Secretary Cesar Purisima expressed dismay over the slip in the countrys ranking and called
the report erratic and unsound, after the reports research methodology was changed.

Global Innovation Index

After dropping ten spots in last years report, the Philippines moved up 17 notches and is now ranked
83rd out of 141 economies in the 2015 Global Innovation Index. The countrys score improved to 31.1 out
of 100, up from 29.87 in the previous year.

Of the seven pillars, the country made considerable improvements on the Business Sophistication,
jumping 32 notches from 113th to 91st, Knowledge and Technology Outputs, where the country was up by
15 from 68th to 53rd, Infrastructure up 11, from 94th to 83rd, and Institutions up 6, from 108th to 102nd.
The improvements make the country the fifth most improved among the 144 economies evaluated.

The Philippines decreased in three pillars, however, dropping from 93rd to 101st place in in Market
Sophistication. While the countrys ranking under Human Capital and Research, and Creative Output,
similarly fell to 123rd and 101st, respectively.

Although Philippines increased its rank, its innovation efficiency has dropped. Innovation efficiency
measures the effectiveness of innovation systems and policies. It is calculated by Output sub index
score over Input sub index score. Co-published by Cornell University, INSEAD, and the World Intellectual
Property Organization, the annual rankings examine both innovation inputs and innovation outputs: the
enabling environment for innovation and the results of innovative activities within the economy.

Economic Freedom
The Philippines economic freedom score is 62.2, making the economy the 76th freest in the 2015
Index. Its score has increased by 2.1 points since last year as it continues its upward trajectory for the
past five years.

20 QUARTERLY DECEMBER 2015

 The Philippines registered one of the 10 best score improvements in the 2015 Index, with improvements
in financial freedom, freedom from corruption, and labor freedom outweighing declines in business
freedom and the management of public spending.

Despite notable progress since 2011, however, lingering institutional challenges will require a
deeper commitment to reform. Corruption continues to be a serious cause for concern, jeopardizing
prospects for long-term economic development. The inefficient judiciary, which remains susceptible to
political interference, does not provide effective protection for property rights or strong and transparent
enforcement of the law.

ENDNOTES:

1 http://digitaledition.philstar.com/articles/2016-01-03/news/15-afp-modernization-projects-completed-last-year/135092

2 http://www.angmalaya.net/nation/2015/01/29/7872-australian-government-donating-two-landing-craft-heavy-vessels-to-phl-navy

3 http://www.gov.ph/2015/04/28/briefer-national-coast-watch-center/

4 http://thediplomat.com/2015/05/us-japan-joint-patrols-in-the-south-china-sea/

5 http://davaotoday.com/main/slider/paramilitary-killers/

DECEMBER 2015 QUARTERLY 21

POLTIKA
CRITICAL ISSUES OF PHILIPPINE POLITY

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