THE REPUBLIC OF THE PHILIPPINES: THE NEXT ASIAN TIGER?

PHILIPPINES CONTEXT
Philippines is an archipelago of 7107 islands. These islands divided into 3 divisions: Luzon, Visayas and Mindanao.
These three geographic divisions were subdivided into 80 province, because of this fragmentation and the colonial
past, national identity was regarded by some Filipinos as secondary to that of provincial identity.

50% of the population lived in Luzon. The Philippine population in 2013 was 103,7 million, 12th largest in the world.
2/3 of the population was under the age of 35. The Philippines birth rate of 2,5% was among the highest in
Southeast Asia, with nation’s majority –catholic religious affiliation.

 Colonial Era
- The catholic religion was a legacy of a Spanish colonial era from 1565-1898
- Prior to the Spanish, the Philippines archipelago had not been unified under one political state.
The spanish-America War of 1898 resulted in the Philippine archipelago being ceded to the United States.
Almost immediately , there was a revolt agains American rule.
 Post-Colonial Tyranny
After recovering from the ravages of WW II, the Philippines experienced a period of rapid growth and by 1960s
had the second highest per capita income in Asia, after that of Japan. Thereafter, it experienced a long descent
into poverty and authoritarian rule.
Ferdinand Marcos was elected president in 1965, when he first came to office, marcos initiated infrastructure
projects-roads, bridges, schools, health centers, civic centers, urban beautification projects-that improved the
lives of many Filipinos. Decades after Marcos left office, many of those project remained prominent landmarks
- But those projects also were the beginning of a pattern of corruption and control, Marcos also secured
control by appointing loyal Supreme Court justice and declared martial law.
- During the first years of martial law, the nation’s economi benefited from increasing stability and business
confidence grew as Marcos appointed talented technocrats to economic posts.
- Crony capitalism intensified during martial law. Large enterprises were nationalized or simply seized and
then brought under the control of Marcos cronies
- The impact of crony capitalism was also felt deeply in poor, rural areas where distribution monopolies
were established for sugar and coconuts
- During the Marcos era, laws were passed that shielded domestic business from foreign competition-and in
doing so isolated the Philippine economy from the dynamism occuring throught out Asia
- In the early 1980s, political and economic situation declined. Inflation and unemployment increased.
Domesctic and foreign investments declined
- 1983 – People Power Revolution in which the population reacted to the perceived fraud with outrage.
Senior members of the military resigned and troops defected. Corazon Aquino was declared president when
Marcos fled to the US
- During the next quarter century, the Philippines would struggle with coup attempts, burdensome national
debt, a tenacious communist insurgency and ongoing Islamic separatism.
 A New Era?
- Marking new era, Benigno Aquino III was elected as president. He had his work cut out for him. The talent
drain over the years had been extensive. Poverty was widespread, corruption pervasive.
- In a major effort to begin the eradication of corruption, the chief justice of the philippine supreme court
was impeache and removed from office
ECONOMY
2013 - The Philippine economy was demonstrating some strength: high growth, low inflation, manageable debt
levels, diversified income sources, and a healthy financial system
- The Philippines had also emerged as a net creditor nation, with strong external liquidity (driv er:
remittances from overseas Filipino Workers and rapidly growing business-process outsourcing industry)
- Debt-to-GDP ratio had declined to 39% from a peak 74% and external debt-to-GDP ratio had declined to
25.6%, below that of peer Asian countries
- The govt investment plans were hampered by high interest payments and a narrow tax base. Combined
with high non-compliance, left the govt without much fiscal flexibility
- FDI was a long-term commitmetn to a country, but foreign investments in the Philippines were weighted
towards short term investments in the stock market
- Philippines was ranked 138th in term of ease of doing business, the lowest among its ASEAN peer

 Financial Sector
Banking sector was conservatively managed. At the same time, some were pushing for a loosening of credit so
there would be greater access to credit by the agricultural sector and by SMEs.

 Monetary Issues
Inflation had been held at moderate levels: consumer price inflation was approx 3% in 2012

 The Growth Imperative

Young Philippines was considered demographic dividend, the population growth rate required a net increaseof
roughly 2 million jobs annualy. This make the Filipinos to seek employment abroad.

 Predominance of Conglomerates
Domestic conglomerated and oligopolies accounted for a significant portion of the economy. 72% of
conglomerates and their affiliation companies accounted of the total market capitalization of the Philippines
Stock Exchange.

 Sectors
- Philippines had diversified sources of income : Agriculture, mining, and services. Agriculture employed
nearly 33%, but only contributed for 14% to GDP. The industrial sector was the reverse: it employed about
14% of Filipinos but contributed for 30% of GDP
- Fastest growing part of the economy was BPO, several sectors held substantial for growth such as OFW
(overseas Filipino workers), mining, manufacturing, tourism, medical, gaming and education sectors
- Mining: value of Philippine mining industry was 5th largest in the world. Rich supplies of gold, copper,
nickel, aluminum, and iron.
- Manufacturing: largest manufacturing sector in terms of value added was food and beverages
- Electronics: employed over 200.000 filipinos and accounted over 33% of total export
- Tourism: with its warm climate, thousands of islands and friendly, service-oriented people. Philippines was
among the best in terms of surfing, diving and other water sports.
- Gaming: several casinos were scheduled to be completed in the beginning of 2013. The country attracted
gambler from China, South Korea and Taiwan

DEGREE OF CONCENTRATION BY INDUSTRY

 The Philippines had been taking steps to privatize state monopolies and encourage competition, although a
degree of concentration still existed in several industries
 Fidel R Ramos (President from 1992-1998) initiated a number of economic reforms including deregulation of
industries and privatization of state entities, which encouraged competition and private enterprises
EDUCATION
 Infrastructure Issues
- The Philippines lagged in terms of the quality of its roads, airports an electrical supply
- Telecommunications, was regarded a bright spot. A robust fiber optic network interconnected with
international cables had enabled the growth of the call center industry, but internet service and consistency
of mobile phone service lagged that of developed markets
- Power generation issues: capacity and cost. High cost and inadequate power generation capacity limited the
investment potential of the manufacturing sector in particular.
- Starting in 1990s, remediation efforts began with privatization og the power sector and the construction of
lower-cost coal-fired plants
- By 2010 generation, transmission and distribution had been unbundled, and 70% govt-owned power plants
had been privatized
- Infrastructure shorcomings also meant opportunity, substantial funds would be deployed to infrastructure
project

 Talent Development Issues

Philippines had significant human capital advantages: young, english-speaking population with literacy rate
over 90%. But brain drain during Marcos Era coupled with strong economic growth over pas decade had left a
significant gap in managerial, entrepreneurial and scientific talent
 Poverty Remeditation
The high economic growth rate the nation was experiencing was not fully inclusive. Roughly 25% population
lived in poverty.
Higher per capita income, a goal of the Acquino administration would have multiple benefits including
broadening the tax base, providing greater fiscal stabilty, and deepening the pool of funds for investment in
infrastructure, education and health care

GOVERNANCE
Institutional governance in the Philippines was regarded as weak but improving. There was perception of
widespread corruption among elected and appointed govt officials. There was a lack of respect for intellectual
property.
 Security Risks
- There has external threat from China, as China asserted territorial rights to Spratly Islands in the South
China Sea. The area was rich in oil and gas resources and was attractive area for commercial fishing and
shipping
- There were internal security risks from communist New People’s Army (NPA), the Moro Islamic Liberation
Front (MILF), and the Abu Sayef Group (ASG)

 Natural Hazard Risks

- Philipphines was subject to numerous natural hazards including typhoons, which caused extensive flooding
- Its also located within the Pacific Ring of Fire, that left the country vulnerable to earthquakes and volcanic
eruptions

LOOKING FORWARD
The Acquino administration entered 2013 with renewed confidence that its vision, policies and programs were
working. With virtually every economic and social index in the Philippines on a positive upward trend.