Philippines (10/03)

For the most current version of this Note, see Background Notes A-Z.

PROFILE

OFFICIAL NAME:
Republic of the Philippines

Geography
Area: 300,000 sq. km. (117,187 sq. mi.).
Cities: (2000 census) Capital--Manila (pop. 9.9 million in metropolitan area); Davao City (1.2 million), Cebu City (1.6million).
Terrain: Islands, 65% mountainous, with narrow coastal lowlands.
Climate: Tropical, astride typhoon belt.

People
Nationality: Noun--Filipino(s). Adjective--Philippine.
Population (2000 census): 76.5 million. Government est., 2002: 79.5 million Annual growth rate: 2.36%.
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--above 97% in elementary grades, above 74% in secondary grades. Literacy--92%.
Health (2002): Infant mortality rate--25.7/1,000. Life expectancy--66.9 yrs. males; 72.2 yrs. females.
Work force (2002): 33.9 million. Services (including commerce and government)--47%; agriculture--37%; industry--16%.

Government
Type: Republic.
Independence: 1946.
Constitution: February 11, 1987.
Branches: Executive--president and vice president.
Legislative--bicameral legislature. Judicial--independent.
Administrative subdivisions: 15 regions and Manila, 79 provinces, 115 chartered cities.
Political parties: Lakas-NUCD, Nationalist People's Coalition, Laban ng Demokratikong Pilipino, Liberal Party, and other small parties.
Suffrage: Universal, but not compulsory, at age 18.

Economy
GDP (2002): $77.1 billion.
Annual growth rate (2002): 4.6%.
GDP per capita (2002): $962.
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 (2002): Exports--$35.20 billion. Imports--$35.43 billion.

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 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 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 acceptance, particularly as a second language

English, the most important non-native language, is used as a second language by many, 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. Only a few Filipino families use Spanish as a first language.

Despite this multiplicity of languages, 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 history of the Philippines may be divided into four distinct phases: the pre-Spanish period (before 1521); the Spanish period (1521-1898); the American period (1898-1946); and the years since independence (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 called barangays. The Malays settled in scattered communities, also called barangays, which were ruled by chieftains known as datus. Chinese merchants and traders arrived and settled in the ninth century A.D. In the 14th century, 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 Period
Ferdinand Magellan claimed the Philippines 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, complete with a strong centralized government and considerable clerical influence. The Filipinos were restive under the Spanish, and this long period was marked by numerous uprisings. The most important of these 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.

American Period
Following Admiral Dewey's defeat of the Spanish fleet in Manila Bay, the United States 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. 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 United States, and resistance gradually died out.

U.S. 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. 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.

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

The war to regain the Philippines began when Gen. Douglas MacArthur landed on Leyte on October 20, 1944. Filipinos and Americans fought together until the Japanese surrender in September 1945. Much of Manila was destroyed during the final months of the fighting, and an estimated 1 million Filipinos lost their lives in the war.

As a result of 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 United States 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 Independence Day was changed from July 4 to June 12, commemorating the date independence from Spain was declared by General Aguinaldo in 1898.

Post-Independence Period
The early years of independence were dominated by U.S.-assisted postwar reconstruction. A communist-inspired Huk Rebellion (1945-53) complicated recovery efforts before its successful suppression under the leadership of President Ramon Magsaysay. The succeeding administrations of Presidents Carlos P. Garcia (1957-61) and Diosdado Macapagal (1961-65) sought to expand Philippine ties to its Asian neighbors, implement domestic reform programs, and develop and diversify the economy.

In 1972, President Ferdinand E. Marcos (1965-86) declared martial law, citing growing lawlessness and open rebellion by the communist rebels as his justification. Marcos governed from 1973 until mid-1981 in accordance with the transitory provisions of a new constitution that replaced the commonwealth constitution of 1935. He suppressed democratic institutions and restricted civil liberties during the martial law period, ruling largely by decree and popular referenda. The government began a process of political normalization during 1978-81, culminating in the reelection of President Marcos to a 6-year term that would have ended in 1987. The Marcos government's respect for human rights remained low despite the end of martial law on January 17, 1981. His government retained its wide arrest and detention powers. Corruption and favoritism contributed to a serious decline in economic growth and development under Marcos.

The assassination of opposition leader Benigno (Ninoy) Aquino upon his return to the Philippines in 1983, after a long period of exile, coalesced popular dissatisfaction with Marcos and set in motion a succession of events that culminated in a snap presidential election in February 1986. The opposition united under Aquino's widow, Corazon Aquino, and Salvador Laurel, head of the United Nationalist Democratic Organization (UNIDO). The election was marred by widespread electoral fraud on the part of Marcos and his supporters. International observers, including a U.S. delegation led by Sen. Richard Lugar (R-Indiana), denounced the official results. Marcos was forced to flee the Philippines in the face of a peaceful civilian-military uprising that ousted him and installed Corazon Aquino as president on February 25, 1986.

Under Aquino's presidency progress was made in revitalizing democratic institutions and respect for civil liberties. However, the administration also was viewed by many as weak and fractious, and a return to full political stability and economic development was hampered by several attempted coups staged by disaffected members of the Philippine military.

Fidel Ramos was elected president in 1992. Early in his administration, Ramos declared "national reconciliation" his highest priority. He legalized the communist party and created the National Unification Commission (NUC) to lay the groundwork for talks with communist insurgents, Muslim separatists, and military rebels. In June 1994, President Ramos signed into law a general conditional amnesty covering all rebel groups, as well as Philippine military and police personnel accused of crimes committed while fighting the insurgents. In October 1995, the government signed an agreement bringing the military insurgency to an end. A peace agreement with one major Muslim insurgent group was signed in 1996.

Joseph Ejercito Estrada's election as president in May 1998 marked the Philippines' third democratic succession since the ouster of Marcos. Estrada was elected with overwhelming mass support on a platform promising poverty alleviation and an anti-crime crackdown.

Gloria Macapagal-Arroyo, elected vice president in 1998, assumed the presidency in January 2001 after widespread demonstrations that followed the breakdown of Estrada's impeachment trial on corruption charges. The Philippine Supreme Court subsequently endorsed unanimously the constitutionality of the transfer of power. National elections will take place in May 2004. In December 2002, Macapagal-Arroyo announced she would not be a candidate for a full term as president.

GOVERNMENT AND POLITICAL CONDITIONS  
The Philippines has a representative democracy modeled on the U.S. system. The 1987 constitution, adopted during the Aquino administration, reestablished a presidential system of government with a bicameral legislature and an independent judiciary. The president is limited to one 6-year term. Provision also was made in the constitution for autonomous regions in Muslim areas of Mindanao and in the Cordillera region of northern Luzon.

The Philippine Senate is elected at large. There are currently 23 senators, 13 of whom were elected in May 2001. (Note: There is one vacancy in the Senate due to the 2002 resignation of Blas Ople to become Foreign Secretary. The seat will remain vacant until filled in the 2004 election.) Of a possible 250 members of the House of Representatives, 207 are elected from the single-member districts. The remainder of the House seats are designated for sectoral party representatives elected at large; currently, there are 12 such representatives in the House.

When Macapagal-Arroyo assumed the presidency, her "People Power Coalition," led by the--Lakas-NUCD party, became the dominant group in Congress. The 75-member Lakas Party leads the "Sunshine Coalition," which also includes the 61-member Nationalist People's Coalition, the 22-member Liberal Party, and several other major and minor parties. The LDP party leads the 20-member opposition bloc. In the Senate, the pro-administration coalition controls 13 of the 23 seats. Members of the Philippine Congress tend to have weak party loyalties and change party affiliation easily.

The government is pursuing corruption-related criminal cases against former President Estrada, who is currently under detention. The terrorist Abu Sayyaf Group (ASG), which recently gained international notoriety with its kidnappings of foreign tourists in the southern islands, is a major problem for the government. In May 2001, the ASG kidnapped several Americans, beheading one of them in June 2001. In a June 2002 rescue attempt, another American hostage was killed. Efforts to track down and destroy the ASG have met with some success, especially on Basilan, where U.S. troops advised, assisted, and trained Philippine soldiers in counterterrorism. ASG elements remain active on Jolo Island and elsewhere in the southwestern Philippines. Rising crime and concerns about the security situation have had a negative impact on tourism and foreign investment. The government continues to face threats from both Muslim separatist groups and communist insurgents. In August 2001, the government reached a cease-fire agreement with the separatist Moro Islamic Liberation Front; negotiations on a final peace agreement continued at a very slow pace amid sporadic fighting into 2003. The Department of State in August 2002 added the Communist Party of the Philippines/New People's Army (CPP/NPA) to the U.S. Foreign Terrorist Organization list. Negotiations between the government and the CPP's political arm, the National Democratic Front, were suspended in 2001 after the NPA assassinated two members of Congress, although "back-channel" talks continue.

Principal Government Officials
President--Gloria Macapagal-Arroyo
Vice President--Teofisto T. Guingona, Jr.
Foreign Secretary--Blas Ople
Ambassador to the United States--Albert del Rosario
Permanent Representative to the UN--Alfonso Yuchengco

The Republic of the Philippines maintains an embassy in the United States at 1600 Massachusetts Avenue NW, Washington, DC 20036 (tel. 202-467-9300). Consulates general are in New York, Chicago, San Francisco, Los Angeles, Honolulu, and Agana (Guam).

ECONOMY
Since the end of the Second World War, 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 tried to resist protectionist measures and to continue 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. President Gloria Macapagal-Arroyo has made considerable progress in restoring macroeconomic stability with the help of a well-regarded economic team. The widening fiscal deficit remains the most glaring exception to a number of positive developments elsewhere in the economy.

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
The Philippines was less severely affected by the Asian financial crisis than its neighbors, aided in part by remittances of more than $7 billion annually from overseas workers. Except for 1998-- when drought and weather-related disturbances pulled down agricultural harvests, combining with the contraction in industrial sector production--real gross domestic product (GDP) has recorded positive growth year-on-year. From a 0.6% decline in 1998, GDP expansion picked up in 1999 (3.4%) and 2000 (4.4%) but slowed to 3.2% in 2001 in the context of a global economic slowdown, export slump, and domestic as well as global political and security concerns. Year-on-year GDP growth accelerated to 4.2% in 2002--exceeding the downward-revised 4.0%-4.5% growth range targeted by the government for that year--reflecting the continued resilience of the service sector, gains in industrial sector output, and recovering exports. Nonetheless, it will take a higher, sustained economic-growth path to make more appreciable progress in poverty alleviation given the Philippines' high annual population growth rate of 2.36%--one of the highest in Asia.

Agriculture generally suffers from low productivity and the lack of economies-of-scale, as well as inadequate infrastructure support. Output fell in 1997 and 1998 due to an El Niño-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 3.5% year-on-year in 2002.

The global economic and electronics-demand slowdown combined with softer prices of resource-based commodities to depress export performance in 2001. Full-year export receipts--which last declined in 1985--contracted by 16.2% year-on-year, dragged down by a nearly 24% drop in revenues from shipments of electronic and telecommunications parts and equipment (which comprise about 60% of annual export revenues). Export receipts expanded from April-December 2002, breaking from 14 consecutive months of negative year-on-year growth and nudging up the full-year 2002 export growth rate to positive territory (9.5%). The export expansion reflected improved levels of intra-Asia trade.

Although less severely affected than its neighbors, the Philippines' banking sector was not spared from high interest rates and non-performing loan 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. Nevertheless, the burden of rising non-performing assets has squeezed profit margins and inhibited bank lending, posing risks to the longer term viability and stability of the banking system.

As of the end of December 2002, the Philippine peso, which closed at P53.03, had weakened by more than 101% vis-a-vis the U.S. dollar since mid-1997 and currently trades at about 53.50-54.00/U.S.dollars. Elsewhere, there have been some recent, positive developments in the Philippine economy. Year-on-year inflation, a perennial problem in the Philippines, is under control. Year-on-year inflation averaged 3.1% during 2002, its lowest since 1987 and well below the government's 4.5%-5.5% targeted average for the 2002 full year. Inflation was tempered in part by generally stable food prices, a less volatile currency, underutilized capacities, still high unemployment, and government efforts to control utility-rate increases. Domestic interest rates have fallen significantly, aided by low inflation and a stable monetary policy. In 2002, the balance of payments broke from 2 consecutive years of deficits and mustered a modest surplus, helped in part by workers' remittances and improving export receipts.

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 confidence of investors and the business community and ultimately led to successful efforts to impeach and remove President Estrada.

President Macapagal-Arroyo is working to continue with economic reforms in areas beyond retail trade, electronic commerce, banking reform, and securities regulation. Her administration enacted an anti-money laundering law in September 2001 and followed through with amendments in March 2002 to address remaining legal concerns posed by the OECD Financial Action Task Force (FATF). While the Philippines has avoided FATF countermeasures, effective implementation will be key to the Philippines' removal from the FATF's watch list of "non-cooperating countries and territories." Although encountering implementation hitches, her administration also enacted legislation to rationalize and privatize the electric power sector. In January 2002, President Macapagal-Arroyo signed into law two priority initiatives which seek to reform the government procurement system (the Government Procurement Reform Act) and to help ease the burden of non-performing assets on the financial sector through the establishment of private asset management companies (the Special Purpose Vehicle Act).

Notwithstanding favorable trends, the Philippine economy continues to juggle extremely limited financial resources while attempting to meet the needs of a rapidly expanding population and address intensifying demands for the current administration to deliver on its anti-poverty promises. The current high level of government debt, the substantial share of foreign obligations, the emerging risks posed by contingent liabilities, and the worrisome deterioration in tax collection performance over the past 5 years have increased the country's vulnerability to severe external and domestic shocks. Potential foreign investors, as well as tourists, continue to be concerned about law and order, inadequate infrastructure, and governance issues. While trade liberalization presents significant opportunities, intensifying global competition and the emergence of low-wage export economies also pose challenges. In particular, competition from other Southeast Asian countries and from China for investment underlines the need for sustained progress on structural reforms to remove bottlenecks to growth, lower costs of doing business, and promote good public and private sector governance.

Agriculture and Forestry
Arable farmland comprises an estimated 26% of the total land area. Although the Philippines is rich in agricultural potential, inadequate infrastructure, lack of financing, and government policies have limited productivity gains. Philippine farms produce food crops for domestic consumption and cash crops for export. The agricultural sector employs about 40% of the work force but only provides about one-fifth of GDP.

Decades of uncontrolled logging and slash-and-burn agriculture in marginal upland areas have stripped forests, with critical implications for the ecological balance. The government has instituted conservation programs, but deforestation remains a severe problem.

With its 7,107 islands, the Philippines has a very diverse range of fishing areas. Notwithstanding good prospects for the agriculture sub-sector, the fishing industry continues to face a bleak future due to destructive fishing methods, a lack of funds, and absence of government support.

Industry
Industrial production is centered on 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 the 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 country is well-endowed with mineral and thermal energy resources. A recent discovery of natural gas reserves off Palawan Island has been brought on-line to generate electricity. Philippine copper and chromite deposits are among the largest in the world. Other important minerals include gold, nickel, silver, coal, gypsum, and sulfur. The Philippines also has significant deposits of clay, limestone, marble, silica, and phosphate. Until 4 years ago, non-metallic minerals accounted for 55% to 60% of total mining production and contributed substantially to the industry's steady output growth between 1993 and 1998 (with the value of production growing 58%). Mineral production declined by 18% between end-1998 and end-2000 to pesos 30.6 billion ($600 million at 2000's average foreign exchange rate) and the share of non-metallic minerals fell to under 45%. Mineral exports have generally slowed since 1996. Led by copper metal, Philippine mineral exports amounted to $512 million in 2002, down 5 % from 2001 levels. Low metal prices, high production costs, and lack of investment in infrastructure have contributed to the mining industry's overall decline.

FOREIGN RELATIONS
In its foreign policy, the Philippines cultivates constructive relations with its Asian neighbors, with whom it is linked through membership in ASEAN, 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, the Non-Aligned Movement (NAM, since 1992), and has close links with the Organization of 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 fundamental Philippine attachment to democracy and human rights is 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 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.

U.S.-PHILIPPINE RELATIONS
U.S.-Philippine relations are based on shared history and commitment to democratic principles, as well as on economic ties. The historical and cultural links between the Philippines and the United States remain strong. The Philippines modeled its governmental institutions on those of the United States and continues to share a commitment to democracy and human rights. At the most fundamental level of bilateral relations, human links continue to form a strong bridge between the two countries. There are an estimated 2 million Americans of Philippine ancestry in the United States and more than 130,000 American citizens in the Philippines.

Until November 1992, pursuant to the 1947 Military Bases Agreement, the United States maintained and operated major facilities at Clark Air Base, Subic Bay Naval Complex, and several small subsidiary installations in the Philippines. In 1983 and 1988, the United States and the Philippines completed successful reviews and extensions of the Military Bases Agreement, as amended. In August 1991, negotiators from the two countries reached agreement on a draft treaty providing for use of Subic Bay Naval Base by U.S. forces for 10 years. The draft treaty did not include use of Clark Air Base, which had been so heavily damaged by the 1991 eruption of Mt. Pinatubo that the United States decided to abandon it.

In September 1991, the Philippine Senate rejected the bases treaty, and despite further efforts to salvage the situation, the two sides could not reach agreement. As a result, the Philippine Government informed the United States on December 6, 1991, that it would have 1 year to complete withdrawal. That withdrawal went smoothly and was completed ahead of schedule, with the last U.S. forces departing on November 24, 1992. On departure, the U.S. Government turned over assets worth more than $1.3 billion to the Philippines, including an airport and ship-repair facility. Agencies formed by the Philippine Government have converted the former military bases for civilian commercial use, with Subic Bay serving as a flagship for that effort.

The post-U.S. bases era has seen U.S.-Philippine relations improved and broadened, with a prominent focus on economic and commercial ties while maintaining the importance of the security dimension. U.S. investment continues to play an important role in the Philippine economy, while a strong security relationship rests on the 1952 U.S.-Philippines Mutual Defense Treaty (MDT). In February 1998, U.S. and Philippine negotiators concluded the Visiting Forces Agreement (VFA), paving the way for increased military cooperation under the MDT. The agreement was approved by the Philippine Senate in May 1999 and entered into force on June 1, 1999. Under the VFA, the United States has conducted ship visits to Philippine ports and has resumed large combined military exercises with Philippine forces. Key events in the bilateral relationship include the July 4, 1996 declaration by President Ramos of Philippine-American Friendship Day in commemoration of the 50th anniversary of Philippine independence. Ramos visited the United States in April 1998, and then-President Estrada visited in July 2000. President Macapagal-Arroyo met with President Bush in an official working visit in November 2001 and made a State Visit to Washington on May 19, 2003. Numerous U.S. Cabinet-level visits to the Philippines punctuated this latter period, culminating in a visit by Secretary of State Colin Powell in August 2002.

President Macapagal-Arroyo has repeatedly stressed the close friendship between the Philippines and the United States and her desire to further strengthen bilateral ties. Both governments seek to revitalize and strengthen their partnership by working toward greater security, prosperity, and service to Filipinos and Americans alike. Inaugurated into office on the same day as President Bush, President Macapagal-Arroyo lent strong support to the global war on terrorism and the coalition against Saddam Hussein.

Balikatan (Shoulder-to-Shoulder) 02-1 in 2002 contributed directly to the Philippines Armed Forces efforts to root out Abu Sayyaf terrorists and bring development to one formerly terrorist-plagued island. The United States has intensified its annual cycle of combined military training around the country as well as the military's civil affairs and humanitarian projects, funded by $68 million in U.S. Foreign Military Financing projected between 2002-06. In addition, supplemental funding legislated in April 2003 will add another $30 million. Moreover, the International Military Education and Training (IMET) program, $2.4 million in FY 2003, is the largest in Asia and the second-largest in the world. At $148 million, the Philippines is the number one recipient in Asia of Excess Defense Articles. The Mutual Logistics Support Agreement (MLSA) was signed in November 2002 after a year-long negotiation process. Similarly, law enforcement cooperation has reached new levels. U.S.-Philippines law enforcement agencies have cooperated to bring charges against 15 Abu Sayyaf terrorists, implement an extradition treaty, and train some 700 Filipino law enforcement officers in 2002.

The United States also is working closely with the Philippines to reduce poverty and increase prosperity. President Macapagal-Arroyo has subscribed to President Bush's Millennium Challenge, even as President Bush fully supports President Macapagal-Arroyo's "Strong Republic" reform agenda for rooting out corruption, opening economic opportunity, and investing in health and education. USAID programs, worth $84 million in FY 2003, support the Arroyo administration's war on poverty as well as the GRP reform agenda in critical areas, including anti-money laundering, government procurement, and tax collection. Other USAID programs bolstered the government's efforts to heal divisions in Philippine society through a focus on conflict resolution, livelihood enhancement for former combatants, and economic development in Mindanao and the Autonomous Region of Muslim Mindanao, among the poorest areas in the country. Supplemental budget legislation in April 2003 earmarked another $30 million for support to the peace process in Mindanao. Meanwhile, important programs continue in modern family planning, infectious disease control, environmental protection, provision of basic services--as well as PL 480 and 416(B) food aid programs, which together totaled $34.5 million in FY 2002.

More than 130,000 American citizens reside in the Philippines, and nearly 400,000 visit each year. An estimated 2 million Filipinos live in the United States, and they remitted about $3.5 billion in FY 2002. Providing government services to U.S. and the other party's citizens, therefore, constitutes an important aspect of the bilateral relationship. Those services include veterans affairs, social security, and consular operations. Benefits to Filipinos from the U.S. Veterans Affairs and Social Security Administrations totaled $143.9 million and $246.7 million, respectively. Many people-to-people programs exist between the United States and the Philippines, including Fulbright, International Visitors and Aquino Fellowship exchange programs, as well as the U.S. Peace Corps.

Trade and Investment
Two-way U.S. trade with the Philippines amounted to nearly $18.3 billion in 2002. The strong trade ties between the United States and the Philippines is reflected in the fact that some 19% of the Philippines' imports in 2002 came from the United States, and about one-fourth of its exports were bound for America. The Philippines ranks as our 19th-largest export market and our 20th-largest supplier. Key exports to the United States are semiconductor devices and computer peripherals, automobile parts, electric machinery, textiles and garments, and coconut oil. In addition to other goods, the Philippines imports raw and semiprocessed materials for the manufacture of semiconductors, electronics and electrical machinery, transport equipment, and cereals and cereal preparations.

The United States traditionally has been the Philippines' largest foreign investor, with about $3.3 billion in estimated investment as of end-2002 comprising 22% of the Philippines' foreign direct investment stock. Since the late 1980s, the Philippines has committed itself to reforms that encourage foreign investment as a basis for economic development, subject to certain guidelines and restrictions in specified areas. Under President Ramos, the Philippines expanded reforms, opening the power generation and telecommunications sectors to foreign investment, as well as securing ratification of the Uruguay Round agreement and membership in the World Trade Organization. As noted earlier, President Macapagal-Arroyo administration is continuing such reforms, a position which generally enjoys domestic political support. A major obstacle has been and will continue to be a constitutional restriction on foreign ownership of land and public utilities, which limits maximum ownership to 40%.

During the last few years, the relatively closed Philippine economy has been opened significantly by foreign exchange deregulation, foreign investment and banking liberalization, and tariff and market barrier reduction. In addition, foreign entry into the retail trade sector has been liberalized, with S&R Price as the first foreign company to enter the Philippine retailing market. The Macapagal-Arroyo government also enacted the Electric Power Industry Reform Act of 2001, which aims to restructure the Philippine electric power industry and privatize the National Power Corporation (NPC or Napocor). This legislation presents opportunities for U.S. firms to participate in the power industry in the Philippines. Information and communications technologies, backroom operations such as call centers, and regional facilities, or shared-service centers are likewise leading investment opportunities.

Principal U.S. Embassy Officials
Ambassador--Francis J. Ricciardone
Economic Counselor--Morton Holbrook
Commercial Counselor--David Fulton
USAID Mission Director--Michael Yates
Agricultural Counselor--David Miller

The U.S. Embassy is located at 1201 Roxas Boulevard, Manila; tel.: (63)(2) 523-1001; fax: 526-1474; telex: 722-27366 AME PH. The American Business Center is located at 25/F, Ayala Life - FGU Center, 6811 Ayala Avenue, Makati City. It houses the Foreign Commercial Service, tel.: (63)(2) 888-4088; fax 888-6606 and the Foreign Agricultural Service, tel.: (63)(2) 887-1137; fax: 887-1268.

For the most current version of this Note, see Background Notes A-Z.