Philippines Overview

About the Philippines:

The Republic of the Philippines (in Filipino, Republika ng Pilipinas) is an island republic in the western Pacific Ocean, within the Malay Archipelago, an island grouping that extends southward to include Indonesia and Malaysia. The Philippines comprises more than 7,100 islands, but the 11 largest islands form most of the country’s land area. The mountainous terrain includes many active volcanoes. The location of the Philippines just north of the equator gives the country a moderate tropical climate suited for the cultivation of export crops such as coconuts and pineapples. Agriculture has long formed the backbone of the economy. After World War II (1939-1945) the Philippines was one of the first nations of Southeast Asia to try to industrialize its economy. It subsequently lagged behind most of its Asian neighbors in economic development. Manila, located on east central Luzon Island, is the national capital and largest city. The republic’s cultural institutions, industries, and federal government are concentrated in this rapidly growing metropolitan area.

The people of the Philippines are called Filipinos. Most Filipinos are of Malay descent. Filipinos of mixed descent (through various combinations of Malay, Chinese, and Spanish intermarriage) have traditionally formed the country’s elite in business and politics. Nearly 83 million people live in the Philippines. The republic has one of the highest population-growth rates in the world. About 40 percent of the population lives in poverty while a wealthy minority holds most political power. The official languages are English and Filipino (formerly spelled Pilipino), which is based on the indigenous Tagalog language. More than 80 other indigenous languages and dialects are also spoken, and the people of the Philippines are divided into regional ethnolinguistic groups. The Philippines is the only predominantly Christian country in Asia, a result of its colonization by the Spanish Empire in the 16th century. Muslims, often called Moros, live predominantly in the southern islands and form a small but significant religious minority.

The first Spanish settlement was established in the Philippines in 1565, marking the onset of Spanish colonial rule. The Spanish-American War ended in 1898 with the transfer of the Philippines to United States control. In 1946, after more than 300 years under foreign rule, the Philippines became an independent democratic republic. In 1972 Philippine president Ferdinand Marcos imposed martial law, suspending democratic institutions and restricting civil rights. A four-day protest in Manila known as the People Power Movement toppled the Marcos regime in 1986, and a new constitution based on democratic principles was ratified the following year. The Philippines today is forging its place among the newly industrialized nations of Asia and seeking greater integration in the region, while its colonial past means it continues to have many cultural affinities with the West.

Economy:

Before World War II (1939-1945) the economy of the Philippines was based on the production and export of a narrow range of primary commodities, mainly agricultural and forest products. The Supreme Court of the United States ruled in the early 20th century that Philippine goods could enter the American market without tariff restraints. In the trade that followed, the United States imported Philippine agricultural goods and provided the Philippines with most manufactured items. The Philippines had virtually no manufacturing other than the processing of food products, primarily for the United States market.

After independence in 1946, the Philippines initially remained dependent on free-trade access to United States markets for its agricultural commodities, especially sugar. Government restrictions on import spending spurred an increase in manufacturing for the domestic market. During the 1950s the Philippines tried to become an industrialized nation. In the long term, however, protectionist economic policies provided little incentive for the development of labor-intensive export manufacturing. In the 1970s the government implemented a policy to encourage export manufactures and foreign investment, and the rate of economic growth accelerated. The country’s foreign debt rose dramatically, however, and by the mid-1970s the country faced problems meeting payments on its international loans. This problem was compounded by a worldwide recession in the early 1980s. The recession resulted in less demand for Philippine manufactures, and the economy moved into a deep recession in the mid-1980s.

At this time the Philippine economy also suffered from more than a decade of economic mismanagement under President Ferdinand Marcos, who ruled by decree after declaring martial law in 1972. Under Marcos the government greatly expanded the number of public-sector enterprises. Government-mandated monopolies were set up in various sectors, while subsidies and special privileges were awarded to close associates of Marcos. This concentration of ownership and control among the president’s closest business associates, friends, and relatives became known as crony capitalism. The system allowed for rampant corruption. During the economic recession of the 1980s, many of the crony enterprises experienced severe financial difficulties. This in turn undermined the viability of the big government-owned banks and led to an economic crisis.

Major structural reforms implemented during succeeding government administrations dismantled the monopolies and promoted privatization. Measures to stabilize the economy involved compliance with a severe austerity program of the International Monetary Fund (IMF). Economic reforms reduced government intervention in the economy and stimulated the private sector. By the mid-1990s the Philippine economy had largely recovered and was experiencing steady growth. It contracted much less dramatically than other Asian countries from the regional financial crisis of 1997. It was also slower to rebound, however, due to drought conditions that caused a sharp fall in agricultural output in 1998. The modest pace of economic recovery was adversely affected by corruption in government and a global economic downturn in the early 2000s that reduced demand for Philippine manufactures by the country’s two largest trading partners, the United States and Japan.

In the early 2000s the government was pursuing economic reforms to help the Philippines match the pace of development in the so-called newly industrialized economies of East Asia. The strategy includes improving infrastructure, revamping the tax system to increase government revenues, promoting further deregulation and privatization of the economy, and expanding trade ties in the region.

The estimated governmental budget in 2005 included revenues of $17.7 billion and expenditures of $14.8 billion. The GDP (purchasing power parity) in 2006 was $449.8 billion.

Labor:

In 2005 the labor force of the Philippines numbered 37.1 million people. Agriculture, forestry, and fishing employed 37 percent of the labor force; manufacturing, construction, and mining, 15 percent; and services, 48 percent. The unemployment rate was 9.8 percent in 2001.

Employment opportunities associated with the modern economy, mostly services and manufacturing, are concentrated in a few urban centers, especially the Manila metropolitan area. The country’s high rate of population growth results in large additions to the labor force each year in an economy with a high rate of unemployment and even higher underemployment. The shortage of employment opportunities has resulted in large-scale migrations of Filipino workers, both sophisticated professionals and unskilled workers, to countries such as the United States and Malaysia. Approximately 6 million Filipinos work abroad. Many of them send a portion of their earnings to relatives in the Philippines, infusing the economy with a significant source of foreign exchange. The migration of vitally needed professionals has created a serious “brain drain” in the Philippines.

The Trade Union Congress of the Philippines (TUCP) is the largest union body in the Philippines, with about 1.5 million members and 39 affiliated labor and trade unions. In the late 1990s the Philippines had more than 8,000 trade unions with a total membership of 3.6 million.

Agriculture, forestry, and fishing:

In 2005 agriculture, forestry, and fishing contributed 14 percent of the GDP. About 19 percent of the total land area of the Philippines is arable, or suitable for cultivation. The most important subsistence crops are rice, corn, cassava, and sweet potatoes. Rice paddies and cornfields occupy about half of the arable land of the Philippines. Coconuts are one of the most important cash crops, and the Philippines is one of the world’s leading exporters of coconut products, including coconut oil and copra (dried coconut). Bananas and pineapples are also important commercial crops, both of which are grown on large plantations owned by multinational companies. Other crops include sugarcane, abaca (Manila hemp), coffee, tobacco, and mangoes. Livestock on farms include carabao (water buffalo), cattle, chickens, goats, horses, and hogs. Many farmers are tenants, who rent the land and pay the landowner a share of the crop. Other farmworkers include seasonal migrant laborers.

Sugar was the most important agricultural export of the Philippines from the mid-1800s to the mid-1970s. Much of the modernization of the country took place to facilitate the processing and transport of this export crop. For many years, the Philippines had access to a protected and subsidized U.S. market for its sugar. The decline of the sugar industry involved many factors, including the expiration of a U.S. quota system on sugar imports in 1974 followed by a sharp decline in world sugar prices.

Hardwood trees such as mahogany were once one of the country’s most valuable resources, but now this resource is severely depleted. The government banned the export of unprocessed hardwood logs in 1986 in an effort to stimulate domestic processing of raw lumber into finished products. Initially this policy was successful, and products such as wood veneer became important exports. However, illegal logging and unsuccessful reforestation programs depleted the hardwood forests, and output from lumber-processing industries declined. Other forestry industries remain viable because their products are based on more easily renewable sources than hardwood, such as bamboo, rattan, and the ceiba (kapok) tree. Bamboo and rattan are used in making furniture, baskets, floor mats, and other household goods. The ceiba tree, also known as the silk-cotton tree, is cultivated and harvested for its fiber, which is used in the manufacture of finished goods such as insulation and upholstery.

Fishing is an important industry in the Philippines. The average annual fish catch exceeds 2 million metric tons. Nearly half of the total catch is made by municipal and subsistence fishers who operate small boats in shallow coastal waters. The surrounding and inland seas of the Philippines yield crab, sardines, anchovies, tuna, scad, and mackerel. Shrimp, milkfish, and tilapia are raised in artificially created fishponds, in the fish-farming industry known as aquaculture. Much of the total catch is for domestic consumption, and about half of the protein in the Philippine diet comes from fish and other seafood. Shrimp and prawn exports to Japan are a significant source of foreign exchange. The pollution of coastal and inland waters and depletion of fish populations through overfishing have reduced the fishing sector’s productivity in some areas of the Philippines.

Mining:

The Philippines has extensive deposits of valuable metallic and mineral ores, including copper, gold, silver, chromium, lead, and nickel. Copper is the country’s leading mineral product. In 2004 the Philippines produced 6,000 metric tons of copper. The mining industry grew rapidly in the 1970s in response to government initiatives. In the mid-1980s, however, output in the metallic sector entered an overall decline as world prices for metals weakened. The nonmetallic sector, meanwhile, was stimulated by a rising domestic demand for coal. The country’s plentiful coal deposits were explored as an alternative to costly petroleum imports, and the mining of coal increased substantially after 1979. In 2003 the Philippines produced 2.03 million metric tons of coal.

Manufacturing:

In 2005 manufacturing contributed 23 percent of the GDP. The manufacturing sector accounts for a larger share of national income than agriculture, fishing, and forestry combined. However, more people are employed in those traditional sectors than in manufacturing. Since the mid-1950s, manufacturing has not substantially increased its share of either output or employment.

The manufacturing sector expanded significantly during the post-World War II reconstruction of the Philippine economy. Government controls on imports promoted the development of light industries that produced consumer goods for the domestic market. In the 1970s the government created four special economic zones designed to stimulate manufacturing for the export market. Industries in these export-processing zones receive incentives to produce nontraditional (mainly nonagricultural) exports. The zones have helped to stimulate foreign investment in the Philippine economy, in part because they are exempt from certain taxes and restrictions on foreign ownership of businesses. The success of these zones has led to the creation of other types of special economic zones, such as large industrial estates. Businesses receive tax exemptions and other incentives in these zones. The former U.S. naval base at Subic Bay, for example, is now a huge industrial-commercial zone known as the Subic Bay Metropolitan Area (SBMA). Its modern port facilities and duty-free economic zone have attracted new export-focused industries and foreign investment. The Philippines has some heavy industries, including a copper smelter-refinery and chemical and fertilizer plants. They were built under a government-funded industrial-development program and were in operation by the early 1980s.

Nondurable goods such as processed food, textiles, and tobacco products make up the largest percentage of manufacturing output. Other major products include refined petroleum, chemicals, construction materials, and clothing. The Philippines has increased its production of durable items, especially electrical and electronic equipment and components, nonelectrical machinery, transport equipment, and furniture. The manufacture of electronic items, especially computer components such as microchips and circuit boards, increased substantially in the 1990s for the export market, constituting 62 percent of all exports in 1999. The Philippine economy was therefore affected by the worldwide slump in demand for these items in the early 2000s.

Services:

In 2005 services contributed 53.4 percent of the GDP. The services sector includes transportation, wholesale and retail trade, the hospitality and tourism industries, currency and banking, and foreign trade. Skilled Filipino labor has prompted some multinational companies to set up service operations in the country to serve consumers in Europe and the United States.

Currency and Banking:

The unit of currency is the Philippine peso, which is divided into 100 centavos (55.10 pesos equal U.S.$1; 2005 average). The Bangko Sentral ng Pilipinas (Central Bank of the Philippines) serves as the country’s monetary authority. It has sole control of the credit and monetary supply. Other financial institutions include commercial banks and private development banks. The country’s largest commercial bank is the Philippine National Bank. The banking industry includes domestically owned banks as well as a limited number of foreign banks. The Philippine Stock Exchange is located in Makati, a suburb of Manila.

Foreign Trade:

In 2003 imports to the Philippines totaled $39.5 billion, while exports reached $36.2 billion. Import quotas were eliminated in the early 1980s, and tariffs on imports were substantially reduced in the 1990s. The leading imports are petroleum, machinery, transportation equipment, metals, chemicals, foodstuffs, and textiles. In 1999 manufactured products constituted nearly 90 percent of Philippine exports. The main exports are electrical and electronic components, textiles, coconut products, and fish. Principal purchasers of the country’s exports are the United States, Japan, Singapore, The Netherlands, Hong Kong, Germany, and Thailand; leading sources of imports are Japan, the United States, Singapore, Saudi Arabia, South Korea, Germany, and Malaysia. The country is a member of the Association of Southeast Asian Nations (ASEAN), a regional trade organization.

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