Oct 282014

Reference ID Created Released Classification Origin
2009-04-24 07:12
2011-08-30 01:44
Embassy Manila


DE RUEHML #0877/01 1140712
O 240712Z APR 09




E.O. 12958: N/A


¶1. (SBU) SUMMARY: Welcome to the Philippines! The United States
and the Philippines have a deep and abiding relationship resulting
from the country’s half century as a U.S. territory and
commonwealth. Many features of the Philippine government are
modeled on that of the U.S., and close ties exist in trade and
immigration. The more than four million Filipino-Americans
constitute the largest Asian ethnicity in the United States, while
some 250,000 U.S. citizens reside in the Philippines. Reflecting
this important relationship, the U.S. Embassy in Manila is one of
the world’s largest.

¶2. (SBU) You are coming at an interesting and challenging time.
Increased food prices and the global financial crisis have affected
the economy, increasing poverty and straining social infrastructure.
However, a consensus remains that the relatively less globally
integrated Philippine economy will weather the crisis better than
many of its neighbors. The political situation remains stable. The
government has responded to the crisis mainly through monetary
easing, measured fiscal expansion, more aggressive employment
promotion efforts, and targeted assistance to affected sectors. We
have not seen severe pressure thus far for the government to respond
with new protectionist measures. However, with the approach of
national elections in May 2010, it may prove difficult to further
open the economy, expand revenues, and boost competitiveness. END

The Economy in Brief

¶3. (U) The United States is the Philippines’ largest trading
partner, with over $18 billion in two-way merchandise trade in 2008.
Major U.S. exports include electronics and agricultural products.
The U.S. is also one of the largest investors here, with over $6.6
billion in equity. The Philippine economy grew by 7.3 percent in
2007, the fastest pace of growth in over three decades, but slowed
to 4.3 percent in 2008, and will further slow in 2009. However, a
resilient service sector (particularly a booming Business Process
Outsourcing industry) and strong remittances from overseas workers
(expected to again hit $16 billion in 2009, equivalent to more than
10 percent of Philippine GDP).

¶4. (U) There has been limited progress over the past decade in
reducing poverty and addressing the inequitable distribution of
incomes. Poverty increased between 2003 and 2006 to engulf over a
third of the population. Socioeconomic development in the
Philippines is uneven, and poverty is characterized by wide
disparities across regions and populations, even during periods of
high economic growth, and is especially severe in rural areas. Most
of the lagging regions and provinces are in Mindanao, while the
frontrunners are on the island of Luzon. While Mindanao features
some of the country’s more progressive cities and municipalities,
human development indices of some of Mindanao’s most depressed
provinces approximate the world’s poorest countries (such as Ghana,
Sudan, and Zimbabwe).

The Political Situation

¶5. (SBU) Then-Vice-President Gloria Macapagal Arroyo assumed the
presidency in 2001 after a “people power” movement swept out her
predecessor Joseph Estrada, and then in 2004 she was elected in her
own right to a full six-year presidential term. Arroyo is a
tenacious leader who has faced a series of challenges to her rule,
including unsuccessful impeachment efforts and low-level military
coup attempts. National elections will be held in May 2010, and
although candidates cannot officially declare until November 30,
2009, the campaign is already under way, with many national figures
jockeying for position.

Peace Process on Hold

¶6. (SBU) Although peace talks with separatist Moro Islamic
Liberation Front (MILF) insurgents have remained stalled since
fighting broke out in August 2008, government and MILF negotiators
are pursuing discussions to create a new framework for resuming
peace talks. Earlier this year, President Arroyo publicly stated
that 2009 would be a “comeback year for peace” and that she would
emphasize to all stakeholders that a robust peace process between
the Philippine government and the MILF would encourage stability in
the region and enhance economic development.

Main Transportation Issues

¶7. (SBU) The Philippines is an archipelagic state composed of over
7,000 islands. Its principal cities are seaports; 95 percent of the
nation’s cargo is transported via sea. Despite the high demand for
maritime transport, the Philippines’ domestic shipping industry is
small and uncompetitive, and is hobbled by restrictive maritime
policies and inflexible financial regulations. Since 2003, the
“roll-on, roll-off” (“Ro-Ro”) network of terminals, feeder roads,
and commercial routes has helped improve inter-island transport and
reduce costs of domestic transportation. Low levels of spending on
transport infrastructure through the years has negatively affected
Philippine competiveness. Based on the World Economic Forum’s 2006
competitiveness rankings of basic infrastructure, the Philippines
placed 89th out of 102 countries surveyed.

¶8. (SBU) Civil Aviation Safety: The Philippines was downgraded to
“Category 2” by the Federal Aviation Administration (FAA) in
December 2007. Since then, the Philippines has passed a civil
aviation law and established a financially independent Civil
Aviation Authority of the Philippines (CAAP). The FAA developed an
Action Plan to rectify the aviation safety rating, and will conduct
another audit after the plan is implemented. The International
Civil Aviation Organization (ICAO) is working with the CAAP to
prepare for the next ICAO audit in October 2009.

¶9. (SBU) Liberalization of Civil Aviation: Powerful vested
interests have, until recently, kept the Philippines from
liberalizing air services policies. Only in recent years has
pressure from Philippine business coalitions started to force
liberalization of civil aviation. Following a ten year period
(1997-2006) during which the Philippines averaged only one bilateral
agreement per year, the government has signed seventeen bilateral
air service agreements and three air transportation agreements with
ASEAN countries since 2007, paving the way to a unified ASEAN market
by 2015.

Human Rights Issues

¶10. (SBU) President Arroyo has consistently expressed her
commitment to resolving the complex problem of extra-judicial
killings and has taken several steps in this direction. While many
of these deaths and disappearances are more likely attributable to
local disputes than to military or police action, it is clear that
the government needs to do more to ensure that these crimes are
fully investigated and that responsible parties — whether or not
they are connected to the military or police — are brought to
justice. The problem is closely related to a judicial system which
is inefficient and strained beyond its capacity. Problems such as
violence against women, abuse of children, child prostitution, child
labor, trafficking in persons, and ineffective enforcement of worker
rights are also common.

Development Challenges

¶11. (U) Economic development is a key U.S. objective in the
Philippines. Development entails key cross-cutting issues,
principally: addressing wide disparities across regions; curbing
high population growth; improving agricultural productivity;
accelerating implementation of basic education and health reforms;
boosting infrastructure; harnessing fiscal resources; strengthening
the capacity of local government units; effective law enforcement;
improving the investment climate; promoting transparency and
accountability; addressing peace and security issues; and
strengthening public-private-donor partnerships. President Gloria
Macapagal-Arroyo has repeatedly called for unity and strong
partnerships as the country grapples with global economic challenges
and domestic political concerns with limited resources.




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