V.

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. Gross domestic product (GDP) in 2005 was $99 billion, or $1,192.30 per person.

A.

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.

B.

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.

C.

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.

D.

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.

E.

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.

E.1.

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.

E.2.

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.

F.

Infrastructure

The infrastructure of the Philippines is inadequate for the economic development sought by the government, international agencies, and multinational corporations. Some large-scale improvements were made in the past to the country’s schools, health centers, bridges, roads, and irrigation works. However, government investment in infrastructure has not kept pace with population growth and modern technologies. Roads remain unpaved in most rural areas. Cities lack sufficient public transportation, garbage collection, energy resources, potable water, and sewerage treatment. Resources for infrastructure-development projects are often limited because of the country’s huge payments on its foreign debt.

G.

Energy

Since the early 1970s the Philippines has developed a variety of domestic energy resources, including geothermal resources, hydroelectric power, offshore oil reserves, and coal fields. Increased production of domestic energy reduced the country’s dependence on imported petroleum from 95 percent of the energy supply in 1973 to about half that amount by the end of the century.

Offshore exploration for oil reserves was spurred by sharp increases in international petroleum prices in 1973 and 1979. Oil was discovered near the island of Palawan in 1976, and commercial production began in 1979. The domestic oil wells produce relatively insignificant amounts of crude petroleum, however, and the Philippines must import most of the petroleum it consumes. A natural-gas field off western Palawan was estimated to contain abundant reserves and held promise for future production. The major potential of undersea fields in the South China Sea is diminished by competing claims from China, Vietnam, and Malaysia. In addition to petroleum and natural gas, fossil-fuel plants utilize the country’s coal resources. However, the coal is of generally poor quality for electricity production. Thermal plants utilizing fuels such as coal and oil generated 61 percent of the country’s electricity in 1999.

The Philippine government has also pursued the development of alternative sources of energy. The Philippines has significant geothermal resources. The country’s installed capacity for geothermal power is exceeded only by the United States, and most of its geothermal resources remain unexploited. Geothermal, solar, and wind sources generated 20 percent of the country’s electricity in 2003. Hydroelectric sources generated 16 percent.

In 1990 a shortage in electricity-generating capacity on Luzon resulted in frequent power outages in the Manila metropolitan area. This threatened the stability of the country’s economy because many important industries are concentrated in this area. The government of President Fidel Ramos managed to construct new fossil-fuel plants to meet the burgeoning demand for electricity. Construction of a nuclear power plant on the Bataan Peninsula, on Luzon Island west of Manila, was never completed because the plant’s location on seismic fault lines was deemed a hazard to public safety. Accelerating economic and population growth in the Manila region continues to put pressure on the energy supply.

H.

Transportation

Despite the difficult terrain, the Philippines has an extensive road system; however, only about 10 percent of roads are paved. The Pan-Philippine Highway, also called the Maharlika Highway, is a system of roads, bridges, and ferries that connects the islands of Luzon, Samar, Leyte, and Mindanao. The rail system, concentrated on Luzon, is limited. A light-rail transit system known as Metrorail was opened in Manila in 1985 to help reduce traffic congestion. The national air carrier is Philippine Airlines (PAL). The country’s international airports are Ninoy Aquino International Airport in Manila and Mactan International Airport near the city of Cebu. Subic Bay International Airport, near Manila, serves international commercial flights as well as domestic passenger flights. The country has many seaports, the busiest at Manila, Davao, Cebu, Iloilo, and Zamboanga.

I.

Communications

The Philippines has 47 daily newspapers. Many are published in Manila in both Filipino and English. The Manila Bulletin, founded in 1900, is the longest-running daily newspaper. Other large-circulation dailies include Abante, People Tonight, Ang Pilipino Ngayon, Philippine Daily Inquirer, and Tempo. Some regional publications are written in local languages, including Ilocano, Hiligaynon, and Cebuano. The official Islamic news journal is The Voice of Islam, founded in 1973 and published in Davao. Freedom of the press is guaranteed under the constitution. The country has an extensive broadcasting system, with hundreds of radio stations and several national television networks.