Friday, January 13, 2012

Gloria Arroyo's rants and Pnoy's procrastination

Former president Gloria Macapagal-Arroyo's essay on the economy is now circulating online. Titled, "It's the economy student!", Arroyo accused President and her former student at the Ateneo, Benigno S. Aquino III of mismanaging the economy while busy conducting political warfare against his enemies. Arroyo brags that the economy she left behind was in better shape than it is right now. Arroyo tries to reposition herself as the better economic manager than Pnoy.

Well, Arroyo may very well write whatever she thinks and she has the right to do so. It is best however, that Arroyo sticks with the truth.

Let me re-publish here an excerpt from my book, " Bagong Istorya: Great Stories in Philippine History" (available here thru online orders and e-book. to be released in book form very soon). Some of us have very short memories, and that's the reason why I'm writing this history book and is not publishing it just yet because of the changing socio-political environment. 

Having said that, here is the rendering of History on the previous dispensation.

The Inherited Malady

Last June 30, 2010, the new administration led by president-elect Benigno Simeon Aquino III inherited a bankrupt government. For the next six months of 2010, Aquino and his new Cabinet will try to figure out how to lift the country from the state of rut it has been for over nine years. They will make do with a 1.514 trillion peso budget, enough to tide the country thru this year, and surely insufficient to really address the centuries-old problems of this country of 96 million. This enacted budget will whittle the Philippine budget deficit to 132 billion php or 1.5% of the Gross Domestic Product (GDP). [i]

Aquino inherits a country with a 32.9% poverty incidence, one of the highest in the Asian region. [ii] Aquino will have to at least improve the lives of 17.4 million impoverished families who live off below 15,000 pesos every year. Poverty is high among families living in the country’s 7,100 islands. Only the National Capital Region (NCR) and portions of Region 4 have registered a higher than average incomes. The rest of the regions remain impoverished especially in the Visayas and Mindanao provinces.

Poverty reduction is one of the priority programs of the Philippine government regardless of administration yet, according to one study, these programs only accounted for about 0.4% improvement. Government generates revenues of 12,446,896,860 php (Bureau of Trade) but spends about 121,869,160,726(millions) or a balance deficit of about 259,963,866 (millions) php. External financing accounts for 133,431,854,000,000 php while domestic financing accounts generate  393,332,012,000,000 php.[iii]

After nine years under the administration of Mrs. Gloria Macapagal-Arroyo, the quality of life has significantly deteriorated especially in the urban areas. More Filipinos are poorer now than before and enjoyed less freedom. The reason is the worsening state of our democratic and governmental institutions.

Governance, the key motor for the improvement of our quality of life, has been neglected. Institutions of governance have significantly deteriorated, burdened by the weight of cronyism, graft and corruption and lack of concrete policy direction. Since 2000, the ranking of the Philippine government in terms of governance has steadily decreased. The World Bank gave the Philippine government a negative 0.50% rating in terms of governance.

Several analysts blamed a defective political system for government’s inability to provide basic services. In 2005, Philippine president Gloria Macapagal-Arroyo called on systemic changes in the political system in the Philippines. Arroyo identified certain “systemic flaws” which reportedly causes dysfunctionalism in government’s dispensation of basic services.

Political analysts, however, credits Arroyo’s underperformance as the main source of the dysfunctionalism. Arroyo’s personality style in governance has been identified as the leading cause of the deterioration of governmental and political institutions.

To further develop the nation, transformative tools should be used.

Unfulfilled Vision

In her State of the Nation address in 2001, shortly after the tumultuous EDSA Dos coup d’├ętat, President Gloria Macapagal-Arroyo laid down her vision for the country.  In her speech, Mrs. Arroyo recognized that her role as president is to adequately solve the five (5) basic needs of the Filipino.  Let me quote from her 2001 speech:

Napakalinaw, napakasimple ang hiling ng mga anak ng Payatas: Trabaho, edukasyon, sariling tahanan. Idagdag na rin: Pagkain sa bawat mesa. Ito ang mithiin ng masa.

And this, in common sense and plain talk, is the core of my vision.

A vision for the future must be rooted in the past.

A revolution gave birth to the first Republic in Asia.[1]

Years later, Mrs. Arroyo gave flesh to her vision by announcing the birth of a Strong Republic in 2002, which she describes as a government fighting the evils of underdevelopment. Yet, after three more years, in 2005, Mrs. Arroyo later admitted that change cannot happen under what she termed as a “political degenerated” system.  She said, and I quote:

“...political system has degenerated; people want a government that works.... the system needs fundamental change—the sooner, the better time to take the power from the center to the countrysides.”

What led Mrs. Arroyo to conclude that it is the system that hinders growth rather than promote it? 

Quality of life has greatly decreased in the Philippines over the past ten years. The risk of living in the Philippines has increased due to rampant violence and the inability of the present administration to effectively implement the laws. At the start, the administration envisioned a “Strong Republic”, predicated on effecting a firm hold or rein in the functions of governance. 

This report assesses the Philippines in terms of three (3) variables: global competitiveness, governance and security.

Investors see the Philippines as a “low cost, but higher risk” country. It means it is cheaper to do business in the Philippines compared with other Asian countries but the risk is definitely higher than others.  Meta Group Incorporated defined that risk as political. The Philippines, says MetaGroup, is second largest IT outsourcing hub, but political instability is affecting competitiveness.[2]  Since 2003, the global competitiveness of the Philippines has seen good and better days due to rampant graft and corruption, worsening peace and order situation and political instability.[3]

The World Economic Forum’s “The Global Competitiveness Report, 2008-2009” ranked the Philippines in 74th place, lower than its neighbor Indonesia (58th) and Vietnam (73rd). Compared to Malaysia (24th place) and Singapore (8th), our country lags behind in terms of competitiveness. [4]

The latest Global Competitiveness report shows a further decline in the ranking of the Philippines. Our country is now at 85th place, even lower than Trinidad-Tobago. Vietnam is ranked well above us.

Global competitiveness is affected by poor governance. In the World Bank’s Governance Index, the Philippines performed poorly in governance, registering a negative 0.59% since 1998 to 2008, well below Indonesia’s (-0.14%). There is a high incidence of political violence (negative 1.41%, down to about negative 1.25% since 1998) compared with other countries in the region.

Governance has been largely affected by perceptions of rampant graft and corruption and crony practices. A survey of 1,400 business leaders carried out by Economic Risk Consultancy Ltd, a Hong Kong based company, found that the Philippines was considered the most corrupt of the 13 Asian economies, followed by Thailand, China, and Indonesia. The Philippines is separately ranked number 131 out of 179 countries by corruption watchdog Transparency International in its 2007 report, placing it on a par with Libya and Burundi.[5]

Global Integrity Report (2008) has this to say about the Philippines:

Despite some impressive world-class anti-corruption safeguards, such as formal "cooling-off" employment periods for senior officials leaving government, the Philippines remains challenged by the lack of a formal access to information regime and an election system that breeds cronyism and corruption in the political process. Improvements in the transparency surrounding government procurement remain promising, and civil society groups continue to play an important role in the debate around governance reforms. Restrictions on financial donations to candidates and parties from those with business before the government are an interesting and rare regulation internationally.[6]

In terms of peace and order, the Global Peace Index places the Philippines in 114th place with a score of 2.357[7], suggesting a higher incidence of political and non-political violence outbreaks in the Philippines compared with its neighbors in Asia.

According to the World Economic Forum Executive Opinion survey, the top five issues which the Philippines needs to address are the following: corruption, inefficient bureaucracy, inadequate infrastructure, crime and theft and policy instability. Furthermore, the Philippines needs to address irregular payments in public contracts, prevalence of illegal political donations and the rising business costs of terrorism.

Quality of Life in the Philippines

Good governance is basically anchored on giving the best quality of life for its citizens. Political scientist Henry Poole described government’s importance as the people’s medium to achieve a higher quality of life. He wrote that the quality of life is strongly correlated with open governments. As government opens more avenues for the exercise of basic rights and freedoms, it leads to a higher the quality of life for its citizens.

“Open government answers injustice rather than causing it. Open government exposes, and so corrects, corruption. “[8]

So, now, how do we then assess the present administration, whether this government performed at par with the people’s expectations or not. In assessing a government’s performance in terms of Quality of life, we then use the Economist Intelligence Unit (EIU) Quality of Life Index. The index lists nine (9) determinants or “quality-of-life” factors, namely:

1.       Material well-being (GDP per person at ppp in $ source: EIU)
2.       Health (life expectancy at birth years)
3.       Political Stability and security ratings
4.       Family life (divorce rate per 1,000 population converted into index: Euromonitor)
5.       Community Life source: World Values Survey
6.       Climate and geography source: World Factbook
7.       Job Security (unemployment rate: EIU, ILO)
8.       Political Freedom (ave. of indices of political and civil liberties)
9.       Gender Equality (source: UNDP Human Development Report)

Material well-being

Average annual family income tempered by increasing expenditures. Average annual family income now stands at P 173,000.00, 16.8% higher than the 2003 estimated average of P 148,000.00. This however is tempered by a higher average family expenditure which now stands at P 147,000.00, 18.5% higher than the 124,000.00 php in 2003.[9] Meaning, the average annual family income is valued only at P 125,000.00 factoring in inflation from 2000-2006.

Highest 20% controls 51% of total wealth. UNICEF reports that the lowest 40% of the Philippine population share only 15% of overall national household income 1995–2005, while the highest 20% has 51% share of total national income. [10]

Growth in the Per Capita Gross Domestic Product (GDP) has registered a negative 1.5% from 3,707 in 2008 to 3,652 in the first quarter of 2009. Government analysts say economic growth in the Philippines is expected to teeter to 0.4% by year’s end.[11]


Based on UNICEF findings, average life expectancy in the Philippines improved from 63 in 1998 to 72 in 2007.

 Under 5 mortality rank
Under 5 mortality rate, 2007
Infant mortality rate (under 1), 1990
Infant mortality rate (under 1), 2007
Neonatal mortality rate, 2004
Annual no. Of births (000), 2007
GNI per capita (US$), 2007
Life expectancy at birth (years), 2007
Though there is a considerable improvement in the general health of the people, total health related expenditure also increased considerably. The results of the 2005 Philippine National Health Accounts[12] reveal the following:
  • Total health expenditure up by 9.4 percent in 2005
The total health expenditure in the country went up by 9.4 percent in 2005, from P165.3 billion in 2004 to P180.8 billion in 2005.  This could largely be attributed to the increase in health benefit payments from social insurance, such as the Employees’ Compensation and the Phil Health. Compared with the previous year, the growth in 2005 was slower than the 11.9 percent increase in 2004.  
  • Per capita health spending increases
With the total health expenditure growing faster than the population, per capita health spending went up by P142, from P1, 978 in 2004 to P2, 120 in 2005 or a 7.2 percent increase.
  • Share of health expenditure to GDP goes down
The share of health expenditure to GDP was lower at 3.3 percent in 2005 compared to previous year’s 3.4 percent.  It is still below the 5 percent standard set by the World Health Organization (WHO) for developing countries.  On the other hand, the share of health expenditure to GNP remained at 3.1 percent which is within the National Objectives for Health (NOH) target of 3-4 percent.
  • Health benefit payments from social insurance exhibit the highest growth
Health benefit payments from social insurance showed the highest growth rate at 24.9 percent or a P4.0 billion increase in 2005.  This resulted from the big hike in payments from Employees' Compensation at 42.4 percent and Phil Health at 24.4 percent.
  • Government health spending remains far from the HSRA  target
The share of government on health expenditure declined to 29 percent which is below the target of 40 percent based on the Health Sector Reform Agenda (HSRA). Also, the government's target to depend less on out-of-pocket payments and provide more social health insurance is still far from being realized as the share of out-of-pocket payments even increased to 49 percent while the share of social insurance payments increased only slightly to 11 percent in 2005.  Based on the HSRA, the target for out-of-pocket is 20 percent while the target for social insurance is 30 percent.  

Political Stability and security ratings
Global Peace Index places the Philippines in 114th place with a score of 2.357[13], suggesting a higher incidence of political and non-political violence outbreaks in the Philippines compared with its neighbors in Asia. Global Security.Org attributes this to the weakening of the Philippines’ capability of addressing threats posed by insurgent, criminal and terrorist groups. Instability is described in the Philippines by global security agencies as a “way of life” in the Philippines. [14]

Philippines is considered a terrorist haven. Security researcher Preeti Bhattacharji of the Council on Foreign Relations in his article last June 1, 2009 sums up the security threats that the Philippines now faces:

The U.S. State Department has considered the southern Philippines a "terrorist safe haven" since the classification was created in 2006. According to the State Department's 2008 report, the Philippine government has little control in the Sulu archipelago and the island of Mindanao. The government has also had trouble combating resentment among the local Muslim minority regarding policies of the central government. As a result, the Philippines is home to a number of militant groups, including the Abu Sayyaf Group, the Communist Party of the Philippines/New People’s Army, Jemaah Islamiyah, the Alex Boncayao Brigade, the Pentagon Gang, the Moro National Liberation Front (MNLF), and the Moro Islamic Liberation Front (MILF). These groups have conducted over one-hundred attacks within the Philippines since 2004, the largest of which was a ferry bombing that killed 130 people. The Philippine government has taken significant steps to combat terrorism, but terrorists continue to use the country as a base to organize, raise funds, train, and operate.[15]

The Bureau of East Asian and Pacific Affairs of the US State Department 2009 report describes the security threats against the Philippines as thus:

The government continues to face threats from terrorist groups, including three terrorist groups on the U.S. Government's Foreign Terrorist Organization list. The terrorist Abu Sayyaf Group (ASG), which gained international notoriety with its kidnappings of foreign tourists in the southern islands, remains a major problem for the government, along with members of the Indonesian-based Jemaah Islamiyah (JI). Efforts to track down and interdict ASG and JI members have met with some success, especially in Basilan and Jolo, where U.S. troops provide counter terrorism assistance and training to Philippine soldiers, along with conducting humanitarian activities. In August 2006, the Armed Forces of the Philippines began a major offensive against ASG and JI on the island of Jolo. This offensive was successful and resulted in the deaths of Abu Sayyaf leader Khadafy Janjalani and his deputy, Abu Solaiman. The U.S. Government provided rewards to Philippine citizens whose information led to these deaths in the military operations, as well as to many other operations against terrorist leaders. The broad-based efforts to weaken terrorist organizations resulted in the death or capture of over 200 terrorists in 2007 and 2008.

An international monitoring team continues to watch over a cease-fire agreement between the government and the separatist Moro Islamic Liberation Front (MILF). In June 2003, the MILF issued a formal renunciation of terrorism. In August 2008, during peace talks mediated by the Government of Malaysia, the Philippine Government and the MILF reached agreement in principle on a territorial agreement. However, intervention by the Philippine Supreme Court, and its subsequent October 14 ruling that the draft agreement was unconstitutional, have forced both parties to seek new ways to reach a peace agreement. Fighting flared up after the agreement was struck down in court and has continued sporadically in central Mindanao.[16]  Terrorist organizations: Abu Sayyaf Group (ASG)[17]

External Threats

The Philippines renounces war as an instrument of national policy and adopts the generally-accepted principles of international law. There are no active external threats against the Philippine state.

The US State department, however, cautioned the Philippines and its allies against possible aggressive actions from the Chinese in relation to the Spratlys issue. Global Security considers the Spratlys as a possible flashpoint between contending claimants, including the Philippines.[18]

China remains as a strong ally yet a potential bully of the Philippines. In recent years, China’s active campaign to claim the Spratlys as part of their territory has affected China-Philippine relations. China’s warships guard the waters off Spratlys, which is seen as an offensive gesture by the Philippine government.

Philippine foreign affairs secretary Alberto del Rosario went to the Pentagon in the first quarter of 2011 and met State secretary Hillary Clinton. In that historic meeting, Clinton reiterated the United State’s commitment towards Philippine defense and assured the Philippine government of continued cooperation. This cooperation involves the sale of sophisticated weaponry, including small arms, ships, cruisers and helicopters.

Before he left to China, Aquino inaugurated the warship General del Pilar. This is the first Hamilton class warship of the country. The Aquino administration plans to strengthen and modernize its defense forces.

Increased threats, increased funding support from US

Jane’s October 2008 Sentinel Security Reports sums up the increase defense spending by the Philippines to contain internal threats.

Following the 11 September 2001 attacks, the Philippines began to receive greater amounts of US military aid through the Foreign Military Financing (FMF) and International Military Education and Training (IMET) programs. In January 2007 President Arroyo - in her capacity as former defense secretary - announced a PHP10 billion (USD200 million) defense spending programs that included the purchase of 26 helicopters, inshore craft, radios, infantry weapons and trucks. All of the additional equipment would be earmarked for internal security and counter-insurgency operations. It is unclear to what extent this funding represents 'new money' or is a re-interpretation of the existing budget allocation. The Philippines House of Representatives has approved the government-proposed defense expenditure of PHP56.1 billion for 2008, which is 20 per cent higher than expenditure in 2007. The budget represents 0.9 per cent of gross domestic product and just 4.6 per cent of the total national budget. Defense Secretary Gilbert Teodoro said that the raise is needed to fight insurgency in the south of the country. The Philippines has many defense equipment priorities, which include the upgrading of communications equipment, ground vehicles, infantry weapons, transport and attack helicopter, and fast-attack patrol craft with modern navigation equipment and missile weapon systems. Personnel account for the bulk of the AFP's appropriations, with 73 per cent allotted for salaries, 26 per cent for operational expenditure and 1 per cent for capital outlay. The army gets 54 per cent of the allocation, the navy 19 per cent, the air force 17 per cent with the 10% designated to the intelligence agencies.[19]

Crime Incidence

Crime Incidence increased by 115.6 per 100,000 population (2007 figures), compared with 81.9 in 2006. Index crimes increased by 65.5 (2007) from 47.8, while non-index crimes almost doubled from its 34.1 (2006) to 50.1[20]

Family Life

In 2005, the number of marriages in the Philippines decreased from 582,281 to only about 518,595. This has been attributed to economic factors. Quite a number of Filipinos are not entering into matrimony due to the high costs of having a wedding ceremony.

Community Life

Global rates of “happiness” have been steadily decreasing since 1945, with the exception of peoples living in the Netherlands, South Korea and Japan. While the rates of happiness in China registered the lowest. [21]

According to the World Database of Happiness, Filipinos are moderately happy. [22]As a whole, Filipinos rates their life on the 6.84 mean out of 10, a few notches above the global average. The Philippines leads other nations with an average mean of happiness score of 6.3.[23]  The ranking is higher than South Korea and India. The country is ranked 54-55th place, lower than Peru, yet higher than those living in Portugal, Russia and South Korea.

Climate and geography source

The Philippines is considered to be one of the world’s disaster-prone countries. According to the Belgian think tank, the Center for Research and Epidemiology of Disasters, the Philippines is the most disaster prone country in the world. It is known for its Mount Pinatubo eruption, disastrous typhoons, floods, garbage and landslides in Metro Manila, and for the war in Mindanao. At the end of the International Decade for Natural Disaster Reduction (1990-2000), the Philippines is still at the top of the list of countries hit by disasters, as recorded by the Center for Research and Epidemiology of Disasters (CRED) in Belgium. These records show that the Philippines was hit by an average of 10 disasters a year since 1991 compared to 8 disasters a year from 1900 to 1991.[24]

Philippines loses P 15B due to disasters. World Health Organization (WHO) regards the Philippines as the most disaster prone area in the Pacific because of its location.[25] Asia, says the Asian Development Bank (ADB) enjoys the unfortunate distinction of the region frequently visited by hurricanes and cyclones.  Fifty six percent of the world’s strongest typhoons, cyclones and hurricanes all happen in Asia. Because of this, the World Bank estimates that the Philippines loses P 15 billion a year due to natural calamities, equivalent to 0.7% of the country’s GDP.[26]

 Job Security

Unemployment rate stands at 7.5%, lower by one percentage points compared to 2008 and 2007 figures. There are about 37.8 Million Filipinos employed in various sectors, posting a 92.5% employment participation rate, lower than in previous years.[27]

The National Capital Region has the highest unemployment rate at 13.5% and the lowest employment participation rate at 86.5%. Aside from NCR, lower than national average unemployment rates were noticed in the Ilocos, Central Luzon, Calabarzon, and Western Visayas.

Fifty percent of the Philippine labor force work in the services sector, particularly in wholesale and retail sectors. Thirty five percent are working as agricultural workers while only 14.5% are working in the industrial and manufacturing sectors.

Job security, however, is being threatened by company shutdowns due to the global and worsening local financial crisis.

Political Freedom

In its February 2009 report, the Bureau of Democracy, Human Rights and Labor of the US State Department decried the alleged continuing violations of civil liberties and political freedoms in the Philippines. Let me quote what it said in its “2008 Human Rights Report: Philippines”:

Arbitrary, unlawful, and extrajudicial killings by elements of the security services and political killings, including killings of journalists, by a variety of actors continued to be major problems. In recent years, following increased domestic and international scrutiny, reforms were undertaken and the number of killings and disappearances dropped dramatically. Concerns about impunity persisted. Members of the security services committed acts of physical and psychological abuse on suspects and detainees, and there were instances of torture. Prisoners awaiting trial and those already convicted were often held under primitive conditions. Disappearances occurred, and arbitrary or warrantless arrests and detentions were common. Trials were delayed, and procedures were prolonged. Corruption was a problem throughout the criminal justice system. Left-wing and human rights activists often were subject to harassment by local security forces. Problems such as violence against women, abuse of children, child prostitution, trafficking in persons, child labor, and ineffective enforcement of worker rights were common. [28]

The situation of human rights, especially on human trafficking is so severe, that the US State department downgraded the status of the Philippines and placed it under Tier 2 Watch list. Tier 2 means that the number of victims of severe forms of trafficking was increasing significantly in the Philippines. [29]The report also noted that the Arroyo government failed to show evidence of progress in convicting human traffickers, particularly those in labor trafficking.

Philippine democracy under a regime of turmoil. Steven Rogers of the Open Democracy Society described democracy in the Philippines as under a regime of turmoil. [30] Arroyo’s failure to provide opportunities for the direct exercise of civil liberties has led to a continuous debilitation of public institutions.

Philippine democracy under extreme decay. Friedrich Stiftung describes democracy and political freedom in the Philippines as under “extreme decay.” The Heritage Foundation meanwhile gave the Philippines a score of 56.9 in its 2008 Index of Economic Freedom. The US think tank described Philippine economic freedom as “moderately unFree” placing the country in 92nd place out of 157 countries in the world.

Partially Free Philippines. The US think tank Freedom House downgraded the status of the Philippines from “free” to “partially free” The institute said that the negative status change was “based on credible allegations of massive electoral fraud, corruption, and the government’s intimidation of elements in the political opposition.”

In its overview of the Philippines in its 2009 Freedom in the World Country reports, the think-tank maintained the current status of the country as “partially free” with a score of 4 out of 10 in political freedom and 3 out of 10 in the civil liberties index due to:

High-level corruption scandals inhibited governance in 2008 and generated significant public opposition to the administration. The number of extrajudicial killings declined during the year, and a new army chief with a pledged commitment to human rights was appointed in June. However, a breakdown of peace negotiations between the government and Muslim insurgents plunged the southern provinces into the worst violence since 2003, with more than 600,000 people displaced from their homes by year’s end.[31]

Bertelsmann, a European think tank, gave the Philippines 4.5 in terms of civil and political liberties, placing the country in the 46th rank out of 132 countries.[32] The Institute for Democracy and Electoral Assistance (IDEA) in its November 2008 assessment report categorized the state of political freedom in the Philippines as “under constant seize”.

The problem, says Cornell University professor Carl A. Trocki of the Southeast Asia program is that Philippine democracy continues to exhibit “cacique-type” behavior.[33] Likewise, political analysts also think that Philippine democracy is “weak” and “infantile”.

In a paper presented to the Conference Democracy and Civil Society in Asia, Joel Rocamora succinctly described the situation as:

The Philippines has the most persistently undemocratic democracy in Asia. Except for the period of dictatorship under Ferdinand Marcos between 1972 and 1986, the Philippines has had a functioning democracy since independence from the United States in 1946. At the same time, a small group of powerful families has dominated politics and kept the economic benefits of power for themselves. Many analysts use the modifier "elite" when referring to Philippine democracy. (Bello and Gershman, 1990)

Effective participation by citizens outside of elections is limited. Unlike Malaysia and Singapore (much more obviously unlike the military dictatorship in Burma) with their Internal Security Acts, the Philippine state does not impose too many formal limits to the self-organization of disadvantaged groups. But a combination of bureaucratic rules and informal means including violence continues to make organizing difficult. Without effective popular pressure, government is generally not accountable.[34]

Governance in the Philippines: A Situationer

The World Bank ranks the Philippines as a failure in governance. Failure of governance has been attributed to graft and corruption, cronyism and inability in providing concrete policy directions.

A confidential Friedrich Stiftung report summarizes the Philippine situation insofar as combating the twin evils of graft and corruption:

“The Philippines faces a steep battle in combating and preventing corruption among elected and unelected office holders and in discouraging officials from utilizing public positions for family and business interests. There is effectively no political party system in the Philippines–no strong and operational political parties to speak of, no discipline among parties with switching commonplace among candidates, and no clear system of accountability neither within the party nor between parties and the public. Prominent is the tendency of public officeholders to exhibit loyalty to families, relatives, and friends even at the expense of compromising the larger public interest.”

Political Challenges

Freedom House described the political situation in the Philippines as worsening due to rampant graft and corruption, cronyism and influence peddling, leading to what German think tank Friedrich Stiftung described as a decaying democracy.

Corruption, cronyism, and influence peddling are rife in business and government. Despite recent economic reforms, a few dozen leading families continue to hold an outsized share of land, corporate wealth, and political power. Local “bosses” often control their respective areas, limiting accountability and encouraging abuses of power. [35]

The Heritage Foundation meanwhile gave the Philippines a score of 56.9 in its 2008 Index of Economic Freedom. The US think tank described Philippine economic freedom as “moderately unFree” placing the country in 92nd place out of 157 countries in the world. Asia Barometer describes Philippine democracy as a “tired democracy”.[36]

Reporters without Borders meanwhile increased the ranking of the Philippines by 14 places (128 out of 169). 

Two popular indices of civil and political rights are Freedom House’s Civil Liberty and Political Right Scores. In 2006, the Philippines scored 3 on both indices, putting it in the league of Cambodia and Thailand in the middle of the 13 East Asian countries and territories covered by the Asian Barometer. Taiwan tops these measures at 1 for both civil liberty and political rights, while China comes in last, scoring 6 and 7 respectively.

Another set of indicators that portray the state of “control of corruption”, “voice and accountability”, “government effectiveness”, and “rule of law” prevailing in a country or territory is provided by the World Bank. In 2006, the Philippines obtained a negative score on “control of corruption” (-0.69), “rule of law” (-.48), and “voice and accountability” (-0.18). It scored close to zero (-0.01) in “government effectiveness”. This puts it in the league of Cambodia, Vietnam, Indonesia, and China as far as having no positive score on each of these measures. The rest of the East Asian bloc – Japan, Hong Kong, Korea, and Taiwan – score positively on all three measures. Mongolia and Thailand have mixed scores.

Philippines Risk Assessment: Political social economic conditions

Gloria Arroyo was inaugurated as president at the end of June 2004, taking up her first electoral mandate since assuming the presidency in 2001 from Joseph Estrada, who was forced from office by massive street protests related to charges of corruption.

Arroyo's efforts to tackle corruption and to focus on economic reform have been undermined by a string of scandals. A year after being elected, her popularity rating had fallen to a record low amid opposition claims that she cheated in the elections. She apologized to the nation for talking to an election official about her hopes for victory in the run-up to the 2004 poll but denied any wrongdoing. Because of continuing allegations of corruption against her administration, political observers say Arroyo's authority will likely remain tenuous. However, she continues to maintain the strong support of the army, and she should be able to see out the remaining year of her term in office.

Arroyo also faced the challenge of delivering on promises to create jobs and to improve living standards. Social and economic reforms introduced during her first term did little to ease poverty or the country's debt burden. She has taken a strong line on law and order and in 2006 lifted a moratorium on the death penalty. She also has allied herself closely with the U.S.-led war on terror.

Arroyo advocates constitutional reform, proposing to swap the country's U.S.-style presidential system for a parliamentary government before the 2010 elections. The existing constitution was adopted to prevent the president from subverting democracy by stealth after the fall of the corrupt dictatorship of Ferdinand Marcos. However, any attempt to change the constitution rouses suspicion that it is the first step back toward dictatorship.

In the May 2007 midterm elections, Arroyo's allies maintained control of the House of Representatives. Observers now believe there is only a remote possibility of another attempt to impeach her. Opposition parties, however, won most of the 12 Senate seats that were contested, giving them a majority in the upper house and the ability to veto key legislation.

Because of budget deficits and widespread corruption, the Philippines recovered from the regional economic crisis of the late 1990s more slowly than other Asian countries. The budget deficit is forecast to widen in 2009, as revenue collection is hurt by lower economic growth and corporate tax cuts. Analysts believe Arroyo's aim to eliminate the budget deficit by 2010 is overly ambitious.

Once self-sufficient in rice, the country has lost nearly half its irrigated land to rapid urban development during the past 20 years. It is now the world's biggest importer of the crop. Recent falling global food and oil prices, together with sluggish domestic demand, are forecast to allow the rate of inflation to slow from 9.6% in 2008 to 4.5% in 2009. Owing to the deepening global financial crisis, growth in gross domestic product is expected to slow from 7.3% in 2007, its fastest rate of growth in 31 years, to 1.9% in 2009.

Political/social/economic conditions

International terrorism

According to international and Filipino intelligence officials, the Philippines in general and Manila in particular are likely targets for future attacks by Jemaah Islamiyah, a terror group blamed for several attacks in Indonesia and believed to be linked to al-Qaida.

In the past two years authorities repeatedly have increased security in Manila amid intelligence reports of possible terrorist attacks against shopping centers and transport systems. As part of the effort to tighten security, some 20,000 police officers have been placed on heightened alert, and 15 checkpoints have been established to guard key sites.

In March 2008, police arrested three suspects with alleged ties to Jemaah Islamiyah and another terrorist group, saying they were part of a plot to bomb the U.S., British, Australian and Israeli embassies in Manila.

Domestic terrorism

The Abu Sayyaf Group, a terrorist organization believed to have links to al-Qaida and Jemaah Islamiyah is widely considered the most violent of several Muslim extremist groups operating in the Philippines and is a major problem for the government. Although intense counterinsurgency operations and many arrests have degraded the group, it has continued to launch attacks, particularly on the southern island of Jolo.

ASG has claimed responsibility for a number of recent attacks. A powerful bomb exploded in May 2008 at a bus terminal in Cotabato city, wounding two men, damaging buses and a nearby business, and sparking panic among commuters. In September 2008, an explosion at the bus terminal in Digos killed six people and injured a further 30.

Some ASG attacks have been directed at travelers. In February 2004, ASG claimed responsibility for a fire on a ferry in which more than 100 people lost their lives.

ASG has also carried out a number of kidnappings for ransom and is currently holding about a dozen mostly national hostages. In January 2009, gunmen abducted three Red Cross aid workers--two Europeans and a Filipina. Two were released in April 2009 and the third, an Italian was freed in July 2009. A Sri Lankan peace activist kidnapped in the same region remains in captivity.

Officials have said that ASG has been plagued by money shortages and apparently carries out kidnappings to raise funds. A number of hostages were taken and later released in 2008 following the payment of large ransoms. The government opposes ransom payment in kidnapping cases, but there's no law that specifically forbids it.

Economic Situationer

Global Source, a highly reputable think tank based in New York, has downgraded its economic growth outlook for the Philippines. In its “recession bound” report, Global Source scaled down its Gross Domestic Product (GDP) forecast of 2.5 percent for the Philippines in 2009 due to the worsening effects of the global economic crisis to the country. It says:

"Given the developments, especially as it is personal consumption spending (which comprises almost 80 percent of GDP) that has surprised most on the downside, our full-year growth forecast of 2.5 percent which we had computed in the beginning of the year no longer appears to be viable and we are inclined to undertake downward revisions in our subsequent reports,"[37]

Last April 2008, the Bangko Sentral ng Pilipinas (BSP) has just cut its forecast average 2009 inflation to 3.5 percent from 3.9 percent[iv], a move, say analysts, of the continued attempts by fiscal authorities to stymie the expected rise of inflation risks, mainly due from the devaluation of the peso in recent months.  This is far from the expected higher than 9.3 percent forecast, which was the aggregate inflation rate.

However, the central bank has previously said while improved inflation expectations had given it room to loosen monetary policy in recent months, potential price pressures warranted a more measured pace of rate easing.

The central bank's 3.5 percent inflation forecast is in the middle of the government's official 2009 inflation target of 2.5 percent to 4.5 percent. Average inflation in 2008 was 9.3 percent -- a 10-year high.

The central bank has predicted inflation likely fell to between 5.9 percent and 6.8 percent in March; its lowest level in a year, as falling energy prices offset the impact of a weak peso.

The Economist Intelligence Unit (EIU) has this to say on the economic situation of the Philippines. EIU forecasts:

·         A wider budget deficit due to a slower economic growth, which will depress tax revenue.

·         The BSP will take into account the direction of movements in economic growth, inflation and exchange rate when determining monetary policy adjustments. The BSP has begun to cut interest rates to stimulate economic growth; falling inflation should allow for further reductions in the cost of borrowing.
Economic growth will average 3.4% per annum starting 2009 to 2013. External demand is likely to be weak as the turmoil afflicting international financial markets translate into a sustained period of slow global economic growth.
·         Inward flows of remittances from Filipino workers overseas are the main contributor to the current-account surplus. These inflows will fall in 2009-10, but will remain large enough to keep the current account in surplus.
·         GDP per head (at market exchange rates) in the Philippines remains low, at an estimated US$1,801 in 2008. It is expected to rise to US$2,172 by 2013, which will modestly increase market opportunities but will still leave average income levels below those of many of the country’s neighbours.

Key indicators
Real GDP growth (%)
Consumer price inflation (ave. %)
Budget balance (% of GDP)
Current-account balance (% of GDP)
Lending rate (av; %)
Exchange rate P:US$ (av)
Exchange rate P:US$ (end-period)

Business Monitor International in its report, “The Philippines Business Forecast Report Q3 2009” (published July 2009) says that the country is still an economic “outperformer” due to concerns of growing budget deficits and the unresolved political crises. 

BMI says weak economic infrastructure and political unrest to affect further growth of the economy. Budget deficit is forecasted to grow 4% per annum starting this year while fiscal policy will continue to be on “expansive mode” to counter the effect of a drawback of external demand and a sharp contraction in capital investment.

The World Bank sees the economy to contract due to the immense weight of the effects of the global recession, contrast to the projection of the ADB which still gave the Philippines a passing mark in terms of economic performance.[38] 

The World Bank stuck to its earlier projection that the Philippine economy would contract 0.5 percent.

On the other hand, Neeraj Jain, ADB country director for the Philippines, said the economy is still seen to post a positive performance, citing the continued remittance growth, improvement in business confidence, and turnaround in key exports.

The inter-agency Development and Budget Coordination Committee (DBCC) has estimated that the Philippine economy will expand between 0.8 and 1.8 percent this year, a huge reduction from the previous forecast of 3.1 percent to 4.1 percent.

Economic managers were forced to reduce the growth targets following the disappointing 0.4-percent economic expansion in the first three months of the year.

The bleak first-quarter economic performance was nothing unusual as the most of the region even suffered worst than the Philippines, the ADB said. The financial body however noted that risks in the Philippine economy include the longer than expected downturn in industrialized countries and further weakening of government revenues.  Non-performing loans of banks may also rise as corporate earnings are seen to decline amid the weak business environment.

The 0.8-percent personal consumption expenditure recorded in the first quarter of the year was faulted for the nearly flat growth of the economy. Personal consumption makes up some 70 percent of the domestic economy.

Jain said that Filipinos seemed to have been saving more their disposable income to prepare for any unplanned spending.

The Philippines is considered among the countries which have low social protection coverage.

For its part, the World Bank said most Filipinos are refusing to spend their extra cash for fear that foreign financial institutions that hold their savings might fail.

The WB said that remittances, a major source of disposable income of Filipinos, would contract by four percent in dollar terms this year and to post a two-percent recovery next year.

The local labor market will also remain sluggish, especially with increased employment in the informal sector, unpaid family workers, and the hike in self-employed individuals, it said.

The Philippine economy will suffer a recession this year because of its inability to benefit from “green shoots" of the global economy.

Since the country’s major trading partners are the US, Japan and Europe, the expansion in China – seen to lead the global development –would have a limited impact to the Philippine exports' sector.

“The Philippines is not expected to be among the first round of countries (e.g., commodity exporters) that would benefit from a recovery in China. Indeed, with electronics exports accounting for about 60 percent of total Philippine exports, final consumer demand located mostly in the US, Europe, and Japan, will be a key driver of a sustainable recovery in exports.

Even if emerging markets recover, it is not expected to benefit the Philippines, the World Bank said.

Besides having protected economies, emerging markets lack trade links with the Philippines, which may take time, it said.

“Much of the resiliency in countries such as China stems from fiscal stimulus and other measures that are mostly benefiting domestic firms and non-tradable. Finally, these countries have not been a large source of OFW migration," WB added.

For next year, the Philippines is seen to post a growth of 2.4 percent, while inflation in 2009 is expected to moderate at 3.2 percent and 4.5 percent in 2010.[39]

Philippine budget deficit would reach US$ 2.69 billion, 1.5% of the Gross Domestic Product (GDP). It is also estimated that the economic growth rate in 2010 would be ranging between 4.9% and 5.8%. Imports would go up by 12 to 14% while exports would go down at an annual rate of 8 to 9%[40]

As per Philippines economic forecasts it has also been predicted that in 2010 imports would go up and would range within 12 -14 percent. It has also been estimated that in fiscal 2009 imports for Philippines would depreciate at a rate of 8 or 9 percent. Filipino Economist Benjamin Diokno of the University of the Philippines School of Economics say recovery of the Philippine export industry is still far-fetched, citing the decline of outbound shipments for the eighth straight month in May 2009.

A dysfunctional society

Aquino inherited a dysfunctional society run by elite groups whose interests ran counter to the general interest. The dysfunctionalism is intentional. As the country grapples with more problems, the higher and weaker government becomes in solving the root cause of its problems.

This dysfunctionalism did not happen overnight. It developed thru time. The next stories will explain why it developed and who caused the dysfunctionalism of our society.

[2] Stacy Collett, “The Philippines: Low cost, but higher risk:Costs are low and the English is flawless, but there are pockets of political instability.” Computerworld, 15 September 2003.
[3] Michael B. Mundo, “ Growth and Business Competitiveness among 80 economies: Philippine Rankings Rise and Fall, “ Makati Business Club confidential report, No. 52 - November 2003. This is based on the 2003-2004 Global Competitiveness Report released by the Switzerland-based World Economic Forum (WEF) last 30 October 2003.
[4] World Economic Forum, “ Global Competitiveness Report: 2008-2009”, Switzerland, 2009.
[8] Henry Poole,, 3 January 2007.
[11] National Statistical Coordination Board 1st & 2nd Q Report, 2009.
[14] Global country profile of the Philippines.
[17] Considered as a terrorist organization, the 2008 U.S. State Department estimates the group to consist of between two hundred and five hundred members.
[18] The CIA World Factbook, 2009.
[20] PNP crime incidence report 2008 as reported by the National Statistical Coordination Board, 2009.
[21] Internet appendix to Inglehart, Foa and Welzel, “Social Change, Freedom and Rising Happiness,” Journal of Personality and Social Psychology, 2009.
[25] Shigeki Asahi, Arturo M. Pesigan and Lilia M. Reyes.Disaster Situation in the Western Pacific Region - from the Most Disaster Prone Area. World Health Organization, Manila, Philippines, 2008.
[26] United Nations.Global Assessment Report on Disaster Risk Reduction. 2009.
[27] National Statistics Office 1st Q report 2009.
[28] US State Department, 2008 Human Rights Report: Philippines. February 2009: 2.
[29] 2009 US Department of State Trafficking in Persons Report for the Philippines.
[33] Trocki, Carl. Gangsters, democracy and the state in Southeast Asia. USA: Cornell University Press, 1998: 57
[34] Joel Rocamora, “Formal Democracy and its Alternatives in the Philippines: Parties, Elections and Social Movements”.Paper presented at the conference Democracy and Civil Society In Asia: The Emerging Opportunities and Challenges. Queens University, Kingston, Ontario, Canada, 19-21 August 2000
[35] Freedom House, “ 2009 Freedom in the World Report” released July 2009.
[36] Segundo Eclar Romero and Linda Luz Guerrero, “Philippine Democracy and Governance 2005:Insights from the Asian Barometer Survey” included in An Asian Barometer Conference on the State of Democratic Governance in Asia report. June 2008: 24.
[37]  “Think tank to downgrade 2009 growth forecast for Philippines,” Intellasia, 1 June 2009.
[38] Cheryl M. Arcibal, “ WB sees RP contraction as ADB expects growth,” GMANews.TV, 07/09/2009.
[39] Based on the July report of EconomyWatch, a reputable economic think tank based in the US.
[40] The EIU forecast, June 2009.

[iii] BSP accounts, May 2010.
[iv] Reuters, BSP cuts 2009 Inflation forecast”, 04/01/2009