Country Report: Philippines

Improving conditions for the entire world may seem like a daunting task. It may be more beneficial to look at a single piece of the puzzle and its experience of improving conditions. Narrowing the field of study to a single country allows for a more detailed analysis of the path taken to achieve improved conditions for the single country. Improving the conditions of a country through a process of change is called development. Measuring development in a single country allows us to understand some of the policy, historical trends and natural conditions that are better for development. By looking at the Philippines background, recent political and economic issues, and the economic performance of the past and perspective future, a better understanding of development will be achieved.

The Philippines became known to the western world in the early 1500's with the arrival of Ferdinand Magellan. In 1565 Spain officially colonized the area under Miguel Lopez. Spain controlled the area for over 300 years before, with the help of America, Spanish control was lost and an American-Philippine joint rule occurred. The colonial system had two major influences on the path of development that the Philippines took. The manorial system set up by Spanish colonialists brought a strong divide in the wealth of the country that is still seen today and the religious influence of the Roman Catholic Church makes the Philippines the only country in Asia that is predominately Christian. Over ninety percent of the population is Roman Catholic or Protestant (ACTD Berkly). These influences took the development path through a constant fight of poverty and western ideas.

The isolation provided by a mountainous terrain and an island country was used by the United States to keep influence on the area until occupation during World War II. After the defeat of Japan, the Philippines gained their independence on July 4th, 1946. The country experienced dictatorial rule until President Marcos was ousted in a snap election held in the beginning of 1987. Soon after, the Constitution was written and ratified on February 11th, 1987 (CIA Philippines). This point marks the beginning of an important institutional strength in the form of democratic rule. The Freedom House measuring political rights and civil liberties gave a rating of free in both categories in 1988 and except a short stint of partially free rating during the early 90's the Philippines has maintained a free rating.

With a population of 84.5 million people and only 300,000 square miles of land, the Philippines has a high level of population density at 282 people per square kilometer. The country has no landlocked neighbors, but not far is Taiwan to the north, Malaysia and Indonesia to the south, and continental Southeast Asia to the west (CIA Philippines). This makes the area very relevant because of its surrounding high development rates. It makes the Heritage Foundation measurement of economic freedom very important to understanding the economic institutions govern the country. The Philippines received a rating of 2.85 overall, which makes it mostly economically free. It was most free in the area of trade and least free in the area of regulation. This shows that the Philippines may be on a very outward looking development path with tight regulation to recover and protect from economic crisis.

The recent past provides us with some major events that have helped shape the development path the Philippines has taken. In 1997, the Asian Financial Crisis began to slow the economy. The major problem became non-performing loans as in many other countries affected by the crisis. This has led to greater regulation in the banking sector and fiscal spending to try and help the economy to recover. The crisis also had political implications because of the lack of performance in the economy. From 1998 till 2001, weak Presidential leadership hurt the recovery path. The lack of leadership gave rise to current domestic security issues that include terrorism and local conflict (World Bank Country Profiles). The island of Mindanao faces violent uprisings among Moro Islamic Liberation Front, Ahu Sayyat Guerilla, and government military personal. The current position of the government is a "peace and development" policy (Economist Intelligence Unit). The policy is designed to bring help to the highly impoverished Islamic minority and promote peace at the same time.

The future economic outlook is improving slowly. The strengths are the increased exports of electronics, increasing foreign direct investment, and banks beginning to lower interests rates again in response to the monetary authorities lowering key interests rates (World Bank Country Profiles). These are important because all promote a greater amount of investment that can lead to growth. Exports create larger tax revenues and industry revenues, so firms and the government can invest in the economy. Foreign direct investment will provide added capital to the country. Similarly, lower interest rates will allow firms to take loans for investment. Two major problems still exist in the recovering economy, first is non-performing loans in the banking sector and the second is the fiscal budget deficit that has arisen. The World Bank has put together a development package for 2003 to 2005 that addresses these concerns and focuses on poverty reduction. The poverty reduction focus revolves around human capital investment, providing basic services and providing access to productive assets (World Bank Country Profiles). These are effective because they focus on enhancing the capabilities of the poor and not just their economic welfare. Poverty reduction is an important part of development and by focusing on it; it can reduce suffering and improve quality of life quicker.

The structure and economic performance of the Philippines has promoted high economic development. The aggregate growth performance is very positive for the long-term and recent trends. From 1990 to 1997 gross domestic product (GDP) grew at three percent (World Development Report). After falling in response to the Asian Financial Crisis, recent trends have seen three and four percent growth in 1999 and 2000. Further positive signs are the purchasing power parity (PPP) per capita GDP that reached 4000 dollars in 2001 (CIA Philippines). The economy has shown an ability to recover and this is important for stability in economic and political institutions that have developed. The structure of the economy has also become