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Key Economic Indicators
(Millions of U.S. dollars unless otherwise noted)



1994 1


Income, Production and Employment:
Real GDP (1985 prices)

38,632 39,393 41,047 Real GDP Growth (pct.)


4.2 GDP (current prices)

52,982 54,068 62,364 By Sector: (current prices) Agriculture

11,561 11,723 13,533 Energy/Water

1,284 1,343 1,497 Manufacturing

12,812 12,891 15,092 Construction

2,664 2,952 3,368 Dwellings/Real Estate

3,380 3,633 4,054 Financial Services

2,084 2,159 2,495 Other Services

18,559 18,755 23,979 Government Services

3,670 3,491 3,804 Health/Education (private)

1,169 1,329 1,534 Net Exports of Goods & Services

-2,403 -4,612 -5,301 Real Per Capita GDP (1985 prices)


602 Labor Force (000s)

26,290 26,884 27,600 Unemployment Rate (pct.) ............


9.0 Money and Prices (annual percentage growth): Money Supply (M2) 2

11.0 24.5 19.0 Weighted Ave. Loan Rate 3


15.0 Weighted Ave. Savings Rate 3


8.5 Retail Price Index (Manila)


7.8 Wholesale Price Index (Manila)

4.5 -1.2

8.5 Consumer Price Index (Phil.)


9.9 Exchange Rate (Pesos USD) Official (interbank rate)

25.51 27.12 26.95 Parallel (and buying rate)

25.40 27.07 26.90 Balance of Payments and Trade: Merchandise Exports (FOB)

9,824 11,375 13,050 Exports to U.S. (Phil. data)

3,832 4,371 4,950 Merchandise Imports (FOB)

14,519 17,597 20,600 Imports from U.S. (Phil. data)

2,620 3,522 4,100 Bilateral Aid, U.S.4


179 Bilateral Aid, Others

1,312 1,727 1,530 External Public Debt

30,934 34,282 36,300 Debt Service Payments (paid)

3,137 3,533 4,270 Gold and Annual Debt Service

5,218 5,801 7,250 Trade Balance

-4,695 -6,222 - 7,550 Trade Balance with U.S.

1,212 849

850 1 1994 figures are estimates based on partial data available as of October 1994. 2 Growth rate of year-end M2 levels. 3 Actual ave. annual interest rates, not changes in them.

• Inflows of bilateral official loans and grants per balance of payments. Figures for U.S. are net of inslows from the U.S. Veterans Administration (USVA).

Sources: National Economic and Development Authority, Bangko Sentral ng Pilipinas, Department of Fi.


1. General Policy Framework

The Philippines is an archipelago of over 7,000 islands with an estimated popu. lation of 68 million. Poverty remains a major concern, with nearly 40 percent of Filipino families estimated to be living below the poverty threshold. Agriculture contributes about 23 percent of Gross Domestic Product (GDP)_less than industry (33 percent) and services (44 percent)but absorbs the bulk (45 percent) of the employed. The country also has had to grapple with a boom and bust economic growth pattern, with high growth periods subsequently slowed by the emergence of macroeconomic imbalances. For the past decade and more, low savings, investments and exports have contrasted with the performance of Asia's economic dragons. In the past year, however, a more soundly based economic rebound has begun to emerge.

The Ramos Administration, inaugurated in 1992, has continued and expanded the reforms initiated by its predecessor: liberalizing the trade, foreign exchange and investment regimes; privatizing parastatals; reducing entry barriers in vital industries (most recently in banking, telecommunications, and insurance); and encouraging private sector investments in much needed infrastructure. Real GNP, which grew 5.1 percent during the first half of 1994, reflects this rebound from a combination of exogenous shocks, political disturbances, macroeconomic imbalances and crippling power shortages which kept average real GNP expansion at 2.2 percent from 1990 to 1993, slower than the rate of population growth. Although some political and social resistance remain, there is a growing realization among government officials, private sector leaders and legislators that the liberalization process must continue for the economy to sustain its recent strong recovery. Many question marks remain, but optimism is growing that the Philippines may, at last, be embarking on a path of sustained strong growth.

The Philippines is a member of the GATT, participated actively in the Uruguay Round (UR), and became a founding member of the World Trade Organization (WTO) on January 1, 1995.

The government is working to achieve fiscal balance and discipline as part of an overall program to improve and sustain macroeconomic stability. The fiscal deficit has been reduced by a combination of new taxes and spending cuts. In 1995, the government hopes to achieve its first fiscal surplus in over two decades. Debt service's share of the budget pie has declined in recent years from almost half to under a third today. The government has had some success with the issuance of three-year floating rate treasury notes, but short-term debt still makes up nearly 70 percent of outstanding government securities.

In 1993, the government financially restructured the Central Bank. Previously, the instruments available for monetary management were severely limited by the Central Bank's mounting financial losses, compelling monetary authorities to keep reserve requirements at high levels. Now armed with a clean balance sheet and

a 220 billion peso portfolio of new treasury securities, the “new” Central Bank (offi. cially known as the “Bangko Sentral ng Pilipinas") is in a position to undertake open market operations effectively. Since the 1993 restructuring, the Bangko Sentral has lowered bank reserve requirements by six percentage points, from 25 to 19 percent. 2. Exchange Rate Policy

Except for a few remaining restrictions on foreign investments and on foreign debt, most foreign exchange restrictions were liberalized starting 1992. The foreign exchange rate is now set freely in the interbank market.

The new regulations now allow immediate repatriation and remittance privileges without requiring Bangko Sentral approval. Foreign exchange earners are generally free to buy and sell foreign exchange, maintain foreign currency accounts and transfer foreign exchange out of the country for deposit or investment abroad. To further liberalize the foreign exchange system and encourage greater competition, the gov. ernment reintroduced off-floor forex trading in April 1992 using a computerized dealing system. However, the Bangko Sentral imposes ceilings on individual banks' foreign exchange positions, requiring excess forex holdings to be sold to the Bangko Sentral or to other banks. Investment abroad by Philippine residents using foreign exchange purchased from the banking system is limited to $3 million per investor per year. 3. Structural Policies

Prices of goods and services are generally determined by internal market forces, with the exception of fuel and basic public utilities such as transport, water and electricity. The government grants certain incentives (such as tax holidays and/or tax and duty-free privileges on inputs and capital equipment) to investors in govern. ment-preferred activities. While there are exceptions, private and governmentowned firms generally compete on equal terms. An ongoing privatization program is markedly reducing the government's role in many sectors.

The Foreign Investments Act of 1991 allows full foreign ownership of companies engaged in activities not covered by investment incentives. Previous regulations used to limit foreign ownership in Philippine companies generally to 40 percent. A much reduced “negative list" of sectors where foreign ownership is either banned or limited remains. (See Section 5)

Trade liberalization and tariff reform programs continue. The major exception is in agriculture, where 70 percent, by value, of major production remains protected from import competition. Recent reforms have improved access to important service industries, most recently in telecommunications, banking and insurance. In May 1994, the government improved its build operate-transfer (BOT) law, first launched in 1990, by expanding the number of BOT variations, simplifying rules and regulations, and allowing more flexibility in pricing.

Over the last two years, the government adopted a number of tax measures to beef up revenues. It increased stock transaction and documentary stamp taxes, re. structured cigarette taxes, imposed a minimum three percent tarisl, and increased various government fees and charges. In May 1994, legislation expanding the value added tax base (VAT) was signed into law, extending the VAT to goods and services such as telecommunications, lease and sale of real property, restaurants/caterers/hotels, books, imported meat and, eventually, to professional and financial services. (Note: The constitutionality of the expanded vat has been challenged in the courts and implementation remains suspended by a Supreme Court temporary restraining order.) 4. Debt Management Policies

The Ramos Administration has continued the firm commitment to servicing the country's foreign obligations despite occasional congressional and other political rhetoric calling for debt repudiation and/or debt service caps. Between 1990 and 1992, the government repurchased $2.5 billion in obligations owed foreign commercial banks and converted $3.2 billion dollars of eligible debt to long term bonds. These efforts enabled the Philippines to re-enter the voluntary international capital markets in 1993 after a decade's absence, issuing about $900 million dollars in Eurobonds.

The International Monetary Fund (IMF) approved a three-year extended arrangement in mid-1994, which the Philippines envisions as an exit arrangement. The agreement paved the way for the fifth Paris Club debt rescheduling round, which was limited to debt not previously rescheduled. However, due to upward pressure on the peso caused by a strong inflow of foreign exchange, the Philippines decided not to pursue the Paris Club agreement, but to make payments on schedule. The Philippines continues to benefit from various sector-specific assistance and struc. tural adjustment programs provided by multilateral institutions such as the Asian Development Bank and the World Bank Group.

The growth of the Philippines' foreign debt has slowed markedly since the mid1980s, and foreign debt servicing is no longer a severe problem. As of March 1994, the debt was $35.3 billion, or 50 to 55 percent of gross national product. The ratio of debt service to export receipts is now below 20 percent, from nearly 40 percent in the early 1980s. 5. Significant Barriers to U.S. Exports

Tariffs: Independent of the Uruguay Round, in 1991, the Philippines began programs to reduce, modifyand simplify tariffs into four tiers of 3, 10, 20 and 30 percent. With its scheduled completion in November 1994 of the current taris reform program (Executive Order 204), the Philippines' nominal tariff will average 20 per. cent. The government is already actively considering further comprehensive taris reductions stretching to the end of the decade. The Philippines also agreed to eliminate quantitative restrictions on agricultural imports but will be implementing compensating tariffs (at an estimated 100 percent level), applicable except for minimum access quotas, which will continue to protect much of that sector.

Effective May 1, 1994, a minimum three percent tariff was established for all imports. While only 50 tariff lines had been duty free, 2.5 percent of 1993 imports from the U.S., worth $88.5 million, were in those categories. Electrical generating sets, which made up 67 percent ($59.4 million) of duty-free imports from the U.S. in 1993, will be subject to a 10 percent tariff beginning July 1, 1995.

As part of a structural reform program intended to spur investments in export industries, Executive Order 189 which took effect August 22, 1994, lowered tariffs on capital equipment, components and parts to a range of 3 to 10 percent. Equipment covered are used in various sectors including garments and fashion accessories, electronics, pulp and paper, sporting goods and processed foods.

To boost the competitiveness of the domestic textile milling and garments industry, Executive Order 204 will lower import duties on 790 tariff lines including chemical inputs to textile manufacturing, textile material inputs and garments, effective November 17, 1994.

About 208 “strategic products will remain subject to 50 percent tariff and in some cases quantitative restrictions. This group, which includes rice, sugar, fruits, coco

nut oil, and luxury goods such as liquor, tobacco, candy and leather goods, represents about 3.5 percent of tarist lines.

Imports of U.S. agricultural products have also been constrained by the "Magna Carta of Small Farmers" which allowed the Agriculture Department to ban import of goods produced in "sufficient quantity" locally. The government has acknowledged this is in conflict with the implementation of the UR Agreement WTO and is making plans for necessary changes.

Of particular interest to the U.S. is that the sale of domestically produced meat is exempt from the expanded VAT while imported beef (high-grade or manufacturing grade cut) is subject to the tax. The Finance Secretary has ack nowledged this too may contravene a GATT provision, and has indicated a change will be made in accordance with the Agreement.

Import Licenses: Prior clearance is still required for more than 100 restricted and controlled items (mostly agricultural and industrial commodities) generally for reasons of health, safety or national security. The National Food Authority remains the sole importer of rice. A Board of Investment (BOI) "authority to import” is required for commercial vehicles and parts covered by its Progressive Industrial Development Program. A Garment and Textile Export Board (GTEB) “authority to import" is required for imports of pre-cut fabrics and accessories for processing into finished gar. ments and textile products for export.

Commodity imports financed with foreign credits still require prior approval from the Bangko Sentral ng Pilipinas (BSP). The Philippines is a signatory to the GATT Import Licensing Code.

Services Barriers: Banking-A new law, signed in May 1994, will relax restrictions in place since 1948. A foreign investor can enter either on a wholly owned branch basis or own up to 60 percent of an existing domestic bank or new locally incorporated banking subsidiary. However, only six foreign banks (plus four more with presidential discretion) will be allowed entry on a full service, branch basis.

Securities–Membership in the Philippine stock exchange is open to any company (foreign or Filipino) incorporated in the Philippines. A foreign investor wishing to purchase shares of stock is subject to foreign ownership limitations specified by the constitution and other laws. Foreign ownership in securities underwriting companies is limited to a minority. eign firms are not allowed to underwrite securities for the Philippine market, except under the provisions of the new Banking Law, (which allows foreign bank branches to operate as universal banks). Foreign firms may underwrite Philippine issues for foreign markets.

Insurance and Travel Agencies-For at least two years effective October 24, 1994, these sectors were opened to full foreign ownership (See Section 5–Investment Bar. riers). However, the implementing rules and regulations have not yet been made public, so the conditions on market entry are not yet known.

Legal Services: Specific requirements to practice law in the Philippines are Phil. ippine citizenship, graduation from a Philippine Law School, and membership in the Integrated Bar of the Philippines.

Standards, Testing, Labelling, and Certification: The Philippine government, for reasons of public health, safety and national security, implements regulations that assect U.S. exports of drugs, food, textiles and certain industrial goods. Notable examples follow:

(a) The Department of Health's (DOH) renewed campaign for the full implementation of the “Generic Act” of 1988 focuses on the vigorous promotion of cheap generic drugs. The generic name must appear above a drug's brand name.

(b) Imports of high-grade beef, fresh fruits, vegetables and seeds are controlled through phytosanitary certification which is often costly.

(c) Labeling is mandatory for textile fabrics, ready-made garments, household and institutional linens and garment accessories.

(d) Local inspection for standards compliance is required for imports of about 30 specific industrial products, including lighting fixtures, electrical wires and cables, sanitary wares and household appliances, portland cement and pneumatic tires. For other goods, however, U.S. manufacturers' self-certification

of conformance is accepted. The Philippines is a signatory to the GATT Standards Code.

Investment Barriers: A more liberal foreign investment law (the Foreign Investment Act of 1991, or FIA) for activities not eligible or not seeking investment incentives allows foreign equity beyond the 40 percent ceiling imposed by previous investment regulations. However, there are important exceptions, one being that foreigners are not allowed to own land except in partnership

with Filipinos (in which

case the foreign investor's share is limited to 40 percent). The FIA also contains a foreign investment “negative list” with these categories:

A) List A specifies activities in which foreign participation is either excluded or limited by the Constitution and other statutes. Investments in mass media, the practice of licensed professions (including legal services), retail trade, cooperatives, small scale mining and private security agencies are exclusively for Filipinos. Varying foreign ownership ceilings are imposed on companies engaged in, among others, advertising, employee recruitment, construction, financing, and the exploration and development of natural resources.

B) List B limits foreign ownership (generally to 40 percent) for reasons of public health, safety and morals, and to protect local small and medium-sized firms. To protect small domestic enterprises, non-export firms must be capitalized at a minimum of $500,000 to exceed the 40 percent foreign ownership requirement.

C) List C limits foreign ownership in activities "adequately served” by existing Philippine enterprises.

Until October 23, 1994, the FIA was guided by a three-year “transitory” foreign investment negative list. The government released the first "regular" negative list in June 1994, which took effect on October 24, 1994. Activities included under lists A and B were unchanged. Efective October 24, List C was "empty,” opening activi. ties and services such as insurance, travel agencies, tourist lodging establishments, conference/convention organizers, and import and wholesale activities not integrated with production to full foreign ownership. An "empty' list C also gives existing foreign licensors in the Philippine market the option to establish their own majority. owned subsidiaries. In 1996, sectors can petition for inclusion in negative list C under a process which includes public hearings.

The government imposes a foreign ownership ceiling of 40 percent for firms seeking incentives with the Board of Investment (BOI) under the government's annual Investment Priorities Plan (IPP). While this ceiling may be exceeded in certain cases—i.e., the activity is defined as “pioneer,” or least 70 percent of production is for export, or the enterprise locates in an area classified as "less developed"-divestment to the 40 percent foreign ownership ceiling is required within 30 years. Industry-wide local content requirements are also imposed under the government's progressive development program for automobiles. Current guidelines also specify that participants in the automobile development program generate, via exports, a certain ratio of the foreign exchange needed for import requirements.

Current Philippine regulations restrict domestic borrowings by foreign firms. The limits are set as maximum debt-to-equity ratios (depending on the type of activity) which must be maintained for the term of the debt.

Government Procurement Practices: In general, Philippine government procure, ment policies do not discriminate against foreign bidders. However, preferential treatment is given in the purchase of medicines, rice for government employees, corn for domestic consumption, and iron and steel products for use in government projects. Petroleum requirements by government agencies must be procured from government-owned sources.

Awarding of contracts for government procurement of goods and services have to pass competitive bidding. For infrastructure projects which require a public utility franchise (e.g. water and power distribution, public telephone and transportation system), the contractor must be at least 60 percent Filipino. For other major contracts, such as build-operate-transfer (BOT) projects, where operation may not include a public utility franchise, a foreign constructor must be duly accredited by its government to undertake construction work. To the benefit of U.S. suppliers, areas of interest including power generation equipment, communications equipment and computer hardware do not generally confront significant restrictions. The Phil. ippines is not a signatory to the GATT Government Procurement Code.

Customs Procedures: All imports valued at over US $500 are permitted only with a pre-shipment inspection report called a “Clean Report of Findings” issued by the authorized outport inspector. To fix import duties, the Bureau of Customs utilizes Home Consumption Value (HCV). This permits arbitrary valuation which in many cases (according to extensive anecdotal evidence) does not reflect the selling price. Valuation is inconsistent from country to country.

The government has committed to replace HCV to conform to its GATT obligations. The shift is to be phased in over several years, first by a move to a modification of the Brussels definition of value in 1995. Legislation to replace the HCV system is pending before the Congress, and it is doubtful that a change will be implemented before the year end. The Philippines is not a signatory to the GATT Customs Valuation Code. 6. Export Subsidies Policies

Enterprises (dominated by exporters) which register with the BOI to obtain incentives are entitled to tax and duty exemptions under the Philippine Omnibus and Investment Code of 1987. These include income tax holidays, tax and duty exemptions for imported capital equipment, as well as tax credits for purchases of domestically

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