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O 030121Z JAN 07
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4418
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE
RHHMUNA/CDRUSPACOM HONOLULU HI IMMEDIATE
RUEKJCS/JOINT STAFF WASHINGTON DC IMMEDIATE
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C O N F I D E N T I A L SECTION 01 OF 04 MANILA 000004 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP, PM, AND EAP/MTS 
USPACOM ALSO FOR FPA HUSO AND J5 
SECDEF/OSD/ISA/AP (TOOLAN/BAILEY) 
JOINT STAFF/J5 (WILKES/ROBINSON/CLEMMONS) 
 
E.O. 12958: DECL: 10/26/2016 
TAGS: PGOV PREL PTER ECON EAID MOPS PHUM RP
SUBJECT: THE PHILIPPINES: YEAR IN REVIEW 2006 
 
REF: A. 06 MANILA 5109 
     ¶B. 06 MANILA 5050 
     ¶C. 06 MANILA 4809 
 
Classified By: (U) Ambassador Kristie A. Kenney 
for reasons 1.4(b) and (d). 
 
¶1.  (C) SUMMARY.  President Arroyo has emerged in a stronger 
position at the end of 2006, but faces challenges ahead in 
preserving control of the House in the May 2007 bi-elections. 
 Arroyo has been helped by a buoyant economy in 2006, but the 
country will have to deal with power privatization and 
crumbling infrastructure and health and education systems to 
sustain growth over the longer term.  Counterterrorism is one 
of the real bright spots in 2006 as Philippine troops have 
demonstrated that, with U.S. help, they are capable of taking 
on the Abu Sayyaf and Jemaah Islamiyah threat.  The peace 
process with the Moro Islamic Liberation Front remains on 
track, but difficult issues will have to be resolved in 2007 
to secure a deal.  Defense and police reform appear fully 
entrenched, and to have the buy-in of the rank-and-file. 
Continued U.S. support and engagement are key to achieving 
further gains in counterterrorism and economic, defense, and 
police reform, and could help address the serious problem of 
alleged extra-judicial killings.  END SUMMARY. 
 
A STRONGER PRESIDENT FACING A DIVIDED OPPOSITION 
--------------------------------------------- --- 
 
¶2.  (C) Bruised, battered, but unbowed, President Gloria 
Macapagal Arroyo emerged at the end of 2006 in perhaps her 
strongest position since assuming office after the deposition 
of former President Estrada in 2001.  Despite consistently 
low popularity figures, President Arroyo faces no real threat 
from a divided opposition that has consistently failed to 
reignite the popular fervor that led to EDSA I and EDSA II. 
She faced down a coup attempt in February by elements of the 
Scout Rangers and Philippine Marine Corps, and turned back a 
feeble impeachment attempt in August.  Proven loyalists 
General Hermogenes Esperon and distant relative Director 
General Oscar Calderon respectively command the Armed Forces 
and Philippine National Police.  High-ranking coup plotters, 
including the former commanders of the Scout Rangers and 
Philippine Marine Corps, await trial by courts-martial. 
 
¶3.  (C) President Arroyo faces challenges ahead in 2007, 
however.  The upcoming bi-elections in May could upset the 
Administration's control over the Philippine House and add to 
the number of Opposition members in the Senate, making it 
more difficult to quash the inevitable effort to resuscitate 
an impeachment complaint.  President Arroyo, who has shown 
herself adept at using the levers of power to dish out favors 
and curry support, will use all her political wiles to ensure 
she retains a majority. 
 
HELPED BY A GROWING ECONOMY 
--------------------------- 
 
¶4.  (SBU) President Arroyo has been helped by the Philippine 
economy, which performed well in 2006 (ref b).  Growth hit an 
estimated 5.5 percent, while inflation slowed to only 4.7 
percent.  Both the stock market and the peso ended the year 
at record highs.  The economy was bolstered by a 15 percent 
increase in remittances by overseas workers, a recovery in 
exports, and sensible fiscal policies, which have brought the 
budget deficit under control.  In recognition of the 
Philippine government's progress in reducing public sector 
debt, the World Bank announced December 22 that it had 
approved a new $250 million development loan to support 
further fiscal reform.  The Philippine government also 
announced December 29 that it intends to pay off early the 
outstanding balance of its debt to the International Monetary 
Fund, which will enable it to exit its post-program 
monitoring arrangement with the Fund.  Unfortunately, the 
long-term prognosis is less rosy.  Privatization of the power 
sector has moved forward very slowly.  Infrastructure and the 
education and health systems have been allowed to crumble, 
and corruption and inconsistent policies on the part of 
administrations stretching back decades have kept investment 
far below its potential. 
 
¶5.  (SBU) Our focus in 2007 will be on policy advocacy on the 
key long-term issues facing the Philippine economy.  We will 
lobby for consistent policy, including resolution of the 
 
MANILA 00000004  002 OF 004 
 
 
current debate over investment incentives and consistent and 
effective protection of intellectual property rights.  We 
will also lobby for greater education and health spending, 
targeting of infrastructure spending on key projects, and 
rekindling the effort to privatize the power sector.  The 
Millennium Challenge Corporation's Threshold Program is an 
opportunity to combat corruption while improving the fiscal 
situation.  We will need to find other ways of combating 
corruption, as well. 
 
CHARTER CHANGE WILL REMAIN AN ISSUE IN 2007 
------------------------------------------- 
 
¶6.  (C) The effort to amend the Philippine Constitution, 
despite the spectacular failure of the "people's initiative" 
and constituent assembly gambits, is likely to re-emerge in 
2007, should President Arroyo and her ally, House Speaker 
Jose de Venecia, succeed in maintaining control of the House. 
 De Venecia, who openly aspires to be prime minister, is 
unlikely to give up his goal of moving the Philippines to a 
uni-cameral parliamentary system through charter change. 
 
COUNTERTERRORISM BRIGHT SPOT 
---------------------------- 
 
¶7.  (C) Counterterrorism represents a real bright spots for 
the Philippines in 2006.  The House passed an anti-terrorism 
bill and the Senate has made progress with its version, which 
Senate President Villar has said he will make priority 
legislation in 2007.  Armed Forces of the Philippines (AFP) 
troops on the island of Jolo have shown remarkable tenacity 
in pursuing Abu Sayyaf Group (ASG) and Jemaah Islamiyah (JI) 
leaders.  Working extremely closely with U.S. Joint Special 
Operations Task Force (JSOTF) counterparts, who are providing 
support down to the battalion level, the AFP has forced the 
ASG and JI out of their entrenched base camps and kept them 
on the run.  U.S.-trained light infantry battalion and Light 
Reaction Company forces have been at the cutting-edge of the 
effort, and U.S. intelligence, surveillance, and 
reconnaissance support is fully integrated into AFP 
operations.  Civil-military operations, with JSOTF 
assistance, have helped shape the battlefield and isolate the 
terrorists from the population.  These efforts complement 
USAID's development assistance in infrastructure, education, 
health, and renewable energy in building communities that 
have a stake in a peaceful Mindanao.  2007 should see further 
improvements, as the AFP continues to internalize and put 
into practice U.S. doctrine and advice, and a sustained 
effort could turn the corner in the counterterrorism fight on 
Jolo. 
 
¶8.  (SBU) Post's in-country Anti-Terrorism Assistance Program 
has helped professionalize the inter-agency Anti-Terrorism 
Task Force (ATTF), which in 2006 arrested, captured, or 
killed 88 suspected terrorists, and seized over 900 kilograms 
of explosive materials.   The ATTF will become 
institutionalized once the House and Senate pass the pending 
anti-terrorism legislation. 
 
PEACE PROCESS STILL ON TRACK 
---------------------------- 
 
¶9.  (C) Although momentarily stalled over the difficult issue 
of ancestral domain, peace negotiations between the 
Philippine government and Moro Islamic Liberation Front 
(MILF) remained on track at the end of 2006, with informal 
talks set to resume in 2007.  The GRP's generous 
self-determination offer appears to have helped bridge the 
gap between the two sides, but the devil remains in the 
details, which may include a plebiscite to ratify any deal. 
We will continue to encourage both the Philippine government 
and MILF to stick with the peace process, and continue our 
assistance to consolidate and expand peace and prosperity in 
Mindanao whether or not peace talks succeed in 2007. 
 
FURTHER ENTRENCHMENT OF DEFENSE AND POLICE REFORM 
--------------------------------------------- ---- 
 
¶10.  (C) Former Secretary Cruz's tenure at the Department of 
National Defense (DND) saw the further entrenchment of 
Philippine Defense Reform (PDR), with the drafting of a 
National Defense Act now under consideration by the 
legislature, and the approval of ten major plans of action 
and milestones.  Thirteen U.S. Subject Matter Experts are on 
 
MANILA 00000004  003 OF 004 
 
 
the ground and integrated into the DND and AFP Joint Staff. 
Cruz's premature departure in November 2006 over an internal 
cabinet squabble about charter change is unlikely to derail 
the reform program, which has been firmly embraced by Chief 
of Staff General Esperon and the senior leadership of the 
AFP.  2007 should see further advances, with implementation 
of the Battalion Retraining Program and Combat Lifesaver 
Training, which will translate PDR concepts into practical 
benefits for the troops.  Both House and Senate leaders have 
said that they intend to make the National Defense Act 
priority legislation in the New Year. 
 
¶11.  (C) The Philippine National Police has encouragingly 
sought to emulate the AFP's example in pursuing its own 
transformation effort.  A resident Embassy Senior Law 
Enforcement Advisor will assist in moving this reform 
initiative forward in 2007, with a program aimed at 
developing model police stations. 
 
 
UPHOLDING THE VISITING FORCES AGREEMENT 
--------------------------------------- 
 
¶12.  (C) The creative legal strategy employed by the 
Philippine Government in late December to justify returning 
custody of Lance Corporal Smith to the U.S. Embassy (ref a) 
despite a clear ruling from the Court of Appeals reflected 
the Government's commitment to the VFA and the priority it 
places on our military/military relations.  There will 
undoubtedly be considerable political and public blowback, 
but the Arroyo Administration is prepared to withstand this 
criticism and legal scrutiny.  Smith's appeal of the guilty 
verdict will be decided separately by the higher courts and 
will take even longer.  We will remain closely engaged 
throughout the judicial process to ensure that his rights 
under the VFA are respected. 
 
EJKS - A CALL FOR ACTION 
------------------------ 
 
¶13.  (C) The question of arbitrary, unlawful, or 
extra-judicial killings (EJKs) has been a prominent issue 
throughout 2006.  Responding to public demand for action, the 
Department of Interior and Local Government in May directed 
the Philippine National Police to form a special task force, 
Task Force Usig, to investigate the killings.  Usig has so 
far filed 67 cases against the individuals allegedly 
involved, including some members of the police and the 
military, and is trying to determine how many of the killings 
are politically motivated.  In August, President Arroyo went 
a step further to create a high-profile, independent 
commission headed by former Supreme Court Justice Jose A. 
Melo to investigate the alleged killings and to make policy 
and legislative recommendations to help stop them.  The Melo 
Commission completed its work in December and is due to 
present a report to President Arroyo sometime early 2007. 
With politically motivated violence an ever-present component 
of Filipino politics, President Arroyo is certain to face 
pressure to take measures to stem the killings in the run-up 
to the May 2007 elections.  We hope, with Department support, 
to implement in 2007 targeted training (ref c) to improve 
police and prosecutor cooperation investigating and 
prosecuting these killings. 
 
 
ASEAN CHAIRMANSHIP 
------------------ 
 
¶14.  (C) The Philippines' chair of the Association of 
Southeast Asian Nations (ASEAN) got off to a rocky start in 
December when it was forced to cancel the December Cebu 
Summits due to fears of a typhoon and potential terrorist 
threats.  Nonetheless, Department of Foreign Affairs 
counterparts tell us they intend to pursue an ambitious 
agenda at the rescheduled ASEAN-related Summits in January 
and the ASEAN Regional Forum meetings later in the year, 
focused in part on fostering productive cooperation on Burma 
and North Korea. 
 
COMMENT 
------- 
 
¶15.  (C) The often-chaotic political environment in the 
Philippines can seem daunting, and we face numerous 
 
MANILA 00000004  004 OF 004 
 
 
challenges ahead in 2007.  Nonetheless, as we have seen in 
2006, concerted, sustained engagement with our Philippine 
counterparts can make a difference in counterterrorism and 
economic, defense, and police reform.  Some of issues we will 
be monitoring in 2007 include the possible capture of 
Dulmatin, Umar Patek, or other senior terrorist leaders; 
major government successes in the campaign against the 
Communist Party of the Philippines/New People's Army; 
potential significant U.S. investment in the energy sector; 
potential violence and fraud in the May 2007 elections; and, 
inevitable pressure to renegotiate the VFA before a final 
verdict in the Smith case. 
 
Visit Embassy Manila's Classified website: 
http://www.state.sgov.gov/p/eap/manila/index. cfm 
KENNEY