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C O N F I D E N T I A L SECTION 01 OF 03 MANILA 000285 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/MTS 
USPACOM ALSO FOR FPA 
SECDEF/OSD/ISA/AP FOR TOOLAN 
 
E.O. 12958: DECL: 02/01/2018 
TAGS: MARR MOPS PINS PREL PTER RP
SUBJECT: SCENESETTER FOR ADMIRAL OLSON'S VISIT TO THE 
PHILIPPINES 
 
Classified By: Ambassador Kristie A. Kenney, reasons 1.4 (b) and (d). 
 
¶1.  (SBU) Summary:  Admiral Olson, welcome to the 
Philippines!  You are coming to the Philippines at an 
important time.  With U.S. support, the Armed Forces of the 
Philippines are targeting terrorists on islands in the 
southern Philippines, while supporting the government's 
efforts to make peace with Muslim insurgents.  Under the 
leadership of Philippines Secretary of National Defense 
Teodoro and Chief of Staff General Esperon, the Philippines 
is fully committed to Defense reform.  U.S. Special 
Operations Command is an essential partner in our efforts to 
defeat terrorism through a combination of hard and soft power 
that the Philippines emulates.  The Joint Special Operations 
Task Force-Philippines is well integrated into overall USG 
counterterrorism and development programs.  During your visit 
you will meet Philippine civilian and military leaders, visit 
Philippine Navy Special Operations, and see on the ground in 
Mindanao the impact of U.S. military and development 
assistance. End Summary. 
 
PHILIPPINE POLITICS 
------------------- 
 
¶2. (SBU) Philippine politics is free-wheeling, focused 
primarily on the charisma of individual political leaders, 
and still largely oligarchic, with most wealth and political 
power concentrated among influential families.  President 
Gloria Macapagal Arroyo assumed the Presidency in 2001 after 
a "people power" movement swept out her predecessor, whom she 
recently pardoned after he was convicted of corruption.  She 
is a strong leader who has faced a series of challenges to 
her rule, including unsuccessful impeachment efforts and 
low-level military coup attempts.  The President's political 
position improved after the May 2007 elections gave her 
allies a large majority in the House of Representatives, 
decreasing any impeachment threat.  With less than two and a 
half years left in her term, the President appears intent on 
establishing her legacy, with a focus on the economy and 
jobs, infrastructure, and seeking stability and peace in 
Mindanao. 
 
ECONOMICS AND TRADE 
------------------- 
 
¶3. (U) The U.S. is the Philippines' largest trading partner, 
with over $17.3 billion in two-way merchandise trade.  There 
is considerable concern over the impact on the Philippines of 
a slow down in U.S. economic growth.  Major U.S. exports 
include electronics and agriculture.  The U.S. is also the 
largest investor here, with $6.6 billion in equity.  In 2007, 
Texas Instruments announced further investment of $1 billion 
in microchip production, while AES, a U.S. power company, 
acquired a coal-fired power plant for $930 million.  The 
Philippine economy grew about seven percent in 2007, the 
strongest expansion in three decades. Unemployment and 
inflation are down, and government revenues are up, even in 
the face of rising fuel prices, continued corruption 
allegations, terrorist bombings, and political tumult. 
President Arroyo has an impressive reform agenda -- privatize 
the electric sector, build infrastructure, increase education 
funding, and reduce business red tape -- but still faces 
significant hurdles, particularly in improving the investment 
climate. 
 
SECURITY AND INSURGENCIES 
-------------------------- 
 
¶4. (C) President Arroyo is a committed counterterrorism 
partner, and has repeatedly demonstrated her willingness to 
work closely with us to combat terrorists who established 
themselves in the Philippines during the 1990s.  Military and 
law enforcement forces scored several major victories in the 
counterterrorism fight during the last 18 months, including 
the deaths in military operations leaders of the Abu Sayyaf 
terrorist group, which has links to international terrorist 
organizations and is responsible for the deaths of Americans 
and Filipinos alike.  In recent military operations, 
Philippine troops killed two significant local Abu Sayyaf 
commanders in Basilan suspected of involvement in several 
terrorist attacks, including an October 2002 bombing that 
 
MANILA 00000285  002 OF 003 
 
 
killed a U.S. serviceman.  Our Rewards for Justice program is 
a significant incentive here that worries at-large 
terrorists; we recently paid out USD 10 million to informants. 
 
¶5.  (C) Success in the government's peace process with Muslim 
insurgents would help deny terrorists safe haven.  Currently, 
rogue insurgent commanders harbor terrorists, frequently due 
to complex clan and family relationships.  We are directly 
engaged with all peace process players, including the 
insurgency's leadership, to press for the severing of any 
remaining ties to the terrorists.  The Malaysian-led 
International Monitoring Team has helped stabilize the 
four-year ceasefire between the Philippine government and the 
Muslim insurgents. 
 
¶6.  (C) While not the U.S. counterterrorism priority, the 
Communist Party of the Philippines/New People's Army 
insurgency, which is unconnected to international terrorism, 
remains a virulent nationwide threat.  Its ideology and 
tactics hold little appeal for the overwhelming majority of 
Filipinos, but the movement is fueled by poverty, 
insufficient government services, and discontent with the 
corruption permeating the political system.  The U.S. and 
European Union August 2002 designation of the New People's 
Army as a terrorist organization set back its overseas 
fundraising efforts.  Philippine Armed Forces leaders hope to 
redirect assets against the New People's Army once they 
successfully conclude an agreement with Muslim insurgents. 
 
PHILIPPINE DEFENSE REFORM 
-------------------------- 
 
¶7.  (C) On the eve of the largest U.S.-Philippine exercises 
of the year (Balikatan), the Armed Forces of the Philippines 
remain heavily engaged in combating internal security threats 
while continuing  to enhance their limited external defense 
capabilities.  Secretary of National Defense Gilberto Teodoro 
has taken personal control of Philippine Defense Reform, and 
the Philippine government plans to spend about USD 100 
million annually through 2012 funding defense reform 
initiatives.  The Philippines is already realizing positive 
effects from these efforts including improved operational 
readiness through better maintenance.  At the same time, they 
have promoted transparency in their procurement system, which 
has allowed them to expand their combat capability.  In 
particular, the purchase and granting of U.S. helicopters to 
the Philippines has proven helpful in improving the 
military's mobility.  Long term, the defense reform program 
will modernize 72 Philippine Army and 12 Philippine Marine 
Corps battalions over the next six years. 
 
UNLAWFUL/EXTRAJUDICIAL KILLINGS 
------------------------------- 
 
¶8.  (SBU) Extrajudicial killings remains one of the thorniest 
issues for the Arroyo administration, with critics charging 
that rogue elements of the Philippine military are 
responsible for the killings.  President Arroyo has spoken 
out consistently and strongly on the issue, including during 
the State of the Union address, and has taken a variety of 
steps to address the problem such as the creation of -- or 
strengthening of existing -- government task forces and 
commissions.  By the end of 2007, these steps, as well as 
intensified domestic and international attention to the 
problem, appeared to have had a measurable impact, with 
government agencies and human rights NGOs reporting a 
significant decline in the number of extrajudicial killings 
during the year. 
 
¶9.  (U) The Embassy carefully vets all proposed military and 
law enforcement personnel about to receive U.S.-funded 
training both internally and with relevant Philippine 
authorities to comply with the terms of the Leahy Amendments. 
 
 
THEMES: 
KEEP UP COUNTERTERRORISM FIGHT, PDR, AND RULE OF LAW 
--------------------------------------------- ------- 
 
¶10.  (C) In your meetings with Philippine officials, I 
suggest you stress the following themes: 
 
MANILA 00000285  003 OF 003 
 
 
 
-- The Philippines is a strong and valued partner in 
counterterrorism efforts; 
 
-- Congratulations on recent successes in the fight against 
terrorists, and commendations to those brave Filipinos who 
provided information leading to these successful military 
operations; 
 
-- We are committed to helping sustain the momentum in 
Philippine counterterrorism efforts by assisting with 
military and humanitarian offensives; 
 
-- We are following the peace process with great interest as 
it moves forward.  We fully support the government's desire 
for a durable peace agreement.  We believe it is important to 
keep open communications with those willing to discuss peace. 
 
-- We take the issue of extra-judicial killings seriously. 
Suspects need to be apprehended and tried.  We are encouraged 
by steps the Philippine government has taken to eliminate 
this problem, and we support the ongoing efforts to promote a 
culture of democratic security that protects everyone; 
 
-- Philippine Defense Reform is transforming the Armed Forces 
of the Philippines into a more modern, capable force.  We are 
proud to be partners in this program. 
 
 
Visit Embassy Manila's Classified website: 
http://www.state.sgov.gov/p/eap/manila/index. cfm 
KENNEY