VZCZCXYZ0003
OO RUEHWEB

DE RUEHML #0877/01 1140712
ZNR UUUUU ZZH
O 240712Z APR 09
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3908
RULSDMK/DEPT OF TRANSPORTATION WASHDC IMMEDIATE

UNCLAS MANILA 000877 
 
STATE FOR EAP/MTS AND EB/TRA 
USDOT FOR SUSAN MCDERMOTT 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PREL RP
SUBJECT: SCENESETTER FOR DOT ACTING ASSISTANT SECRETARY SUSAN 
MCDERMOTT 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (SBU)  SUMMARY:  Welcome to the Philippines!  The United States 
and the Philippines have a deep and abiding relationship resulting 
from the country's half century as a U.S. territory and 
commonwealth.  Many features of the Philippine government are 
modeled on that of the U.S., and close ties exist in trade and 
immigration.  The more than four million Filipino-Americans 
constitute the largest Asian ethnicity in the United States, while 
some 250,000 U.S. citizens reside in the Philippines.  Reflecting 
this important relationship, the U.S. Embassy in Manila is one of 
the world's largest. 
 
¶2.  (SBU)  You are coming at an interesting and challenging time. 
Increased food prices and the global financial crisis have affected 
the economy, increasing poverty and straining social infrastructure. 
 However, a consensus remains that the relatively less globally 
integrated Philippine economy will weather the crisis better than 
many of its neighbors.  The political situation remains stable.  The 
government has responded to the crisis mainly through monetary 
easing, measured fiscal expansion, more aggressive employment 
promotion efforts, and targeted assistance to affected sectors.  We 
have not seen severe pressure thus far for the government to respond 
with new protectionist measures.  However, with the approach of 
national elections in May 2010, it may prove difficult to further 
open the economy, expand revenues, and boost competitiveness.  END 
SUMMARY. 
 
The Economy in Brief 
-------------------- 
 
¶3.  (U)  The United States is the Philippines' largest trading 
partner, with over $18 billion in two-way merchandise trade in 2008. 
 Major U.S. exports include electronics and agricultural products. 
The U.S. is also one of the largest investors here, with over $6.6 
billion in equity.  The Philippine economy grew by 7.3 percent in 
2007, the fastest pace of growth in over three decades, but slowed 
to 4.3 percent in 2008, and will further slow in 2009.  However, a 
resilient service sector (particularly a booming Business Process 
Outsourcing industry) and strong remittances from overseas workers 
(expected to again hit $16 billion in 2009, equivalent to more than 
10 percent of Philippine GDP). 
 
¶4.  (U)  There has been limited progress over the past decade in 
reducing poverty and addressing the inequitable distribution of 
incomes.  Poverty increased between 2003 and 2006 to engulf over a 
third of the population.  Socioeconomic development in the 
Philippines is uneven, and poverty is characterized by wide 
disparities across regions and populations, even during periods of 
high economic growth, and is especially severe in rural areas.  Most 
of the lagging regions and provinces are in Mindanao, while the 
frontrunners are on the island of Luzon.  While Mindanao features 
some of the country's more progressive cities and municipalities, 
human development indices of some of Mindanao's most depressed 
provinces approximate the world's poorest countries (such as Ghana, 
Sudan, and Zimbabwe). 
 
The Political Situation 
----------------------- 
 
¶5.  (SBU)  Then-Vice-President Gloria Macapagal Arroyo assumed the 
presidency in 2001 after a "people power" movement swept out her 
predecessor Joseph Estrada, and then in 2004 she was elected in her 
own right to a full six-year presidential term.  Arroyo is a 
tenacious leader who has faced a series of challenges to her rule, 
including unsuccessful impeachment efforts and low-level military 
coup attempts.  National elections will be held in May 2010, and 
although candidates cannot officially declare until November 30, 
2009, the campaign is already under way, with many national figures 
jockeying for position. 
 
Peace Process on Hold 
--------------------- 
 
¶6.  (SBU)  Although peace talks with separatist Moro Islamic 
Liberation Front (MILF) insurgents have remained stalled since 
fighting broke out in August 2008, government and MILF negotiators 
are pursuing discussions to create a new framework for resuming 
peace talks.  Earlier this year, President Arroyo publicly stated 
that 2009 would be a "comeback year for peace" and that she would 
emphasize to all stakeholders that a robust peace process between 
the Philippine government and the MILF would encourage stability in 
the region and enhance economic development. 
 
Main Transportation Issues 
-------------------------- 
 
¶7.  (SBU)  The Philippines is an archipelagic state composed of over 
7,000 islands.  Its principal cities are seaports; 95 percent of the 
nation's cargo is transported via sea.  Despite the high demand for 
maritime transport, the Philippines' domestic shipping industry is 
small and uncompetitive, and is hobbled by restrictive maritime 
policies and inflexible financial regulations.  Since 2003, the 
"roll-on, roll-off" ("Ro-Ro") network of terminals, feeder roads, 
and commercial routes has helped improve inter-island transport and 
reduce costs of domestic transportation.  Low levels of spending on 
transport infrastructure through the years has negatively affected 
Philippine competiveness.  Based on the World Economic Forum's 2006 
competitiveness rankings of basic infrastructure, the Philippines 
placed 89th out of 102 countries surveyed. 
 
¶8.  (SBU)  Civil Aviation Safety:  The Philippines was downgraded to 
"Category 2" by the Federal Aviation Administration (FAA) in 
December 2007.  Since then, the Philippines has passed a civil 
aviation law and established a financially independent Civil 
Aviation Authority of the Philippines (CAAP).  The FAA developed an 
Action Plan to rectify the aviation safety rating, and will conduct 
another audit after the plan is implemented.  The International 
Civil Aviation Organization (ICAO) is working with the CAAP to 
prepare for the next ICAO audit in October 2009. 
 
¶9.  (SBU)  Liberalization of Civil Aviation:  Powerful vested 
interests have, until recently, kept the Philippines from 
liberalizing air services policies.  Only in recent years has 
pressure from Philippine business coalitions started to force 
liberalization of civil aviation.  Following a ten year period 
(1997-2006) during which the Philippines averaged only one bilateral 
agreement per year, the government has signed seventeen bilateral 
air service agreements and three air transportation agreements with 
ASEAN countries since 2007, paving the way to a unified ASEAN market 
by 2015. 
 
Human Rights Issues 
------------------- 
 
¶10.  (SBU)  President Arroyo has consistently expressed her 
commitment to resolving the complex problem of extra-judicial 
killings and has taken several steps in this direction.  While many 
of these deaths and disappearances are more likely attributable to 
local disputes than to military or police action, it is clear that 
the government needs to do more to ensure that these crimes are 
fully investigated and that responsible parties -- whether or not 
they are connected to the military or police -- are brought to 
justice.  The problem is closely related to a judicial system which 
is inefficient and strained beyond its capacity.  Problems such as 
violence against women, abuse of children, child prostitution, child 
labor, trafficking in persons, and ineffective enforcement of worker 
rights are also common. 
 
Development Challenges 
---------------------- 
 
¶11.  (U)  Economic development is a key U.S. objective in the 
Philippines.  Development entails key cross-cutting issues, 
principally: addressing wide disparities across regions; curbing 
high population growth; improving agricultural productivity; 
accelerating implementation of basic education and health reforms; 
boosting infrastructure; harnessing fiscal resources; strengthening 
the capacity of local government units; effective law enforcement; 
improving the investment climate; promoting transparency and 
accountability; addressing peace and security issues; and 
strengthening public-private-donor partnerships.  President Gloria 
Macapagal-Arroyo has repeatedly called for unity and strong 
partnerships as the country grapples with global economic challenges 
and domestic political concerns with limited resources. 
 
Kenney