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Foreign and Economic Policies of the Philippines

The Philippine Development Plan 2011-2016 adopts a framework of inclusive growth, which is high growth that
is sustained, generates mass employment, and reduces poverty. With good governance and anti-corruption as
the overarching theme of each and every intervention, the Plan translates into specific goals, objectives,
strategies, programs, and projects all the things that we want to accomplish in the medium term.

Through this Plan, we intend to pursue rapid and sustainable economic growth and development, improve the
quality of life of the Filipino, empower the poor and marginalized and enhance our social cohesion as a nation.
Our strategic development policy framework thus focuses on improving transparency and accountability in
governance, strengthening the macroeconomy, boosting the competitiveness of our industries, facilitating
infrastructure development, strengthening the financial sector and capital mobilization, improving access to
quality social services, enhancing peace and security for development, and ensuring ecological integrity.

The Philippine Development Plan will serve as our guide in formulating policies and implementing development
programs for the next six years. It enables us to work systematically to give the Filipino people a better chance
of finally finding their way out of poverty, inequality, and the poor state of human development.

Source: http://www.neda.gov.ph/plans-policies/

Development Planning Part 1

The responsibility for economic planning was vested in the National Economic and Development Authority.
Created on January 1973, the authority assumed the mandate both for macroeconomic planning that had been
undertaken by its predecessor organization, the National Economic Council, and project planning and
implementation, previously undertaken by the Presidential Economic Staff. National Economic and
Development Authority plans calling for the expansion of employment, maximization of growth, attainment of
fiscal responsibility and monetary stability, provision of social services, and equitable distribution of income were
produced by the Marcos administration for 1974-77, 1978-82, and 1983-88, and by the Aquino administration
for 1987-92. Growth was encouraged largely through the provision of infrastructure and incentives for
investment by private capital. Equity, a derivative goal, was to be achieved as the result of a dynamic economic
expansion within an appropriate policy environment that emphasized labor-intensive production.

The National Economic and Development Authority Medium-Term Development Plan, 1987-92 reflected
Aquino's campaign themes: elimination of structures of privilege and monopolization of the economy;
decentralization of power and decision making; and reduction of unemployment and mass poverty, particularly
in rural areas. The private sector was described as both the "initiator" and "prime mover" of the country's
development; hence, the government was "to encourage and support the private initiative," and state
participation in the economy was to be minimized and decentralized. Goals included alleviation of poverty,
generation of more productive employment, promotion of equity and social justice, and attainment of sustainable
economic growth. Goals were to be achieved through agrarian reforms; strengthening the collective bargaining
process; undertaking rural, labor-intensive infrastructure projects; providing social services; and expanding
education and skill training. Nevertheless, as with previous plans, the goals and objectives were to be realized,
trickle-down fashion, as the consequence of achieving a sustainable economic growth, albeit a growth more
focused on the agricultural sector.

The plan also involved implementing more appropriate, market-oriented fiscal and monetary policies, achieving
a more liberal trade policy based on comparative advantage, and improving the efficiency and effectiveness of
the civil service, as well as better enforcement of government laws and regulations. Proper management of the
country's external debt to allow an acceptable rate of growth and the establishment of a "pragmatic,"
development-oriented foreign policy was extremely important.
Source: http://countrystudies.us/philippines/

Development Planning Part 2

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Economic performance fell far short of plan targets. For example, the real GNP growth rate from 1987 to 1990
averaged 25 percent less than the targeted rate, the growth rate of real exports was one-third less, and the
growth rate of real imports was well over double. The targets, however, did provide a basis for discussion of
consistency of official statements and whether the plan growth rates were compatible with the maintenance of
external debt-repayment obligations. The plan also set priorities. Both Aquino's campaign pronouncements and
the policies embodied in the planning document emphasized policies that would favorably affect the poor and
the rural sector. But, because of dissension within the cabinet, conflicts with Congress, and presidential
indecisiveness, policies such as land and tax reform either were not implemented or were implemented in an
impaired fashion. In addition, the Philippines curtailed resources available for development projects and the
provision of government services in order to maintain good relations with international creditors.

The Philippine government has undertaken to provide incentives to firms, both domestic and foreign, to invest
in priority areas of the economy since the early 1950s. In 1967 an Investment Incentives Act, administered by
a Board of Investments (BOI), was passed to encourage and direct investment more systematically. Three years
later, an Export Incentives Act was passed, furthering the effort to move the economy beyond import substitution
manufacturing. The incentive structure in the late 1960s and 1970s was criticized for favoring capital-intensive
investment as against investments in agriculture and export industries, as well as not being sufficiently large.
Export incentives were insufficient to overcome other biases against exports embodied in the structure of tariff
protection and the overvaluation of the peso.

The investment incentive system was revised in 1983, and again in 1987, with the goal of rewarding
performance, particularly exporting and labor-intensive production. As a result of objections made by the United
States and other industrial nations to export-subsidy provisions contained in the 1983 Investment Code, much
of the specific assistance to exporters was removed in the 1987 version. The 1987 Investment Code delegates
considerable discretionary power over foreign investment to the government Board of Investments when foreign
participation in an enterprise exceeds 40 percent. Legislation under consideration by the Philippine Congress
in early 1991 would limit this authority. Under the new proposal, foreign participation exceeding 40 percent
would be allowed in any area not covered by a specified "negative list."

Source: http://countrystudies.us/philippines/

Fiscal Policy Part 1

Historically, the government has taken a rather conservative stance on fiscal activities. Until the 1970s, national
government expenditures and taxation generally were each less than 10 percent of GNP. (Total expenditures
of provincial, city and municipal governments were small, between 5 and 10 percent of national government
expenditures in the 1980s.) Under the Marcos regime, national government activity increased to between 15
and 17 percent of GNP, largely because of increased capital expenditures and, later, growing debt-service
payments. In 1987 and 1988, the ratio of government expenditure to GNP rose above 20 percent. Tax revenue,
however, remained relatively stable, seldom rising above 12 percent of GNP. Chronic government budget
deficits were covered by international borrowing during the Marcos era and mainly by domestic borrowing during
the Aquino administration. Both approaches contributed to the vicious circle of deficits generating the need for
borrowing, and the debt service on those loans creating greater deficits and the need to borrow even more. At
5.2 percent of GNP, the 1990 government deficit was a major consideration in the 1991 standby agreement
between Manila and the IMF.

Over time, the apportionment of government spending has changed considerably. In 1989 the largest portion
of the national government budget (43.9 percent) went for debt servicing. Most of the rest covered economic
services and social services, including education. Only 9.1 percent of the budget was allocated for defense. The
Philippines devoted a smaller proportion of GNP to defense than did any other country in Southeast Asia.

The Aquino government formulated a tax reform program in 1986 that contained some thirty new measures.
Most export taxes were eliminated; income taxes were simplified and made more progressive; the investment
incentives system was revised; luxury taxes were imposed; and, beginning in 1988, a variety of sales taxes
were replaced by a 10 percent value-added tax--the central feature of the administration's tax reform effort.

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Some administrative improvements also were made. The changes, however, did not affect an appreciable rise
in the tax revenue as a proportion of GNP.

Source: http://countrystudies.us/philippines/

Fiscal Policy Part 2

Problems with the Philippine tax system appear to have more to do with collections than with the rates.
Estimates of individual income tax compliance in the late 1980s ranged between 13 and 27 percent.
Assessments of the magnitude of tax evasion by corporate income taxpayers in 1984 and 1985 varied from as
low as P1.7 billion to as high as P13 billion. The latter figure was based on the fact that only 38 percent of
registered firms in the country actually filed a tax return in 1985. Although collections in 1989 were P10.1 billion,
a 70 percent increase over 1988, they remained P1.4 billion below expectations. Tax evasion was compounded
by mismanagement and corruption. A 1987 government study determined that 25 percent of the national budget
was lost to graft and corruption.

Low collection rates also reinforced the regressive structure of the tax system. The World Bank calculated that
effective tax rates (taxes paid as a proportion of income) of low-income families were about 50 percent greater
than those of high-income families in the mid-1980s. Middle-income families paid the largest percentage. This
situation was caused in part by the government's heavy reliance on indirect taxes. Individual income taxes
accounted for only 8.9 percent of tax collections in 1989, and corporate income taxes were only 18.5 percent.
Taxes on goods and services and duties on international transactions made up 70 percent of tax revenue in
1989, about the same as in 1960.

The consolidated public sector deficit--the combined deficit of national government, local government, and
public-sector enterprise budgets--which had been greatly reduced in the first two years of the Aquino
administration, rose to 5.2 of GNP by the end of 1990. In June 1990, the government proposed a comprehensive
new tax reform package in an attempt to control the public sector deficit. About that time, the IMF, World Bank,
and Japanese government froze loan disbursements because the Philippines was not complying with targets in
the standby agreement with the IMF. As a result of the 1990-91 Persian Gulf crisis, petroleum prices increased
and the Oil Price Stabilization Fund put an additional strain on the budget. The sudden cessation of dollar
remittances from contract workers in Kuwait and Iraq and increased interest rates on the domestic debt of the
government also contributed to the deficit.

Negotiations between the Aquino administration and Congress on the administration's tax proposals fell through
in October 1990, with the two sides agreeing to focus on improved tax collections, faster privatization of
government-owned and government-controlled corporations, and the imposition of a temporary import levy. A
new standby agreement between the government and the IMF in early 1991 committed the government to raise
taxes and energy prices. Although the provisions of the agreement were necessary in order to secure fresh
loans, the action increased the administration's already fractious relations with Congress.

Source: http://countrystudies.us/philippines/

Monetary Policy Part 1

The Central Bank of the Philippines was established in June 1948 and began operation the following January.
It was charged with maintaining monetary stability; preserving the value and convertibility of the peso; and
fostering monetary, credit, and exchange conditions conducive to the economic growth of the country. In 1991
the policy-making body of the Central Bank was the Monetary Board, composed of the governor of the Central
Bank as chairman, the secretary of finance, the director general of the National Economic and Development
Authority, the chairman of the Board of Investment, and three members from the private sector. In carrying out
its functions, the Central Bank supervised the commercial banking system and managed the country's foreign
currency system.

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From 1975 to 1982, domestic saving (including capital consumption allowance) averaged 25 percent of GNP,
about 5 percentage points less than annual gross domestic capital formation. This resource gap was filled with
foreign capital. Between 1983 and 1989, domestic saving as a proportion of GNP declined on the average by a
third, initially because of the impact of the economic crisis on personal savings and later more because of
negative government saving. Investment also declined, so that for three of these years, domestic savings
actually exceeded gross investment.

From the time it began operations until the early 1980s, the Central Bank intervened extensively in the country's
financial life. It set interest rates on both bank deposits and loans, often at rates that were, when adjusted for
inflation, negative. Central Bank credit was extended to commercial banks through an extensive system of
rediscounting. In the 1970s, the banking system resorted, with the Central Bank's assistance, to foreign credit
on terms that generally ignored foreign-exchange risk. The combination of these factors mitigated against the
development of financial intermediation in the economy, particularly the growth of long-term saving. The
dependence of the banking system on funds from the Central Bank at low-interest rates, in conjunction with the
discretionary authority of the bank, has been cited as a contributing factor to the financial chaos that occurred
in the 1980s. For example, the proportion of Central Bank loans and advances to government-owned financial
institutions increased from about 25 percent of the total in 1970 to 45 percent in 1981-82. Borrowings of the
government-owned Development Bank of the Philippines from the Central Bank increased almost 100-fold
during this period. Access to resources of this sort, in conjunction with subsidized interest rates, enabled Marcos
cronies to obtain loans and the later bailouts that contributed to the financial chaos.

Source: http://countrystudies.us/philippines/

Monetary Policy Part 2

At the start of the 1980s, the government introduced a number of monetary measures built on 1972 reforms to
enhance the banking industry's ability to provide adequate amounts of long-term finance. Efforts were made to
broaden the capital base of banks through encouraging mergers and consolidations. A new class of banks,
referred to as "expanded commercial banks" or "unibanks," was created to enhance competition and the
efficiency of the banking industry and to increase the flow of long-term saving. Qualifying banks--those with a
capital base in excess of P500 million--were allowed to expand their operations into a range of new activities,
combining commercial banking with activities of investment houses. The functional division among other
categories of banks was reduced, and that between rural banks and thrift banks eliminated.

Interest rates were deregulated during the same period, so that by January 1983 all interest rate ceilings had
been abolished. Rediscounting privileges were reduced, and rediscount rates were set in relation to the cost of
competing funds. Although the short-term response seemed favorable, there was little long-term change. The
ratio of the country's money supply, broadly defined to include savings and time deposits, to GNP, around 0.2
in the 1970s, rose to 0.3 in 1983, but then fell again to just above 0.2 in the late 1980s. This ratio was among
the lowest in Southeast Asia.

Monetary and fiscal policies that were set by the government in the early 1980s, contributed to large
intermediation margins, the difference between lending and borrowing rates. In 1988, for example, loan rates
averaged 16.8 percent, whereas rates on savings deposits were only slightly more than 4 percent. The Central
Bank traditionally maintained relatively high reserve requirements (the proportion of deposits that must remain
in reserve), in excess of 20 percent. In 1990 the reserve requirement was revised upward twice, going from 21
percent to 25 percent. In addition, the government levied both a 5 percent gross tax on bank receipts and a 20
percent tax on deposit earnings and borrowed extensively to cover budget deficits and to absorb excess growth
in the money supply.

Source: http://countrystudies.us/philippines/
Monetary Policy Part 3

In addition to large intermediation margins, Philippine banks offered significantly different rates for deposits of
different amounts. For instance, in 1988 interest rates on six-month time deposits of large depositors averaged

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almost 13 percent, whereas small savers earned only 4 percent on their savings. Rates offered on six-month
and twelve-month time deposits differed by only 1 percentage point, and the rate differential for foreign currency
deposits of all available maturities was within a single percentage point range. Because savings deposits
accounted for approximately 60 percent of total bank deposits and alternatives for small savers were few, the
probability of interest rate discrimination by the commercial banking industry between small, less-informed
depositors and more affluent savers, was quite high. Interest rates of time deposits also were bid up to reduce
capital flight. This discrimination coupled with the large intermediation margins gave rise to charges by Philippine
economists and the World Bank that the Philippine commercial banking industry was highly oligopolistic.

Money supply growth has been highly variable, expanding during the economic and political turmoil and then
contracting when the Philippines tried to meet IMF requirements. Before the 1969, 1984, and 1986 elections,
the money supply grew rapidly. The flooding of the economy with money prior to the 1986 elections was one
reason why the newly installed Aquino administration chose to scrap the existing standby arrangement with the
IMF in early 1986 and negotiate a new agreement. The Central Bank released funds to stabilize the financial
situation following a financial scandal in early 1981, after the onset of an economic crisis in late 1983, and after
a coup attempt in 1989. The money was then repurchased by the Treasury and the Central Bank--the so-called
Jobo bills, named after then Central Bank Governor Jose Fernandez--at high-interest rates, rates that peaked
in October 1984 at 43 percent and were approaching 35 percent in late 1990. The interest paid on this debt
necessitated even greater borrowing. By contrast, in 1984 and 1985, in order to regain access to external capital,
the growth rate of the money supply was very tight. IMF dictates were met, very high inflation abated, and the
current account was in surplus. Success, however, was obtained at the expense of a steep fall in output and
high unemployment.

Source: http://countrystudies.us/philippines/

Privatization

When Aquino assumed the presidency in 1986, P31 billion, slightly more than 25 percent of the government's
budget, was allocated to public sector enterprises--government-owned or government-controlled corporations-
-in the form of equity infusions, subsidies, and loans. Aquino also found it necessary to write off P130 billion in
bad loans granted by the government's two major financial institutions, the Philippine National Bank and the
Development Bank of the Philippines, "to those who held positions of power and conflicting interest under
Marcos." The proliferation of inefficient and unprofitable public sector enterprises and bad loans held by the
Philippine National Bank, the Development Bank of the Philippines, and other government entities, was a heavy
legacy of the Marcos years.

Burdened with 296 public sector enterprises, plus 399 other nonperforming assets transferred to the government
by the Philippine National Bank and the Development Bank of the Philippines, the Aquino administration
established the Asset Privatization Trust in 1986 to dispose of government-owned and government-controlled
properties. By early 1991, the Asset Privatization Trust had sold 230 assets with net proceeds of P14.3 billion.
Another seventy-four public sector enterprises that were created with direct government investment were put
up for sale; fifty-seven enterprises were sold wholly or in part for a total of about P6 billion. The government
designated that about 30 percent of the original public sector enterprises be retained and expected to abolish
another 20 percent. There was widespread controversy over the fairness of the divestment procedure and its
potential to contribute to an even greater concentration of economic power in the hands of a few wealthy
families.

Source: http://countrystudies.us/philippines/

Foreign Affairs

Philippine foreign policy in the early 1990s was broadly prodemocratic and pro-Western in orientation. Philippine
international prestige was at an all-time high when Marcos was overthrown. During the Aquino administration,

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the Philippines pursued active, nationalist policies aimed at promoting "genuine independence" and economic
development. As a charter member of the United Nations, the Philippines participated in all its functional groups,
such as the Food and Agriculture Organization; the World Health Organization; the United Nations Educational,
Scientific and Cultural Organization; and the Economic and Social Commission for Asia and the Pacific. In
addition, the Philippines has been a member of the Association of Southeast Asian Nations (ASEAN), the
International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade. The Philippines
was a founding member of the Asian Development Bank, which is headquartered in Manila.

Article 2 of the Constitution states that "the State shall pursue an independent foreign policy." For historical,
economic, cultural, and strategic reasons, the Philippines has been tied most closely to the United States.
Economic necessity dictated maintaining a smooth working relationship with Japan. Filipinos wanted a foreign
policy oriented more toward their Southeast Asian neighbors, but for most purposes implementing such a policy
was not high on their agenda. The proximity and large population of China, plus the presence of Chinese in the
Philippines, required amicable relations with Beijing. Because of the Muslim separatist movement, and also for
economic reasons, relations with Middle Eastern countries became more important in the 1970s and 1980s.

Source: http://countrystudies.us/philippines/

Economic Planning and Policy

The Philippines has traditionally had a private enterprise economy both in policy and in practice. The
government intervened primarily through fiscal and monetary policy and in the exercise of its regulatory
authority. Although the expansion of public sector enterprises occurred during the Marcos presidency, direct
state participation in economic activity has generally been limited. The Aquino government set a major policy
initiative of consolidating and privatizing government-owned and government-controlled firms. Economic
planning was limited largely to establishing targets for economic growth and other macroeconomic goals,
engaging in project planning and implementation, and advising the government in the use of capital funds for
development projects.
Source: http://countrystudies.us/philippines/

Filipino Nationalism

Filipino nationalism, which is an important element of foreign policy, showed every sign of intensifying in the
early 1990s. Diverse elements in Philippine society have been united in opposition to their common history of
foreign subjugation, and this opposition often carried an anti-American undertone.

Leftists have long held that Philippine history is a story of failed or betrayed revolutions, with native compradors
selling out to foreign invaders. In the post-Marcos years, this thesis received wide acceptance across the
political spectrum. The middle class was deeply disillusioned because five successive United States
administrations had acquiesced to Marcos's dictatorship, and Filipino conservatives nursed grievances long
held by the left.

Source: http://countrystudies.us/philippines/

Relations with the United States

Precisely because the "special relationship" between the United States and the Philippines has been lengthy
and intimate, it sometimes has resembled a family feud. Aquino enjoyed great prestige and popularity in the
United States and was named Time magazine's "Woman of the Year" for 1986. Aquino had spent much of her
early life in the United States and returned in September 1986 for a triumphant tour of Washington, New York,
Boston, and San Francisco, culminating in an address to an emotion-filled joint session of the United States
Congress and a congressional pledge of strong support for her government. Soon after, however, Philippine
and United States government leaders faced substantial differences on economic and military issues.

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United States officials frequently expressed concern that Aquino was not reforming her government quickly
enough to preempt the New People's Army's appeal. And, although United States officials repeatedly warned
coup plotters that the United States would cut military aid if they overthrew Aquino, many Filipinos worried that
what they perceived as the United States government's obsession with national security might tempt the United
States to support a military coup. To allay these fears, the United States dispatched two fighter planes to protect
Aquino during the December 1989 coup attempt. Nevertheless, recriminations resumed within months. Irritated
by US$96 million in aid cuts, Aquino refused to meet Secretary of Defense Richard Cheney when he visited
Manila in February 1990.

In the late 1980s, Philippine-United States relations were bedeviled by a new problem: heightened concern for
the safety of United States military and civilian personnel in the Philippines. Two United States airmen were
shot and killed in Angeles City in 1987. In 1989 Colonel James N. Rowe, who was serving with the United States
Joint Military Advisory Group, was assassinated near the United States military compound in Quezon City. (In
February 1991, two communists were sentenced to life imprisonment for the murder of Rowe.) At least ten other
United States citizens were killed by communists in the Philippines between 1986 and 1991. United States
Peace Corps volunteers were withdrawn in 1990 when intelligence sources claimed to have uncovered plans
for mass abductions. One volunteer was said to have been kidnapped by the New People's Army, but he
emerged unharmed. Finally, in 1990 the United States government authorized hazardous duty pay for
diplomats, troops, and other federal employees in the Philippines.

United States access to air and naval bases in the Philippines dominated Philippine-United States relations in
1991, with emotional issues of Philippine nationalism often weighing more heavily than economic or strategic
arguments. The Military Bases Agreement of 1947, as amended in 1979 and updated in 1983 and 1988, was
set to expire in September 1991. Clark Air Base, located north of Manila in the plain of Central Luzon, was a
logistical hub for the United States Thirteenth Air Force, and Subic Bay Naval Base was an extremely valuable
repair and resupply facility for the United States Seventh Fleet. Approximately 15,000 United States military
personnel (exclusive of sailors temporarily ashore at Subic), 1,000 defense civilians, and 24,000 military
dependents were assigned to the bases. The United States maintained that both bases were vital for power
projection in the western Pacific, Indian Ocean, and Middle Eastern theaters and wanted indefinite access to
both facilities, along with the Crow Valley gunnery range north of Subic Bay and some smaller communications
installations.

Source: http://countrystudies.us/philippines/

Relations with the United States

Extension of United States base rights became a pivotal issue in Manila politics. The need for some sort of
military alliance with the United States was rarely questioned, but the physical presence of the bases has
irritated nationalists beyond endurance. The socially deformed communities outside their gates were seen as a
national disgrace. Angeles City (near Clark) and Olongapo City (near Subic) had innumerable bars and
thousands of prostitutes, which caused Filipinos to be concerned about acquired immune deficiency syndrome
(AIDS). There were numerous criminal gangs and smugglers and criminal jurisdiction was a perennial problem.

The nuclear issue complicated matters. Article 2 of the Constitution says that the Philippines, "consistent with
national interest, adopts and pursues a policy of freedom from nuclear weapons in its territory." Interpreted
strictly, this article challenged the United States policy of never confirming or denying the presence of nuclear
weapons at any specific location. Aquino finessed the issue, apparently determining that it was in the national
interest not to do anything to make the United States leave the bases. But the Philippine Senate in June 1988
passed by a vote of nineteen to three a bill that would have banned from the Philippines the "development,
manufacture, acquisition, testing, use, introduction, installation, or storage" of nuclear weapons. The bill was
defeated in the House, but its margin of passage in the Senate indicated potential difficulty in obtaining the votes
of the two-thirds of the Senate required to ratify any future base agreement.

Despite negative developments in Philippine-United States relations, congruent interests in the early 1990s
bound the two countries. United States foreign aid to the Philippines in 1990 reached nearly US$500 million;

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United States private investment stood at more than US$1 billion; and the United States and Japan were key
donors to the Multilateral Aid Initiative, also known as the Philippine Assistance Plan, which offered some debt
relief and new credit in return for desired structural reforms. Political activity in Filipino American communities
in the United States added another dimension to Philippine-United States relations. Early maneuvering for the
1992 Philippine presidential election was as feverish among these communities on the United States west coast
as it was in Manila.

Source: http://countrystudies.us/philippines/

Relations with Asian Neighbors Part 1

For decades the Philippines was an active proponent of regionalism. In 1954 it joined Australia, Britain, France,
New Zealand, Pakistan, Thailand, and the United States in the Southeast Asia Treaty Organization against the
perceived threat from the Chinese and Indochinese communist regimes. This alliance was phased out in 1977.

Manila's quest for regional cooperation received a significant boost in the 1965-66 period when bilateral
problems between Indonesia and Malaysia that had been known as the confrontation--until then the main
obstacle to regionalism in Southeast Asia--gave way to neighborliness. In August 1967 the Association of
Southeast Asian Nations was formed by Indonesia, Malaysia, the Philippines, Singapore, and Thailand to
pursue economic, social, cultural, and technical cooperation.

The Philippines was also party to a multilateral dispute over ownership of the Kalayaan Islands, as Filipinos call
some of the Spratlys, a scattered group of atolls west of the Philippine island of Palawan and east of Vietnam,
also claimed in toto or partially by China, Malaysia, Taiwan, and Vietnam. Tomas Clomas, a Manila lawyer,
visited the islands in 1956, claimed them for himself, named them Kalayaan (Freedomland), then asked the
Philippine government to make them a protectorate. Philippine troops were sent to the Kalayaans in 1968. All
parties to the dispute were interested in possible offshore oil around the islands. The law of the sea grants to
any country that receives international recognition of a claim to even a rock sticking out of the water exclusive
economic rights to all resources, including oil, within a 200-nautical-mile radius of that point. Manila regularly
tried to extract from the United States a declaration that it would defend the Philippines' claim to the Kalayaans
as part of the Mutual Defense Treaty between the Republic of the Philippines and the United States of America,
but the United States just as regularly refused so to interpret that treaty.

Aquino broke the tradition that a Philippine president's first overseas trip was to Washington. She visited Jakarta
and Singapore in August 1986. Indonesian president Soeharto promised not to aid Muslim separatists in
Mindanao but cautioned Aquino not to attempt reconciliation with communist insurgents. Singapore's Prime
Minister Lee Kuan Yew echoed Soeharto's warning. Both leaders encouraged the Philippines to find a way to
extend United States base rights. Although the governments espoused differing world views, the Philippines
has had few disputes with Indonesia or Singapore, and relations remained neighborly in the early 1990s. The
Philippines enjoyed a cooperative relationship with Thailand. The two countries in 1991 had no disputes and
many common interests, including a history of security cooperation with the United States.

Source: http://countrystudies.us/philippines/

Relations with Asian Neighbors Part 2

Malaysia
Philippine relations with Malaysia have been bedeviled by a lingering dispute over the status of Sabah, the
northeast corner of Borneo. The Philippines based its case on a claim to territories that were part of the former
Sultanate of Sulu, a nineteenth-century entity whose territory straddled the present maritime boundary between
Malaysia and the Philippines. In 1991 one descendent of the sultan, a Filipino citizen, still received a stipend
stemming from cession of the sultanate to a British company. Philippine presidents have revived this claim
occasionally. It was revealed in 1968 that Marcos was training a team of saboteurs on Corregidor for infiltration
into Sabah. Marcos later decided to drop the claim, but the aggrieved Malaysians insisted on such an explicit,
humiliating public renunciation that no Philippine president could meet their conditions. The Philippine

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constitution, by not mentioning Sabah, seems to have dropped the claim. Aquino rushed a bill to Congress in
November 1987 to renounce the claim once and for all, hoping to get the issue out of the way before Malaysia's
Prime Minister Mahathir bin Mohamad arrived for the ASEAN summit in December, but Congress did not act.

Vietnam
There was little diplomatic or cultural intercourse between the Philippines and Vietnam until the 1960s. The
Philippines contributed a small civic action unit to the United States effort during the Vietnam War but refused
to allow the United States to mount B-52 bombing runs from Clark Air Base. (The aircraft flew from Guam and
were refueled from Clark.) Beginning in 1975, tens of thousands of Vietnamese and Cambodian refugees
entered the model refugee camp set up by the United Nations at Morong on the Bataan Peninsula. A clean,
well-run place, it provided Vietnamese and Cambodians bound for the United States with training in English,
American history, and vocational skills. The Philippines joined other ASEAN states in opposing Vietnam's
occupation of Cambodia, even indicating a willingness to support the Khmer Rouge, if necessary, to rid
Cambodia of Vietnamese forces.

Source: http://countrystudies.us/philippines/

Relations with Asian Neighbors Part 3

Japan
Philippine-Japanese relations were smooth and successful in the early 1990s, despite bitter memories of the
cruelty of the Japanese during their occupation of the Philippines in World War II. In mid-1986 the Philippines,
concerned about Japan's possible remilitarization, joined with other Asian nations to protest the adoption of
revisionist history textbooks by the Japanese education ministry. For the majority of Filipinos, however, World
War II memories have faded or are nonexistent. Japan was a major source of development funds, trade,
investment, and tourism in the 1980s, and there have been few foreign policy disputes between the two nations.

Aquino visited Japan in November 1986 and met with Emperor Hirohito, who offered his apologies for the
wrongs committed by Japan during World War II. New aid agreements also were concluded during this visit.
Aquino returned to Japan in 1989 for Hirohito's funeral and in 1990 for the enthronement of Emperor Akihito.

China
Philippine relations with China and Taiwan were cautious in the 1990s. Manila's relations with Beijing were
hostile in the 1950s and 1960s. The unspoken threat of Chinese aid to the New People's Army was ever present
but never materialized. By contrast, the Filipino-Chinese business community had many connections with
relatives and partners in Taiwan. Diplomatic relations between Manila and Beijing were opened in 1973. Since
that time, the relationship has been correct but not warm.

In 1988 Aquino visited China, met with elder statesman Deng Xiaoping, and made a ceremonial pilgrimage to
her ancestral home and temple in Fujian Province. The closer relationship fostered by that trip later dissipated
because of Beijing's sensitivity to what was perceived as a Philippine bias in favor of Taiwan. A Philippine
government spokesperson had inadvertently referred to a visiting delegation from Taiwan as representatives of
"the Republic of China." The disclosure of a secret visit to Taiwan, made by the Philippine secretary of foreign
affairs, Raul Manglapus, in October 1989, upset Beijing even more. In 1990 Aquino reaffirmed the Philippines'
one-China policy, but she reserved the right to develop trade and economic ties with Taiwan. China, for its parts,
has sought with limited success to conduct an "oil diplomacy" with the Philippines, a country completely
dependent on imported oil. In December 1990 Aquino welcomed the Chinese premier, Li Peng, to Manila after
earlier having suspended official contacts in the wake of the June 1989 violence around Beijing's Tiananmen
Square.

Source: http://countrystudies.us/philippines/

Reference:
Dolan, R. (1991). Philippines: A country study. Retrieved from http://countrystudies.us/philippines/ on March 16, 2018.

03 Teaching Materials 1 *Property of STI

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