PHILIPPINES Country Profile

General Information

Political Climate


The Philippines became a democracy in 1946 when it gained independence from the US. Today the country is considered the oldest democracy in Asia and is often defined as a pluralistic democracy with a market-based economy. The Philippines has an abundance of agricultural resources, significant light industry and service sectors, and a vibrant economy with a GDP growth of 3.8% in 2009. While the Philippines now enjoys relative political and macroeconomic stability, it was not always so. The country suffered an interim period (1972-1986) under an authoritarian regime led by President Marcos. Democracy was re-established in 1986 when the late former President Corazón Aquino came to power following the People Power Revolution that toppled the Marcos regime. Following a period of political instability involving several unsuccessful coups, and the unpopular presidency of Gloria Macapagal Arroyo, Benigno Aquino, former President Aquino's son, won May 2010 presidential elections by a wide margin. Aquino was elected based on his campaign platform promising to tackle the country's high-levels of corruption and deep-seated poverty by boosting foreign investment, reining in wasteful government spending, improving the civil service and investing in education.

Arroyo became President in 2001 after the still popular President Estrada was ousted because of his failure to address and combat large-scale corruption. In September 2007, Estrada was found guilty of corruption and malfeasance charges, only to be given a full pardon by President Arroyo a few weeks later. This pardon has fuelled speculations of a secret deal between the two politicians after it was revealed that the pardon was granted following a promise by Estrada not to run for office again. Nevertheless, President Arroyo won a political victory out of the affair, as Estrada's guilty verdict lent legitimacy to her taking over the presidency. However, President Arroyo's claim to legitimacy has since been weakened by allegations of corruption in her own administration. Political corruption is reportedly undermining people's trust in the country's leadership. This is supported by Pulse Asia 2009, which indicates that more than half of the surveyed citizens in the Philippines are dissatisfied with the presidential performance and distrust President Arroyo. The scandal over government kickbacks in a telecommunications deal that broke out in the beginning of 2008 led to demonstrations and popular demand for the President's resignation. The scandal has further eroded the public trust in Arroyo and put her in danger of having to face impeachment by Congress to launch impeachment proceedings against her for a less serious charge while allegedly, at the same time offered Member of Congress bribes to vote against it. According to the Philippine Law, the President can only be impeached once a year.

The Philippines has a history of corruption, and practically all governments have had to struggle with the problem. Corruption in the Philippines is characterised by a combination of societal factors, institutional factors and an incentives system that contributes to corruption. According to Transparency International Global Corruption Barometer 2009, the level of petty corruption has decreased in the Philippines with 11% of Filipino households surveyed reporting that they paid a bribe the previous year. However, according to the same household survey, 77% of the households state that the government's anti-corruption initiatives are 'somewhat/very' ineffective. Of the business executives surveyed by the Transparency International Bribe Payers Index 2008, 92% identify the government's anti-corruption initiatives as 'ineffective' or 'very ineffective'. According to Transparency International's Global Corruption Barometer 2009, political parties and public officials are the two categories most prone to corruption. Furthermore, the Social Weather Stations Surveys of Enterprises on Corruption 2008 reports that business executives perceive corruption as not having reduced within the public sector. However, almost half of the surveyed business executives encounter more compliance amongst companies when it comes to paying taxes and importing goods. Business executives surveyed in the World Economic Forum Global Competitiveness Report 2009-2010 perceive the level of public trust in politicians to be very low in the Philippines.

Business and Corruption

According to the World Economic Forum Global Competitiveness Report 2009-2010, companies identify corruption as the most problematic factor for doing business in the Philippines. Other surveys indicate that bribery has been an increasing problem for companies. According to the Social Weather Stations Business Survey on Corruption 2007, three out of five managers were asked for a bribe during at least one transaction in 2006, with the amount paid being higher than previously. Corruption is often encountered when interacting with public officials. According to the World Bank & IFC Enterprise Surveys 2009, 18.6% of companies surveyed report that they expect to make informal payments to public officials to get things done. Half of the companies surveyed by Social Weather Stations report that they are discouraged by the systemic nature of corruption, which forms an integrated part of the way government works. Areas where bribes or facilitation payments are often expected are when dealing with taxes, obtaining operating licences, construction permits and import licences. Although the level of corruption in the private sector is reportedly not as high as in the public sector, one out of five company managers claims that bribes are needed to win a private contract. Other common types of private sector corruption in the Philippines are illegal donations to political parties and bribery in order to influence policy-making. According to the Social Weather Stations Business Survey on Corruption 2007, one-fourth of the companies said that a typical company within their sector would make an average political donation of PHP 245,000 during the 2007 election campaigns. It is a common feature for companies in the Philippines to support politicians directly or to donate to their parties. Some companies also report that politicians expect them to make campaign donations. The concentration of wealth within a small group of elite families, coupled with political donations, has led to concerns as to their undue influence on both Philippine politics and business life.

According to Transparency International's Global Corruption Barometer 2009, 16% of the surveyed households believe that the Philippine private sector is extremely corrupt, and nearly half believe that the business and private sector is 'often/almost always' paying bribes to influence government policies, laws and regulations. Business executives surveyed by the World Economic Forum Global Competitiveness Report 2009-2010 report that public funds are fairly commonly diverted to companies, individuals or groups due to corruption and that government officials often favour well-connected companies and individuals when deciding on policies and contracts. Surveyed business executives also identify the lack of ethical behaviour of companies in their interactions with public officials, politicians and other companies, representing a competitive business disadvantage for the Philippines.

Companies that are planning to invest in or are already doing business in the Philippines are highly recommended to implement integrity systems and conduct extensive due diligence when entering into business partnerships or contracting agents to facilitate business transactions in the country. As illustrated by a 2008 press release by the US Securities and Exchange Commission, controlling corruption-risks is essential in order to avoid cases like that of a United States company, Con-Way Inc., that had to pay USD 300,000 in civil penalty, after having paid numerous illegal payments to foreign government officials at the Philippines Customs and the Philippine Economic Zone Area, as well as fourteen state-owned airlines between 2000 and 2003, through a Philippine-based companies in order to obtain favourable conditions. According to the Social Weather Stations Business Survey on Corruption 2007, two out of five Filipino managers spend an average of PHP 292,000 to combat corruption and fraud in their own companies, and one out of five donates an average amount of PHP 136,000 to an anti-corruption fund. The Philippine private sector thus acknowledges that corruption is a major problem which needs to be solved by companies.

Regulatory Environment

The Philippines is characterised by cumbersome bureaucracy. Business executives surveyed in the World Economic Forum Global Competitiveness Report 2009-2010 perceive the level of government administrative requirements as fairly burdensome. According to the World Bank & IFC Enterprise Surveys 2009, senior management can expect to spend 9% of its tie dealing with the requirements of government regulations. The World Bank & IFC Doing Business 2010 reports that starting a company in the Philippines costs 28% of income per capita on average, involves 15 procedures and takes 52 days, which is more costly, complicated and time-consuming than the East Asia and Pacific region's corresponding averages. However, the minimum capital required is competitive at 5.5% of income per capita. Foreign companies should note that foreign investment is restricted or limited in many sectors of the economy - see the full list. The government has set up a Board of Investments (BOI) in an effort to promote foreign investment. The BOI offers investors regulatory and incentive system guidance. The Philippines is a member of the World Customs Organization (WCO) aiming to improve its administration of customs. In 2004, the Bureau of Customs took initiative towards the accession of the Revised Kyoto Convention (RKC), currently waiting to be ratified by the Senate before submitting to the WCO. A main objective of the RKC is to simplify goods declaration and supporting documents. According to The Manila Times, however, some observers such as the Federation of Philippine Industries fear that simplifying customs procedures would lead to an increase in technical smuggling and, therefore, are urging the government to pass the Anti-Smuggling Bill before the Senate rectifies the RKC.

Post-Marcos structural reforms implemented in order to benefit economic development locally, such as deregulation, privatisation and decentralisation, have reportedly resulted in decentralising corruption as well. Due to a lack of transparency and accountability in the decentralisation process, local officials have been given additional authority, which has increased their opportunity for personal enrichment. It is reportedly common for civil servants to supplement their relatively low salaries by extracting bribes, facilitated by the country's complex and sometimes contradictory regulatory regime. Moreover, business executives surveyed in the World Economic Forum Global Competitiveness Report 2009-2010 indicate that it is a challenge to obtain information about changes in government policies and regulations affecting their industries. The level of corruption in dealing with inspectors from various government agencies is fairly high in the Philippines. In the process of deregulation, companies have offered bribes to government officials in order to protect their market and ward off competition. The privatisation process has resulted in irregular and corrupt bidding practices in order to acquire government-owned or government-controlled companies. Companies should note that a lack of transparency still prevails in public procurement processes. Political deals are made where politicians can secure the allocation of resources from the centre to their local districts as a reward for their political support. As these deals are included in the procurement budget, it blurs the transparency of the procurement process and results in substantial losses in the state budget. Although a Philippine Government Electronic Procurement System (PhilGEPS) has been set up to increase transparency of the procurement regime, companies are, nonetheless, recommended to conduct extensive due diligence during the procurement process in order to mitigate the corruption risks associated with public procurement in the Philippines.

According to the US Department of State 2009, companies generally have little confidence in the Philippine judicial system. The main reasons for this are the allegedly incompetent and understaffed court personnel, corruption and long delays of court cases. Serious concerns have been raised concerning the sanctity of contracts and of property rights based on allegations that judges accept bribes to rule in favour of one or the other party in a trial. Many foreign companies view the judiciary as a disincentive for investing in the Philippines, as settling a court case may take 5-6 years or longer if there are appeals. Therefore, many companies seek out alternative dispute resolution possibilities. The Philippines is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention 1958. Nevertheless, it is reported that Philippine courts are disinclined to abide by the arbitration process and that the enforcement of decisions may take several years. Several disputes have been raised over water rights in relation to agricultural and industrial production. Access the Lexadin World Law Guide for a collection of legislation in the Philippines.