Geo-Politics

What are the Most Pressing Challenges for the Philippines in 2024?

A Brief

The Philippines, an archipelago comprising over 7,600 islands in Southeast Asia, is strategically located about 500 miles off the coast of Vietnam in the western Pacific Ocean. With Manila as the capital and Quezon City as the most populous city, forming part of the National Capital Region on Luzon, the country boasts a diverse geographical landscape. Geopolitical dynamics in Asia, the world’s largest continent, present a tapestry of diversity and complexity, encompassing numerous nations, languages, cultures, and intricate geographical features. The Southeast Asian region, characterized by extensive coastlines, rivers, and plains, houses eleven nations, among which Taiwan and the Philippines harbor historical complexities and present-day challenges. The Philippines, once a Spanish colony for over three centuries and subsequently under U.S. rule, gained full independence in 1946, shaping its linguistic, religious, and governmental influences. Presently, the Philippine economy is poised for healthy expansion, with the Asian Development Outlook projecting growth at 6.2% in 2024. Driven by increasing domestic demand, a revival in tourism, and robust public infrastructure spending, the nation’s growth trajectory aligns with its aspirations to attain upper middle-income status. However, challenges such as inflation, impacted by local food supply constraints and global commodity prices, and the evolving labor market due to emerging technologies, pose considerations for sustained progress. Despite these challenges, the Philippines exhibits positive signs, reflected in an improved unemployment rate, steady remittances from overseas Filipino workers, and a narrowing current account deficit, propelled by strong service exports and tourism recovery.

Challenges with Global Significance:

Territorial Disputes in the West Philippines Sea:

The longstanding conflict between China and the Philippines in the Western Philippine Sea, also known as the South China Sea, has its roots in a protracted territorial dispute over the Spratly Islands. Comprising of islands and reefs, the Spratlys hold strategic importance along major trade routes, serve as valuable fishing grounds, and harbor natural resources such as oil. Multiple countries, including Vietnam, Taiwan, Malaysia, and Brunei, lay claim to the region, citing historical records. China, however, asserts its sovereignty through the contentious “new ten-dash line,” first appearing in 1947 atlases, demarcating its continental shelf without fixed coordinates. This claim extends China’s national boundary over a significant portion of the South China Sea, leading to the construction of artificial islands in the Spratlys, causing ecological damage to the West Philippine Sea. Notably, China’s self-proclaimed demarcation contradicts the United Nations Convention on the Law of the Sea (UNCLOS).

Despite diplomatic efforts, tensions escalated in 2012 with the Scarborough Shoal Standoff, a critical incident where Chinese surveillance vessels prevented the Philippine Navy from apprehending Chinese fishermen within the atoll. The Scarborough Shoal, situated about 230 kilometers from the Philippines and 650 kilometers from China’s Hainan province, lies within the Exclusive Economic Zone of the Philippines, with both China and Taiwan also laying claim to its sovereign territory. This standoff, coupled with China’s aggressive actions like constructing artificial islands and engaging in illegal fishing and harvesting of marine resources, prompted the Philippines to bring the matter before the UN-backed Permanent Court of Arbitration (PCA) in The Hague, Netherlands.

The tensions surrounding Scarborough Shoal, exacerbated by China’s actions since 2012, particularly its interference with Filipino fishermen exercising fishing rights, have underscored the need for international adjudication. The PCA’s involvement reflects a commitment to resolving disputes in accordance with established international laws, highlighting the importance of upholding the principles outlined in UNCLOS. The outcome of this legal process will undoubtedly shape the trajectory of the territorial disputes in the South China Sea and influence the broader geopolitical landscape in the region.

Fisheries Management:

The Philippines stands as a prominent fishing nation, ranking among the top 25 globally, as per the United Nations’ Food and Agriculture Organization. The nation is home to approximately 2 million small-scale fishers whose daily needs and livelihoods hinge on the nearshore waters. However, the fishing sector grapples with multifaceted challenges, including the absence of a scientific foundation in policy development and insufficient involvement of stakeholders in decision-making processes. The imperative to enhance Philippine fisheries cannot be overstated, given that the well-being of every Filipino reliant on the sea for their livelihoods is at stake.

The trajectory of Philippine fisheries policy has been largely influenced by political considerations and the influence of a select few powerful entities, sidelining the perspectives of scientists and the multitude of stakeholders directly impacted by the resource. Despite the collection of data through the stock assessment program spanning five to nearly 10 years in certain areas, a critical deficiency lies in the capacity to transform raw data into actionable information for decision-makers. Strikingly, there has been minimal investment in cultivating the necessary expertise and skills for stock assessment and data analysis within the country.

Addressing this gap demands the establishment of a comprehensive system or framework that seamlessly integrates science and management, paving the way for more informed policies adaptable to the dynamics of the fisheries sector. Crucially, there is an urgent need to empower the primary users of the resource—the fishers themselves—with a significant voice in the decision-making processes. This shift toward a more inclusive and science-driven approach is pivotal for steering Philippine fisheries toward sustainable practices and securing the livelihoods of those dependent on the bounty of the sea.

Sea Level Rise Vulnerability:

The global threat of climate change looms large over coastal communities, necessitating a comprehensive approach that combines local knowledge and innovative practices like parametric insurance to bolster coastal resilience and alleviate the impacts of climate change. As the planet experiences rising temperatures, the oceans are swelling, leading to an increase in the frequency and severity of coastal disasters. Communities residing on climate change’s frontlines grapple with the stark realities of death, infrastructure damage, and the loss of homes, compelling them to seek refuge on higher ground. Coastal disasters, such as typhoons, not only inflict immediate harm but also pose the risk of prolonged recovery with enduring consequences, raising questions about the feasibility of rebuilding.

The latest assessment report from the Intergovernmental Panel on Climate Change underscores the heightened threat of more intense tropical cyclones in a warming world. The prospect of warmer ocean temperatures fueling stronger cyclones and rising sea levels inundating coastal regions looms large. Even under a low-carbon emissions trajectory, the report projects sea levels to rise by up to approximately 0.7 meters by the close of this century. Southeast Asian countries, with some of the world’s longest coastlines, find themselves exceptionally vulnerable to the impacts of a warming ocean. The International Monetary Fund notes that the extensive coastlines and densely populated low-lying areas in this region, home to over 640 million people, make it highly susceptible to weather extremes and rising sea levels.

Recognizing the urgency, developing the resilience of coastal communities takes center stage, offering a crucial means to enable swift recovery from disasters and prevent a singular event from spiraling into a protracted community-wide catastrophe. Amidst discussions on climate’s impact on conflict, a nuanced and context-specific understanding is emphasized, acknowledging the complex relationship between climate and conflict. The Philippines, defining national security in terms of safeguarding sovereignty, territorial integrity, well-being, core values, and the state and its institutions, grapples with the profound implications of sea-level rise on these foundational elements of security. The looming threat jeopardizes the lives and livelihoods of Filipinos, particularly those in coastal areas, emphasizing the need for people-centered discussions on the peace and security implications of sea-level rise. The far-reaching consequences extend to statehood and security, involving the loss of territory, displacement of populations, and tensions over resource access, livelihoods, and services, ultimately challenging the stability of national boundaries.

Challenges with Local to Regional Significance:

Infrastructure Gap:

Infrastructure plays a crucial role in fostering development, yet the Philippines has grappled with insufficient infrastructure hindering economic growth and poverty reduction. Despite relatively high access levels to water, sanitation, and electricity, service levels have lagged behind due to rapid population growth and urbanization. Challenges include a poor business environment, coordination issues, and a decline in private-sector involvement. A comprehensive roadmap is essential to boost infrastructure expansion and improvement, propelling the country into a cycle of growth. Achieving sustained development requires increased infrastructure investments, aiming for at least 5 percent of GDP, enhanced spending efficiency, fiscal reforms, sector-specific improvements, and strategic public-private partnerships to address key bottlenecks swiftly. Despite being among Asia’s top-performing economies, outdated and insufficient infrastructure poses a challenge, prompting the Philippines to ramp up spending on vital projects through initiatives like Build Build Build, targeting a ratio exceeding 6 percent of GDP by 2022.

Natural Disasters:

The Philippines is highly prone to disasters triggered by natural calamities, with some estimations placing 60% of its land area and 74% of its population as exposed to numerous hazards, including floods, cyclones, droughts, earthquakes, tsunamis, and landslides. Since 1990, the country has faced 565 such disasters, killing 70,000 and costing $23 billion in damages. Except earthquakes and volcanic eruptions, the multiple natural hazards facing the Philippines are projected to intensify under climate change. The country is particularly prone to cyclones due to its location in the Northwestern Pacific Basin, the most active tropical cyclone basin in the world, with the country experiencing an average of 20 cyclones per year within its area of responsibility, with approximately 8 making landfall. The strongest recorded typhoon happened in recent years, Typhoon Haiyan in 2013 killing 6,000 people, devastating nine regions and resulting in 1.1 million homes damaged and agricultural and infrastructure damages of $802 million. While not directly climate-related, the Philippines are also located in an area of considerable tectonic activity, possessing 22 active volcanoes. An example of the threat from volcanic activity is witnessed in the eruption of Mount Mayon in early 2018, which resulted in the evacuation of up to 90,000 people

Energy and Power:

The Philippines confronts a pressing energy crisis with the imminent depletion of the Malampaya natural gas fields, responsible for 30% of Luzon’s energy. Compounded by a growing population, high electricity costs, and challenges from COVID-19, the country aims for energy self-sufficiency by 2030. However, with 43 Gigawatts of additional power capacity needed by 2040, the nation lags in developing timely solutions. The energy mix, led by coal 30.2% and renewables 35.5%, lacks penalties or incentives for specific energy sources. The fully privatized electricity sector, dominated by Meralco, poses hurdles for both larger and smaller players in adopting sustainable energy solutions.

The renewable energy sector holds promise with diverse resources like geothermal, solar, hydropower, wind, biomass, and ocean energy. Policy mechanisms and trading systems support renewable energy initiatives, while plans for the nation’s first LNG import terminal are underway. Over 70 power generation companies engage in rehabilitation and maintenance projects, offering opportunities for equipment and services. With a shift toward renewable resources, conglomerates make decisions based on pricing and diversification needs. Despite challenges, solutions are sought for grid enhancement, off-grid options, and micro-grid solutions, aligning with the Philippines’ evolving focus on energy diversification and sustainability.

Freshwater Resources:

The looming threat of a global water crisis, as highlighted by the UN World Water Development Report 2023, becomes starkly evident in the Philippines as authorities warn of potential water interruptions in Metro Manila affecting over 600,000 households. The declining water level in Angat Dam, reaching a precarious 181.83 meters as of July 4, nears the minimum operating level of 180 meters. Unlike power interruptions that elicit a casual “brownout” reaction, water shortages evoke a more visceral response from Filipinos, emphasizing the critical nature of this issue. With water scarcity joining the ranks of current existential challenges, the National Water Resources Board implements a temporary two cubic meter per second cut in water allocation as a conservation measure. While the Kaliwa Dam project is anticipated to alleviate the issue in the long term, there is a growing need to explore innovative solutions like desalination, given the severity of the problem.

Thousands have lived without love but not one without water” – W.H. Auden

To address the pressing water crisis, policymakers in the Philippines are turning to measures like reducing water allocation and proposing large-scale projects such as the Kaliwa Dam. However, these efforts may fall short, prompting consideration of desalination as a viable solution. While traditional desalination methods are energy-intensive and environmentally challenging, advancements in technology offer promising alternatives, such as solar-powered desalination plants. Gulf countries and Independent Water and Power companies are leading the way with cost-effective and eco-friendly desalination projects, potentially reducing CO2 emissions significantly. In the Philippines, several local governments and private corporations are exploring desalination plants, with some pioneering solar-powered solutions. These innovative approaches aim to address water scarcity, offering hope for a more sustainable and resilient water supply in the face of a global water crisis.

Difficult Governance and Administration:

The Philippines grapples with a complex array of governance challenges, spanning inclusive growth, human capital, and resilience. Utilizing the Worldwide Governance Indicators, the country excels in Voice and Accountability and Regulatory Quality but lags in Government Effectiveness, Control of Corruption, and Rule of Law. Weak government effectiveness hinders policy implementation, with corruption identified by over one-third of firms as a major constraint, impeding economic growth. The rule of law suffers from judicial inefficiency, causing delays and favoring powerful firms. Limited voice and accountability result from political dynasties and vote buying. Challenges include overlapping responsibilities and duplication among agencies, hindering policy implementation, and fostering a cautious culture. Addressing these issues is crucial for effective governance and sustainable development.

Healthcare issues in the Philippines

The healthcare landscape in the Philippines is a dynamic blend of public and private sectors. Public hospitals focus on preventive and primary care, leading health education efforts, while private hospitals specialize in cardiovascular diseases, cancer, pulmonology, and orthopedics. The Universal Health Care (UHC) Law, signed in 2019, strives to provide accessible healthcare services to all Filipinos, including Overseas Filipino Workers (OFWs), through the PhilHealth insurance program, covering at least 50% of medical expenses.

The country’s healthcare system is evolving, with private equities investing in and upgrading hospital infrastructure. The majority of hospitals are concentrated in the Calabarzon region, Central Luzon, and the National Capital Region. In 2021, the leading causes of death were ischemic heart disease, cerebrovascular diseases, and COVID-19. Despite these challenges, the Philippines is emerging as a medical tourism destination, ranking 24th globally, offering competitive prices and English-speaking medical professionals. The healthcare market presents opportunities for health IT and innovative medical devices, with a focus on accurate diagnostics and specialty fields like cancer treatment.

Philippine Education Disparities:

Likewise, the Philippines is also facing a significant learning crisis as data reveals that 9 out of 10 10-year-olds struggle to read simple texts. Despite the constitutional mandate to protect and promote the right to accessible and quality education, the country faces persistent challenges in its education system. Access to quality education remains uneven, with completion rates dropping significantly from primary to secondary education, and further diminishing for bachelor’s or equivalent degrees. Notably, while 49% of the wealthiest attend higher education, only 17% from the poorest decile can do the same. Productivity lags, with Filipino students spending more time in school but achieving less than their counterparts in comparable countries. Higher education enrollment rates, once on par with middle-income countries, are stagnating, contributing to an erosion of overall educational standards.

The Philippines’ education system is marked by disparities, with significant gaps between rich and poor in accessing higher education. Proficiency levels in reading, math, and science are below the desired benchmarks, and the country’s enrollment rate is struggling to keep pace with rising trends in neighboring nations. The challenges are underscored by a large proportion of school leavers and out-of-school youth, reflected in the low representation of 15-year-olds in international assessments like PISA. Addressing these disparities and enhancing overall educational outcomes are critical imperatives for the Philippines to meet its constitutional commitment to providing accessible and quality education for all.

Internal Migration and Urban Congestion:

Migration is a key strategy for Filipinos seeking economic improvements, with 45% engaging in internal migration and 89% in international migration primarily for employment, as reported by the Philippine Statistics Authority. The resulting overseas Filipino workers (OFWs) contribute significantly to households, sending record-high cash remittances of US$36.14 billion in 2022, as per the Bangko Sentral ng Pilipinas. While studies emphasize the positive impact of international migration, there is limited research on the combined effects of internal and international migration on those left behind. Recognizing the substantial non-migrant population, comprising 60% of the 2018 National Migration Survey is vital to understanding and addressing the broader economic and financial implications of migration on the country.

The Philippines stands out as a global example of an effective migration policy, acknowledged in a 2023 World Bank report. Highlighting the urgency of better migration management, the report emphasizes the increasing demand for foreign workers in aging rich and middle-income countries, presenting a unique opportunity for countries like the Philippines. The country’s proactive approach includes labor agreements with Gulf States, establishing minimum wages, and implementing reforms to enhance workers’ technical skills. Additionally, pre-departure orientation programs inform migrants about migration risks, labor rights, safety measures, and destination-specific information, showcasing a comprehensive strategy to harness the benefits of migration for both individuals and the nation’s development.

A Way forward for a prosperous Philippines

The Philippines stands out as one of the most dynamic economies in the East Asia and Pacific region, driven by factors such as increasing urbanization, a growing middle class, and a youthful population. Rooted in strong consumer demand, supported by a vibrant labor market and robust remittances, the country’s private sector, particularly the services sector, remains resilient. Despite facing challenges like the COVID-19 pandemic and global economic headwinds, the poverty rate has declined from 23.3 percent in 2015 to 18.1 percent in 2021. The government is committed to further economic growth, focusing on significant investments in both human and physical capital for the medium and long term.

The Philippines is experiencing a noteworthy economic recovery, with growth reaching 7.6 percent in 2022, up from 5.7 percent in the previous year. This rebound is attributed to robust domestic demand, a strong labor market, ongoing public investments, and positive effects from recent investment policy reforms. With sustained recovery and reform initiatives, the country aims to transition from a lower middle-income status to an upper middle-income country, with a targeted gross national income per capita range of US$4,466 to US$13,845. Key priorities include creating fiscal space to boost infrastructure and public services, addressing perennial challenges in raising public revenues, and improving the investment climate to foster business growth and job creation, particularly by reducing the cost of doing business and resolving infrastructure bottlenecks.

Analysis

Is Philippines the Next Japan?

Manila has long cast a longing glance at Tokyo. Japan’s post-World War II economic miracle—a phoenix rising from ashes—is a tale etched into the annals of global capitalism. Now, the Philippines, a nation of 118 million, is attempting its own ascent. But can it replicate the Japanese magic formula?

The archipelago’s economy has been on a tear. Growth rates have outpaced most of Southeast Asia, sustained by a burgeoning call center industry, remittances from overseas Filipino workers, and a growing consumer class. Infrastructure projects, once the stuff of political promises, are now breaking ground. The question is: is this a sustainable boom, or a mirage shimmering in the tropical sun?

I. Economic Growth

The Philippines’ recent economic trajectory contrasts sharply with Japan’s post-World War II economic miracle. Japan’s rapid economic growth from 1945 to 1991, known as the “Japanese Economic Miracle,” was characterized by disciplined fiscal policies, deliberate industrial development, and significant infrastructure investments. This period saw Japan’s economy grow at a rate twice as fast as the prewar average every year after 1955, achieving a peak last seen in 1939 in less than ten years.

Japan’s unique political structure, characterized by strong centralized authority, social consensus, and a long-term perspective, fostered an environment conducive to implementing consistent and far-reaching economic policies. This, coupled with deeply ingrained cultural values of respect for authority, discipline, and collective good, contributed significantly to the nation’s rapid post-war recovery. Ezra Vogel, in his seminal work “Japan as Number One: Lessons for America,” highlighted how Japan’s economic policies were marked by a “remarkable coherence and stability.”

In contrast, the Philippines has struggled to achieve steady economic growth despite having abundant natural resources and a youthful labor force. The Philippines’ efforts to emulate Japan’s swift rise have been impeded by policy changes, political unpredictability, and infrastructure deficiencies. While Japan’s economic policies were marked by stability and continuity, the Philippines has faced a more fragmented political landscape, making long-term planning more challenging.

Despite all these challenges, The Philippines’ real GDP is projected to grow by 0.2 percentage points annually between 2024 and 2029, reaching 6.4 percent by 2029. In 2023, approved foreign investments in the Philippines amounted to roughly 889 billion Philippine Pesos, with the power, gas, steam, and air conditioning sectors receiving the largest share. However, no foreign investments were made in the public sector that year, particularly in defense and administration, including mandatory social security. In May 2024, the Philippines’ trade balance showed a deficit of USD 4.6 billion, slightly down from the previous month’s deficit of USD 4.7 billion. The main economic sectors of the Philippines are manufacturing, agriculture, private services, and trade, with agriculture, forestry, and fishing contributing 8.6% of the GDP in 2023.

The construction industry is also a significant player in the Philippines’ economy, with a projected contribution of 7% to the GDP in 2023. The national government’s infrastructure initiative has generated employment opportunities for thousands of Filipinos and attracted foreign investments worth around 14.2 million Philippine Pesos.

The services sector, comprising business process outsourcing, retail, real estate, and tourism, has been a key driver of the Philippine economy. Despite global challenges such as climate change and economic volatility, the country has made progress in poverty reduction, with rates declining from 23.3% in 2015 to 18.1% in 2021.

Economic growth in the Philippines is expected to accelerate to 5.8% in 2024, up from 5.5% the previous year, and reach 5.9% in 2025.

The medium-term economic projection is expected to be sustained by healthy domestic demand, driven by a strong labor market, ongoing public investments, and potential benefits of recent revisions to investment policy that may encourage private investment. With sustained recovery and reform initiatives, the nation is regaining momentum toward its goal of becoming an upper middle-income country, with a gross national income per capita of US$4,230 in 2023.

II. Political Landscape

Japan is seen as having a parliamentary system, whereas the Philippines is a presidential one. The Japanese political system is a bicameral parliamentary constitutional monarchy with a dominating party system. The Emperor serves as the head of state, while the Prime Minister leads the government and the Cabinet, which oversees the executive branch.

The Philippines is a democratic nation with a president who is chosen directly by the populace to fulfill the dual roles of head of state and head of government. The president is a significant political person who leads the executive branch. When assessing the influence of stability and governance on economic growth, Japan and the Philippines offer significant insights. Although Japan’s economic dominance has been bolstered by stability, the democratic administration of the Philippines provides opportunities for response to public demands and participatory decision-making.

III. Infrastructure Development

Underdeveloped infrastructure is a significant obstacle to the Philippines growth. Congested roads, inefficient ports, and unreliable power supply constrain economic activity and deter foreign investment.

The “Build Better More” program, which replaced the “Build! Build! Build!” initiative, aims to improve the country’s infrastructure. According to data from the National Economic and Development Authority (NEDA), as of April 2024, out of the 185 projects that were identified, 35% were still in progress, and less than 1% had been finished since 2022. The primary sources of project funding for this nine-billion-peso project are public-private partnerships (PPP), official development aid (ODA), and the General Appropriations Act (GAA).

Japan’s post-war infrastructure development was pivotal for its economic growth. Investments in manufacturing and heavy industries necessitated rapid urbanization and infrastructure development, creating a solid foundation for industrial growth. “Japan’s development strategy was heavily dependent on infrastructure investments, which became the backbone of its industrialization policy,” wrote Chalmers Johnson in his book “MITI and the Japanese Miracle.”

Japan’s industrialization policy was largely dependent on its infrastructure investments, which enabled effective connectivity and logistics to promote export-oriented companies and economic growth. While promoting economic development through infrastructure investment is a similar objective of both Japan’s post-World War II infrastructure projects and the Philippines’ Build, Build, Build program, they differ in scale, breadth, and historical context.

IV. Industrial Policy and Innovation

Japan’s post-war industrial policy emphasized key industries such as steel, automotive, and electronics. The Ministry of International Trade and Industry played a crucial role in guiding industrial development through subsidies, tax incentives, and preferential financing. Japan also heavily invested in technological innovation and R&D, fostering a skilled workforce capable of driving industrial growth.

In comparison, the Philippines has faced challenges in establishing a robust industrial base. While the country has seen growth in industries such as electronics, business process outsourcing (BPO), and agriculture, it has yet to achieve the same level of industrial diversification and technological advancement as Japan. The Philippine government has recognized the need for industrial policy reforms and increased investment in innovation to drive sustainable economic growth.

The Philippine Development Plan 2023-2028 outlines strategies to enhance industrial productivity, including improving the regulatory environment, fostering innovation, and promoting technology adoption. The government aims to develop a competitive industrial sector by supporting micro, small, and medium-sized enterprises (MSMEs) and attracting foreign direct investment (FDI). Additionally, initiatives to enhance education and skills training are underway to build a workforce capable of supporting a modern industrial economy.

V. Human Capital Development

Human capital development has been a cornerstone of both Japan’s and the Philippines’ economic strategies, albeit with differing approaches and outcomes. Japan’s post-war economic miracle was significantly aided by its investment in education and workforce training. The Japanese government prioritized universal education, with a strong emphasis on science, technology, engineering, and mathematics (STEM). This created a highly skilled and disciplined workforce that could meet the demands of rapidly advancing industries.

Japan’s cultural values, such as diligence, teamwork, and respect for authority, further reinforced its human capital development efforts. The Japanese education system and corporate culture emphasized lifelong learning, continuous improvement (kaizen), and innovation. These factors contributed to a workforce that was not only technically proficient but also adaptable and committed to excellence.

In the Philippines, human capital development is recognized as a key driver of economic growth. The government has made strides in improving access to education and healthcare, which are essential components of human capital. However, challenges remain, particularly in terms of education quality, skills mismatch, and underemployment.

The Philippine’s government is working to align educational curricula with industry needs, promote technical and vocational education, and expand access to higher education. Efforts to improve healthcare services and social protection are also part of the broader strategy to build a healthy, educated, and productive workforce.

The Philippines’ young and growing population presents both opportunities and challenges. With a median age of around 25 years, the country has a demographic dividend that can drive economic growth if properly harnessed. Investing in education, skills development, and health services is crucial to maximizing the potential of this demographic advantage.

VI. Trade and Foreign Policy

Japan’s economic success was supported by a pragmatic approach to international relations, focusing on economic cooperation and regional integration. The United States played a significant role in Japan’s recovery, providing financial aid and access to the American market. This fostered a strong trade relationship that was pivotal to Japan’s export-oriented growth.

Strong exports of machinery, electronics, and cars characterize Japanese trade, which has helped the nation achieve a positive trade balance. Japan has pursued free trade agreements (FTAs) to expand its access to international markets and promote economic growth. By promoting trade and fostering economic cooperation, these accords with nations in the Asia-Pacific area, North America, and Europe have been essential in boosting Japan’s economic development.

In comparison, the Philippines has faced a more complex geopolitical landscape. While the country has made progress in establishing trade agreements and regional partnerships, it has had to navigate tensions in the South China Sea and shifting global trade dynamics. The Philippines’ strategic location in Southeast Asia presents both opportunities and challenges for its trade and foreign policy.

The Association of Southeast Asian Nations (ASEAN) plays a significant role in the Philippines’ trade strategy. ASEAN’s economic integration initiatives, such as the ASEAN Free Trade Area (AFTA) and the Regional Comprehensive Economic Partnership (RCEP), aim to enhance regional trade and investment flows. The Philippines has also pursued bilateral trade agreements with key trading partners, including the United States, Japan, and the European Union.

Efforts to diversify export markets and reduce reliance on a few key trading partners are part of the Philippines’ trade strategy. The country aims to enhance its competitiveness in global value chains by improving trade facilitation, infrastructure, and logistics. Additionally, initiatives to promote exports of high-value goods and services, such as electronics, garments, and IT services, are being implemented to boost trade performance.

VII. Challenges and Obstacles

The Philippines’ economic journey is not without its challenges and obstacles. Political instability, corruption, and bureaucratic inefficiencies have hindered the country’s progress. Environmental issues, such as natural disasters and climate change, pose significant risks to sustainable development.

Political instability has been a recurring issue in the Philippines, affecting investor confidence and policy continuity. Frequent changes in leadership and political turmoil have created an unpredictable business environment. Corruption remains a major challenge, with the country consistently ranking low on Transparency International’s Corruption Perceptions Index. Addressing these issues is crucial for creating a conducive environment for economic growth and development.

Environmental challenges also pose significant risks to the Philippines’ economic prospects. The country is highly vulnerable to natural disasters, such as typhoons, earthquakes, and volcanic eruptions. These events can cause widespread damage to infrastructure, disrupt economic activities, and exacerbate poverty and inequality. Climate change further amplifies these risks, with rising sea levels, increased frequency of extreme weather events, and changing weather patterns affecting agriculture, fisheries, and coastal communities.

The Philippine government has recognized the need to address these challenges and has implemented various measures to mitigate their impact. Efforts to strengthen disaster preparedness and response capabilities, improve governance and transparency, and promote sustainable development are underway. The government is also working to enhance climate resilience through initiatives such as reforestation, coastal protection, and sustainable agriculture practices.

End Note:

The Philippines stands at a critical juncture in its economic journey. While it has made significant progress in recent years, achieving sustained and inclusive growth remains a formidable challenge. The experiences of Japan offer valuable lessons and insights that can guide the Philippines in its quest for economic transformation.

Japan’s post-war economic miracle was built on a foundation of strong governance, strategic industrial policy, investment in human capital, and international trade. While the Philippines faces a different set of challenges and opportunities, it can draw inspiration from Japan’s experience and adapt these lessons to its unique context.

To realize its full potential, the Philippines must prioritize good governance, political stability, and policy continuity. Strengthening institutions, improving transparency, and reducing corruption are essential for creating a conducive environment for investment and economic growth. Additionally, investing in infrastructure, education, and healthcare will be crucial for building a resilient and productive workforce.

The Philippines’ young and dynamic population presents a unique opportunity for demographic dividends. By investing in human capital development, promoting innovation, and fostering a competitive industrial sector, the country can unlock new sources of growth and development.

While the road ahead is challenging, the Philippines has the potential to become a major economic player in the region. By learning from Japan’s experience and implementing bold and visionary policies, the Philippines can chart a path towards sustained and inclusive growth, realizing its aspirations of becoming the next economic miracle in Asia.

Analysis

Will China and the Philippines adhere to their most recent “Arrangement”?

“China-Philippines Most Recent ‘Arrangement’ Has Nothing to Address the Root Cause of Tensions in the South China Sea”

The Philippine government has announced that China and the Philippines have reached an agreement to ease tensions over the disputed Second Thomas Shoal in the South China Sea. This agreement, negotiated by Chinese and Filipino diplomats in Manila, outlines temporary conditions for resupplying Filipino troops stationed on the shoal. Both nations claim sovereignty over the shoal, which has been the scene of frequent confrontations between their forces. The Second Thomas Shoal, also known as Ren’ai Jiao in China and Ayungin Shoal in the Philippines, lies roughly 1,000 kilometers from China’s southern Hainan Island and the western Philippines Island of Palawan. It has been a flashpoint in recent months, culminating in a violent incident on June 17. During this confrontation, Chinese forces rammed and boarded two Philippine navy boats attempting to deliver supplies to Filipino personnel on the shoal. The Chinese forces seized control of the boats, damaged and took several M4 weapons along with other supplies with them. The clash, which resulted in injuries to Filipino navy officers, was captured on video and in photographs. Both China and the Philippines blame each other for the conflict, asserting their respective claims over the strategically significant shoal. The South China Sea is a crucial global trade route with rich fishing grounds and underwater gas reserves.

In addition to China and the Philippines, other nations with territorial claims in the South China Sea include Vietnam, Malaysia, Brunei, and Taiwan. The region is a sensitive area and a potential flashpoint in the US-China rivalry. While the recent agreement between China and the Philippines marks a step towards reducing immediate tensions, it does not address the underlying causes of the broader South China Sea disputes.

Significance & Background of the South China Sea Dispute

The South China Sea is an incredibly productive area, serving as a major fishing ground for China, Vietnam, the Philippines, and other claimant states. The region’s continental shelf harbors significant natural gas and petroleum reserves. The abundance of marine life in the South China Sea is due to the large-scale drainage of nutrient-rich waters from land and the upwelling of water in specific maritime regions. This heavily fished area is a primary source of animal protein for the densely populated Southeast Asian region, with prevalent species including shrimp, shellfish, anchovies, croaker, mackerel, and tuna. Most of the catch, whether fresh or preserved, is consumed locally. The Philippines, in particular, is a major fish-producing nation.

Furthermore, the South China Sea holds tremendous geopolitical significance in the context of global politics. Its strategic location at the intersection of major maritime routes connecting the Indian and Pacific Oceans makes it a focal point for international powers and their interests. The region is critical to the world economy, facilitating the annual flow of goods worth trillions of dollars. Nearly one-third of global trade, including vital energy resources such as oil and natural gas, passes through these waters. Any attempt by China to disrupt this trade would harm the global supply chain and the economies of other countries. Consequently, the South China Sea has become a focal point for the ambitions and rivalries of major powers, including the United States, China, Russia, and Japan.

Ayungin Shoal, also known as Second Thomas Shoal, is a contested reef claimed by the Philippines, China, Brunei, Malaysia, and Vietnam. The Philippine military ship Sierra Madre, intentionally grounded in 1999 to counter China’s territorial claims, is manned by a small contingent of Philippine Marines. For years, these nations have been embroiled in disputes over the territorial status of various islands and reefs like the Ayungin Shoal in the South China Sea. This region, which includes Whitson Reef, the Paracel Islands, Thitu Island, Scarborough Shoal, and the Spratly Islands, is believed to hold significant oil and gas reserves.

In July 2016, the Permanent Court of Arbitration in The Hague ruled against China’s territorial claims in the South China Sea in a case brought by the Philippines. Recently, the Philippine Foreign Ministry announced that the Philippines and China have agreed on guidelines for de-escalating tensions in the South China Sea to facilitate the transfer of personnel and supplies to the BRP Sierra Madre stationed at Ayungin Shoal. The ministry’s statement outlined that both nations have reached an understanding of principles to prevent misunderstandings and miscalculations during the Philippines’ lawful and routine rotation and resupply missions to the shoal.

This agreement was the result of productive discussions during the 9th Bilateral Consultation Mechanism on the South China Sea, held in Manila on July 2, 2024. Despite this progress, China has refused to acknowledge or recognize the court’s ruling, which states that the islands do not form an exclusive economic zone or disputed territory. The Philippine Foreign Ministry affirmed that Manila will continue to uphold its rights and authority over Ayungin Shoal, in accordance with the UN Convention on the Law of the Sea.

Clauses of the Recent Arrangement

According to Manila, China and the Philippines have reached a ‘provisional deal’ for resupply missions in the South China Sea.

The Philippines and China have reached a provisional arrangement for resupply missions to the beached Filipino naval ship, Sierra Madre, on the Second Thomas Shoal, according to a statement from Manila’s Department of Foreign Affairs (DFA). The DFA did not provide specifics about the resupply missions but emphasized that the arrangement followed “frank and constructive discussions” during the Bilateral Consultation Mechanism earlier this month. Both sides acknowledged the need to de-escalate the situation in the South China Sea and manage their differences through dialogue and consultation, agreeing that the arrangement would not prejudice their respective positions in the area.

The Chinese foreign ministry confirmed the temporary arrangement and reiterated its demand for the Philippines to tow away the Sierra Madre and restore the shoal to its original, unoccupied state. A Chinese spokesperson expressed China’s willingness to allow humanitarian resupply missions to the ship’s occupants if necessary before the vessel is removed. However, China firmly opposed any transfer of substantial building materials or attempts to establish fixed facilities and permanent outposts on the shoal, vowing to resist such actions to safeguard its sovereignty.

Despite an offer of assistance from the United States, Philippine security authorities announced that they would conduct the resupply missions independently. White House National Security Adviser Jake Sullivan had stated that the US would do whatever necessary to support its treaty ally in resupplying the Sierra Madre. However, Eduardo Año, his Filipino counterpart, confirmed that the resupply operations would remain “a pure Philippine operation,” indicating no need for direct US involvement at this time.

Analysis of the Arrangement

Concerns of a military conflict at the Second Thomas Shoal, potentially involving the United States, loom large as tensions between China and the Philippines escalate in the South China Sea. Despite these worries, there are strong reasons to believe that both Beijing and Manila will strive to avoid a military clash. Chinese officials must weigh the regional geopolitical implications and the significant distraction from their current focus on domestic socioeconomic issues. Manila faces an immediate constraint due to an unfavourable military power balance compared to China. Many questions remain about how the United States, the Philippines’ ally, will respond if a naval confrontation occurs in the South China Sea. A critical issue is how Manila and its allies will eventually address China’s gray zone operations, which have proven challenging for regional entities and their supporters, influencing the outcome of current tensions between Beijing and Manila.

Beijing appears ready to seize what it perceives as a favorable moment to capture the Second Thomas Shoal. It has employed water cannons to prevent Filipino vessels from transporting construction materials to repair the BRP Sierra Madre. The Philippines has a strong incentive to strengthen the BRP Sierra Madre to maintain control of the feature long-term. During the prolonged dispute, Manila has sent survival supplies to its marines on the ship, which Beijing claims to have allowed for humanitarian reasons. The Philippines may have covertly supplied limited construction materials to the ship, but there are concerns that the vessel will disintegrate if not significantly strengthened.

The goals of the two countries appear incompatible, and conflict is likely to escalate. From another perspective, China may continue to employ gray zone tactics, gradually depleting Manila’s resources and policy options, enabling Beijing to achieve its short-term objectives. Chinese officials recognize these geopolitical constraints but aim to increase China’s presence and influence in the South China Sea. In the ongoing dispute, Beijing heavily relies on gray zone measures, hoping to ensure the eventual failure of the Filipino vessel on the Second Thomas Shoal. When the warship fails, the shoal might swiftly fall under Chinese control. Beijing expects this strategy to help avert the worst-case regional geopolitical repercussions of a direct military conflict. Many Chinese policy elites believe that the gray zone approach is the best way to address this geostrategic challenge. For more than a year, China has effectively blocked the Philippines’ resupply sorties and prevented ship repairs using these tactics.

As a result, the Philippines is forced to choose between responding to China’s blockade and retaining control of the Second Thomas Shoal. A power imbalance and logistical challenges limit the Philippines’ ability to counter China’s strategy. In the worst-case scenario, Manila may take military action or seek military assistance from non-regional states to resist China’s activities. If this occurs, China is likely to retaliate with substantial military force, citing retribution and self defense.

Root Causes of the Tensions

China’s assertiveness in the South China Sea has steadily intensified, escalating tensions with Southeast Asian claimant nations, particularly the Philippines, near the Second Thomas Shoal in the Spratly Islands. China’s sweeping claims to sovereignty over the sea—and its estimated 11 billion barrels of undiscovered oil and 190 trillion cubic feet of natural gas—have angered rival claimants Brunei, Indonesia, Malaysia, the Philippines, Taiwan, and Vietnam. Countries began staking claims to islands and zones in the South China Sea as early as the 1970s, including the resource-rich and strategically vital Spratly Islands. The inability of Chinese and Southeast Asian authorities to resolve these disputes diplomatically risks undermining international maritime law and encouraging destabilizing military buildups.

China insists that international military forces are not permitted to conduct intelligence activities, such as reconnaissance flights, within its claimed exclusive economic zone (EEZ). The United States, however, maintains that under the United Nations Convention on the Law of the Sea (UNCLOS), claimant countries should have freedom of navigation through EEZs and are not required to notify claimants of military activity.

Recent satellite data reveals China’s growing efforts to expand its territorial control in the South China Sea by physically enlarging existing islands or creating new ones. Beyond adding sand to existing reefs, China has built ports, military stations, and airstrips, especially on the Paracel and Spratly Islands, where it maintains multiple outposts. Notably, China has militarized Woody Island, deploying fighter jets, cruise missiles, and a radar system.

To protect its regional political, security, and economic interests, the US has challenged China’s assertive territorial claims and land reclamation projects through freedom of navigation operations and increased support for Southeast Asian partners. In response to China’s aggressive stance, Japan has provided military ships and equipment to the Philippines and Vietnam to bolster their maritime security and deter Chinese aggression.

Philippine President Ferdinand Marcos Jr., who took office in June 2022, has taken a firmer stance against China compared to his predecessor, Rodrigo Duterte. The Philippines’ most contentious disputes with China center around the Second Thomas Shoal of the Spratly Islands, which lies within the Philippines’ 200-mile EEZ.

Ferdinand Marcos has agreed to increase base access, joint exercises, and weapons exchanges with the United States. In March 2024, US Secretary of Defense Lloyd Austin affirmed that the United States’ Mutual Defense Treaty with the Philippines covers both countries’ armed forces, public vessels, and aircraft in the South China Sea. Meanwhile, Japan has also enhanced its influence by supplying military weapons to the Philippines and Vietnam to enhance maritime security.

End Note

Beijing may wish to refrain from using overt force against Manila in order to resolve territorial and maritime conflicts due to its previous policy preference, regional strategic interests, and the effectiveness of gray zone tactics. Beijing does not, however, intend to forgo using military action as a means of settling conflicts. There is a chance of an armed conflict, especially if Manila takes more drastic measures to make China’s “gray area” strategy ineffectual. The best measures to keep tensions and conflict from turning into war would be to defuse the South China Sea crisis and reopen bilateral talks between Beijing and Manila. Together, Beijing and Manila’s policymakers should take into consideration the ambitious but intriguing idea of creating a maritime park at Second Thomas Shoal with the goal of advancing environmental preservation, scientific study, and cooperative fisheries. For the past ten years, experts from China and Southeast Asia have discussed this topic on occasion, but at the official level, it has not yet been addressed. This possibility might have a favorable effect on regional peace and stability if China and the Philippines give it some thought.

Analysis

Philippines President Vows not to Yield Despite New Provisional Deal with China

zIn a firm assertion of the Philippines’ territorial rights, President Ferdinand R. Marcos Jr. declared that the country would not yield or waver in its stance on the West Philippine Sea. During his 3rd State of the Nation Address (SONA) on July 22, 2024, Marcos emphasized the importance of maintaining the nation’s sovereignty and expressed gratitude for the sacrifices made by the Armed Forces of the Philippines (AFP), the Philippine Coast Guard (PCG), and the fishing communities.

“The West Philippine Sea is not a mere figment of our imagination. It is ours. And it will remain ours as long as the spirit of our beloved Philippines burns bright,” he asserted, drawing a standing ovation from the audience.

The President highlighted the increased strategic efforts to enhance aerial and maritime domain awareness, reaffirming the government’s relentless endeavor to increase the country’s defensive stance through self-reliance and partnerships with like-minded nations. “Laws governing our Maritime Zones and Archipelagic Sea Lanes will ensure that this intergenerational mandate — this duty — takes deep root in the hearts and minds of all our people,” he stated.

A significant development followed the President’s address, as the Philippines and China announced a provisional deal to manage tensions at the contested Second Thomas Shoal. This deal, reached after a series of diplomatic discussions, aims to prevent further clashes in the disputed South China Sea.

Philippine Foreign Affairs Secretary Teresita Daza announced that the agreement signifies both nations’ commitment to de-escalate tensions and manage differences peacefully. “In our desire to de-escalate the situation in the South China Sea to manage differences in a peaceful manner, we emphasize that the agreement was done in good faith and the Philippines remains ready to implement it,” Daza stated.

China’s Foreign Ministry confirmed the arrangement, reiterating its demand for the Philippines to tow away the grounded warship, Sierra Madre, from the Second Thomas Shoal. However, China expressed willingness to allow humanitarian resupply missions to the personnel stationed on the ship if informed in advance.

Despite this, the Philippines maintained its stance against prior notification to China about resupply missions, asserting the missions’ lawfulness and the necessity of preserving national sovereignty. “The principles and approaches laid out in the agreement were reached through a series of careful and meticulous consultations between both sides,” Daza emphasized.

The deal comes after a series of violent confrontations between Filipino and Chinese forces at the shoal, which both nations claim. The Second Thomas Shoal, known as Ayungin Shoal in the Philippines and Ren’ai Jiao in China, has been a focal point of these clashes, sparking fears of a broader conflict involving the United States due to its mutual defense treaty with Manila.

The most severe confrontation occurred on June 17, when Chinese forces repeatedly rammed and boarded Philippine navy boats to prevent supplies from reaching the Sierra Madre. This incident resulted in injuries to Filipino personnel and heightened tensions between the two countries.

The United States and its allies, including Japan and Australia, condemned China’s aggressive actions and called for upholding the rule of law and freedom of navigation in the South China Sea, a crucial global trade route with rich fishing areas and undersea gas deposits.

In response to the tensions, Washington reaffirmed its commitment to defend the Philippines under the 1951 Mutual Defense Treaty. National Security Adviser Jake Sullivan stated, “The US will do what is necessary to ensure its treaty ally can resupply the Sierra Madre on the Second Thomas Shoal.”

Philippine National Security Adviser Eduardo Año confirmed that the resupply missions would remain a “pure Philippine operation,” turning down offers of direct US involvement. “There is no need at this time for any direct involvement of US forces in RORE – resupply mission,” Año said.

The provisional agreement reached by the Philippines and China seeks to manage their maritime differences while preventing future clashes. Both nations recognize the need to de-escalate the situation and manage their differences through dialogue and consultation.

This rare deal with the Philippines could spark hope for similar arrangements between China and other claimant countries in the South China Sea, including Vietnam, Malaysia, Brunei, and Taiwan. However, the successful implementation and longevity of the agreement remain to be seen.

Chinese Foreign Ministry spokesperson Mao Ning emphasized that the temporary arrangement for the delivery of humanitarian supplies reflects China’s goodwill. However, China stood firm on its territorial claims and demanded that the Philippines refrain from fortifying the Sierra Madre with building materials.

The Philippines has consistently rejected such conditions, and the final deal does not include them. Philippine officials stated that the agreement was reached after careful negotiations, excluding prior notification and inspection demands from China.

The Second Thomas Shoal, located about 200km from the western Philippine island of Palawan and over 1,000km from China’s Hainan island, has been a site of repeated confrontations. Both countries assert their sovereign rights over the shoal, which is strategically important and resource-rich.

Manila deliberately grounded the Sierra Madre on the shoal in 1999 to reinforce its claims, maintaining a small contingent of sailors aboard the vessel who require resupply missions that China has repeatedly attempted to block.

The Department of Foreign Affairs in Manila reiterated that the agreement would not prejudice each side’s national positions in the South China Sea. “Both sides continue to recognize the need to de-escalate the situation and manage differences through dialogue and consultation,” the DFA stated.

China’s Ministry of Foreign Affairs confirmed the arrangement, highlighting the mutual understanding to manage the situation at Ren’ai Jiao and ensure humanitarian resupply of necessities to the personnel on the Sierra Madre.

The agreement between the Philippines and China marks a significant step towards managing maritime disputes in the South China Sea. It reflects both nations’ willingness to engage in dialogue and find peaceful solutions to their differences, despite the complex and contentious nature of their territorial claims.

As the Philippines and China implement this provisional arrangement, the international community will closely watch how both nations navigate this delicate situation. The success of this deal could serve as a model for resolving other maritime disputes in the region, contributing to regional stability and cooperation.