SCENESETTER FOR DEPUTY NATIONAL SECURITY ADVISER DANIEL

UNCLAS SECTION 01 OF 02 MANILA 000059

SIPDIS

SIPDIS
SENSITIVE BUT UNCLASSIFIED

STATE FOR EEB/TPP/MTA, EAP/MTS, AND EAP/EP
NSC FOR DANIEL PRICE AND MICHAEL SMART

E.O. 12958: N/A
TAGS: ECON ETRD KIPR PREL RP
SUBJECT: SCENESETTER FOR DEPUTY NATIONAL SECURITY ADVISER DANIEL
PRICE



1. (SBU) Summary: Embassy warmly welcomes Deputy National Security
Adviser for International Economic Affairs Daniel Price to the
Philippines. The relationship and spirit of partnership between the
United States and the Philippines are strong. The U.S. is the
Philippines' largest trading partner, the largest investor and the
largest donor of grant foreign assistance. During your visit, you
will meet with several key government officials and important
figures in the Philippine business community. Our entire team looks
forward to making your visit productive and useful. End Summary.

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BACKGROUND
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2. (U) The Philippines, with almost 90 million people, has one of
the fastest-growing populations in Asia. Metro Manila, home to at
least 12 million people, is the largest city in a country made up of
over 7,000 mainly mountainous islands. Literacy (94%) remains high,
although the standard of public education and other government
services has declined in recent decades. Filipinos are mainly Roman
Catholic (83%) or otherwise Christian (10%) with a Muslim minority
(6%) based on the southern island of Mindanao and in Manila.
Approximately 38 percent of Filipinos earn less than $2 per day.

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PHILIPPINE POLITICS
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3. (SBU) Philippine politics is free-wheeling, focused primarily on
the charisma of individual political leaders, and still largely
oligarchic, with most wealth and political power concentrated among
influential families. President Gloria Macapagal Arroyo assumed the
Presidency in 2001 after a "people power" movement swept out her
predecessor, whom she recently pardoned after he was convicted of
corruption. She is a strong leader who has faced a series of
challenges to her rule, including unsuccessful impeachment efforts
and low-level military coup attempts. The President's political
position improved after May 2007 elections gave her allies a large
majority in the House of Representatives, decreasing any impeachment
threat. With three years left in her term, the President appears
intent on establishing her legacy, with a focus on the economy and
jobs, infrastructure, and seeking stability and peace on Mindanao.


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ECONOMICS AND TRADE
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4. (U) The U.S. remains the Philippines' largest trading partner,
with over $17.3 billion in two-way merchandise trade. Major U.S.
exports include electronics and agriculture. The U.S. is also the
largest investor here, with $6.6 billion in equity. Texas
Instruments broke ground this year on a $1 billion facility to
produce microchips at the former Clark Airbase, while AES, a
Virginia-based power generation and utility company, announced the
$930 million acquisition of a large coal-fired power plant through
the government's privatization scheme.


5. (U) The Philippine economy performed well in 2007. Although
statistics for the entire year are not yet available, the economy is
on track to grow at around seven percent for the entire year, the
strongest growth and expansion in three decades. Unemployment and
inflation are down, and government revenues are up. The peso soared
against the dollar and climbed against other currencies, as well, on
the back of respectable export growth and a surge in remittances by
overseas Filipinos. These positive macroeconomic developments have
occurred in spite of factors that in the past might have shaken
business confidence or dampened performance, including rising fuel
prices, repeated corruption allegations against the Arroyo
Administration, coup plots, terrorist bombings, and an unruly
legislature.


6. (SBU) There nonetheless remain substantial weaknesses in the
government's ability to collect taxes, and much remains to be
accomplished on the economic reform agenda, particularly on
improving the investment climate. The Arroyo administration has an
impressive agenda -- privatize the electric sector, build
infrastructure, increase funding for education, liberalize civil
aviation, reduce business red tape -- but is moving timidly on most
of these initiatives. Embassy Manila is a strong advocate for
economic reform and for the interests of U.S. business.


7. (U) Intellectual property rights protection remains a significant
concern, and the Philippines remains on the U.S. Trade
Representative's IPR Watch List. The Philippine government promotes
IPR protection, and seizes IPR infringing materials including

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clothing, software, and optical discs, but the lack of prosecutions
and inability to obtain convictions is a major problem.


8. (U) The Philippines is a member of the World Trade Organization,
and is a signatory to its major agreements. However, over the past
several years the Philippines has backed away from its former policy
of unilateral tariff reduction, and has not been proactive in the
Doha Round negotiations, especially on agriculture and market
access. The Philippines participates in several trade-related
groupings of developing states, including the G-20 and the Cairns
Group.

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COUNTERTERRORISM EFFORTS
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9. (SBU) Three U.S.-designated terrorist organizations are active
and dangerous in the Philippines, despite significant military
success against them over the past two years. Parts of Muslim
Mindanao remain a sanctuary for terrorists who are responsible for
bombings in the Philippines and Indonesia and kidnapping and killing
of Americans and Filipinos. A Joint U.S. Special Operations Task
Force (JSOTF-P) of several hundred personnel provides direct support
to the Philippine Armed Forces in Mindanao, sharing intelligence,
advice, and assistance. The major thrust of U.S. development
assistance is focused in conflict-affected areas of Mindanao through
USAID to help reduce support for terrorists. The Philippine military
has undertaken successful programs to help separate local
populations from insurgents through extensive civil-military and
humanitarian activities. Separately, the New People's Army of the
Communist Party continues to extort, bomb and attack remote police
and military outposts.

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PEACE PROCESS IN MINDANAO
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10. (SBU) Negotiations with the Muslim insurgency, under Malaysian
auspices, are making headway toward establishing a larger Muslim
political entity within the Philippines that would determine its own
governing structure. While significant progress has been made on
the territorial borders of the new political entity, the challenge
will be to bring together Mindanao's diverse Muslim, Christian and
native communities. We are pressing for concrete progress on this
complex agenda this year. Successful peace in Mindanao would make
the Philippines a stronger, more outward-looking partner, while also
denying terrorists ungoverned spaces.

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HUMAN RIGHTS: COMBATING EXTRA-JUDICIAL KILLINGS
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11. (SBU) President Arroyo has consistently expressed her commitment
to resolve the problem of extra-judicial killings and has taken
steps in this direction. While many of these deaths and
disappearances are more likely attributable to local disputes than
to military or police action, it is clear the government must do
more to ensure these crimes are fully investigated and responsible
parties -- whether or not they are connected to military or police
-- are brought to justice. The government has created a police task
force, special courts and an armed forces human rights office.
Extra-judicial killings decreased dramatically in 2007, but more
still needs to be done.

Visit Embassy Manila's Classified SIPRNET website:
http://www.state.sgov.gov/p/eap/manila/index. cfm

You can also access this site through the State Department's
Classified SIPRNET website:
http:// www.state.sgov.gov/

KENNEY