THE 2005 ACCOMPLISHMENTS OF THE ARROYO ADMINISTRATION

SUSTAINED ECONOMIC GROWTH

The President reiterated in her 2005 SONA that the government would not waiver in its commitment to pursue sustained economic reforms and fiscal discipline whatever the political cost in order to achieve macroeconomic stability and put the fiscal house in order.

Significant accomplishments have been made during the first phase of the Arroyo Administration’s economic reform package. The remaining challenge is to build on these reform measures and consistently align policy initiatives with the goals of strengthening the country’s fiscal health and enhancing investor confidence in our economy.

Under the first phase of reforms, the government has instituted administrative measures and enacted revenue-generating tax measures to improve revenue collections. Three monthly budget surpluses have been recorded so far with revenue collections increasing by 15% in the first eleven months of 2005 over that of the same period in 2004. The budget deficit is very well within target.

Under the second phase of reforms, the government will continue to adopt measures to effectively implement the tax reforms and tax administration initiatives to further raise tax awareness, optimize revenues and increase the key tax ratios.

In line with this, the government will continue to focus on measures that address the following economic imperatives: 1) Sustain macro-economic stability; 2) Restructure and reform the financial sector; 3) Restructure and reform the power sector; and 4) Increase infrastructure, investments, exports and employment.

The government aims to attain a balanced budget by 2010 by generating additional revenues and savings through legislative and administrative measures. The 2005 fiscal deficit ceiling has been set at P180 billion or 3.4% of GDP. Projected revenues and expenditures amount to P783.2 billion and P963.2 billion, respectively. The following, among others, are notable accomplishments in this area:

• Effectively contained the fiscal deficit for three consecutive years. In 2003, the National Government deficit was equivalent to P199.9 billion, which is P2.1 billion lower than the P202 billion deficit ceiling and equivalent to 4.9% of GDP. In 2004, the National Government registered a deficit of P187.1 billion -- P10.8 billion lower than the programmed deficit of P197.8 billion for the year. The 2004 deficit represents 3.9% of GDP compared with the target of 4.2% Deficit-GDP ratio. This puts the country one year ahead of schedule under the National Government Fiscal Consolidation Plan.

As of November 2005, the National Government deficit was P122.8 billion or P37.7 billion below the programmed ceiling of P160.5 billion for the period. This was way below the P160.2 billion deficit registered in the same period last year. The National Government attained a budget surplus in April, June and August, with the latter posting a surplus of P1.75 billion.

• Increased revenue collections and promoted prudent spending. Revenues in 2004 reached P698.3 billion or 3.5% above the program revenue of P676.41 billion and 11.7% higher than the 2003 collection of P626.6 billion. For 2005, total revenues surged to P733.7 billion as of November, up by 15.1% from the same period in 2004 and P15.1 billion higher than the revenue target of P718.6 billion for the first 11 months of 2005.

- BIR collections of P491.4 billion from January to November 2005 were 15.1% higher than the P427.1 billion collected last year but P9.8 billion or 2% below the P501.2 billion target collection for the period.

- BOC collections for the first 11 months of 2005 reached P130.4 billion, 15.8% higher than last year’s collection of P112.6 billion but P8.3 billion or 6% short of its P138.7 billion program collection. The lower collection is attributed to lower imports and collection loopholes due to misclassification, undervaluation and smuggling.

- Expenditures reached P856.5 billion for the first 11 months, up by only 7.4% from the comparable disbursements in 2004 and P106.6 billion below the P963.2 billion target for the year.

Pursued legislative tax measures to improve revenue generation

• Enacted into law three key fiscal reform measures:

- Indexation of excise tax on tobacco and liquor or RA 9334 was signed into law on 20 December 2004. In 2005, some P15 billion in revenues will be generated.

- Attrition Act of 2005 (RA 9335), signed on 25 January 2005, provides for a system of rewards and punishment for BIR and BOC personnel to encourage more efficiency in tax collections. It is expected to generate P5 billion to P10 billion in additional revenues.

- Restructuring of the Value Added Tax (RVAT) System (RA 9337) was signed on 24 May 2005, which expanded the sales tax base to include the electricity, fuel and transport sectors and other previously exempt industries. The law also granted the President stand-by authority to raise VAT to 12% in 2006. Upon increase of the VAT rate to 12%, expected revenues would be around P97 billion to P105 billion. The law also raises the corporate income tax to 35% from 32% for three years and brings it down to 30% by 2009.

The Supreme Court ruled with finality on the constitutionality of the RVAT law. With the issuance of the implementing rules and regulations as prescribed in the Revenue Regulation No. 16-2005, the RVAT law was implemented starting 1 November 2005.

All proceeds of the RVAT in 2005 would be applied to budget deficit reduction. By 2006, 70% of the proceeds would be used to plug the budget deficit while the balance of 30% would be used for social services and infrastructure.

• Pursued other significant fiscal reform measures in Congress as follows:

• Rationalization of Fiscal Incentives seeks to harmonize and simplify the government’s administration of programs and policies on the grant of fiscal and non-fiscal incentives and promote investments in the country. Aside from the tax exemptions and incentives provided for in the National Internal Revenue Code, there are 146 special laws exempting various activities from paying taxes.

The bill aims to correct tax deficiencies by withdrawing all special investment incentives laws that are inefficient, irrelevant and duplicative and formulates only one fiscal incentive law from which all promotable industries shall draw their incentives. The Board of Investments (BOI) estimated about P4.8 billion in revenue savings on the proposed measure. It also aims to repeal other special incentive laws that are inefficient, duplicative and result in huge revenue drain to the national coffers. There are 40 Special Laws proposed to be repealed by the DOF, which will result in annual revenue savings of P12.27 billion.

• General Tax Amnesty with submission of Statement of Assets and Liabilities (SAL) aims to broaden the tax base by requiring tax payers to file their statement of assets, liabilities and net worth at the same time allowing them to avail of the tax amnesty that will lead to collection of higher revenues. House Bill 2933 was approved on Third Reading on 14 December 2004 and Senate Bill 1325 is pending with the Committee on Ways and Means. Potential revenues from the bill amount to P16 billion.

Implemented administrative measures to generate savings and increase revenues

• Generated savings of P239 million for the first seven months of 2005 through the adoption by all government agencies, whether or not they receive funding support through the General Appropriations Act, austerity measures prescribed under Administrative Order No. 103, s. 2004.

• Reduced government and personnel expenditures through the implementation of a four-day work week in April and May under Administrative Order 117. The measure was expected to generate at least 10% savings in government electricity and fuel consumption as well as reduce government employees’ expenditures. About P144 million was estimated as savings from the implementation of the four-day workweek.

• The Energy Regulatory Commission (ERC) approved Napocor’s rate adjustment effective 26 April 2005 to increase its revenues and reduce its debts. The return on rate base (RORB) was granted an additional hike of P0.0556 per kWh on top of the average P0.98 kWh approved in September 2004 for a total weighted average increase of P1.0354 per kWh. The additional 42% increase of NPC, including adjustments in Generation Rate Adjustment Mechanism (GRAM) and Incremental Currency Exchange Rate Adjustment (ICERA), will increase revenues by P112.25 billion.

• Adjusted tariff rates under EO 336 (23 July 2004), which increased import duty on crude petroleum oils and refined petroleum products starting January 2005. The DOF estimates additional revenues of P29.4 billion from the tariff rate increase.

Pursuant to EO 440, import duty on petroleum products was reduced to 3% from 5% and liquefied petroleum gas (LPG) to 0% while import tariff on ethanol has been reduced to 1% from 10% to promote the use of additive in gasoline, upon effectivity of RVAT.

• Implemented the No Audit Program, pursuant to EO 399 (17 January 2005), which exempts business income taxpayers who will pay 25% above their current income tax payments, from official audit and investigations, subject to certain conditions. It is designed to reduce corruption and administrative costs while enhancing voluntary compliance. The program started on 18 April 2005 and will be effective for five years.

• A total of P16.79 billion was added to government revenues in 2005 from the implementation of the DBM-DOF Joint Circular 2-04 (16 December 2004) on increasing fees and charges by not less than 20%.

• Increased BIR revenues by P5 billion through computerization/automation of operating systems; enhancement of audit programs; intensified enforcement procedures; and the conduct of taxpayer compliance verification drives. The BIR also addressed capital gains and documentary stamp tax leakages in the sale of real property and shares of stocks not listed in the stock exchange, non-payment of taxes and the requisite BIR Certificate of Authority to Register when titles and shares of stocks are transferred through the One-Time Transaction (ONETT) Project.

• Intensified BOC measures on assessment, law enforcement and internal audit to generate additional P8.5 billion in revenues, which includes the computerization of import and export transactions through the BOC Asycuda World Project; apprehension of 217 shipments of various articles (ceramic tiles, cigarettes, medicines/medical supplies, motor vehicles, optical media, resin, steel, sugar, used clothing, vegetables and wheat) valued at P120.9 million covering the period January to June 2005; closing down of a total of 992 Customs Bonded Warehouses which curtailed smuggling of goods that are not for warehousing consumption. To date, 46 more warehouses are being subjected to audit resulting in the issuance of one demand letter amounting to P2.5 million, two collectibles amounting to P2.3 million, 39 with ongoing audit and four reported with no obligations.

• Filed 120 corruption cases, nine lifestyle check cases and one plunder case against 227 BOC officials and personnel, including one deputy commissioner and one customs collector, from January 2001 to June 2005,. Of these, 12 have already been dismissed from office including one for failing the lifestyle check, 19 suspended, seven reprimanded, one given warning, 40 exonerated, 53 resolved and the rest are pending for further investigation.
• Filed 395 cases against 389 BIR personnel, 170 of whom are graft-related cases. Of these, 76 have been dismissed from the service, 57 suspended, 51 reprimanded, 48 exonerated, two forced resignation, six fined and the rest are pending at BIR for hearing/investigation and decision.
• Filed 74 tax evasion cases in various courts/agencies as of 17 March 2005 amounting to P5.49 billion of tax liabilities/underdeclared revenues/ underdeclarations with BIR. Three tax cases have been resolved, 14 cases are pending with the DOJ amounting to P4.951 billion, while 57 cases are with the RTC amounting to P0.534 billion.

• Launched Run After Tax Evaders (R.A.T.E.), a joint DOF and BIR program which seeks to file one tax case a week against affluent tax evaders. As of 20 November 2005, 38 tax evasion cases have been filed before the DOJ against business establishments, high-profile personalities, actors, a singer and a professional basketball player.

• Launched on 1 July 2005 the Run After The Smugglers (RATS) Program which led to the filing of three criminal cases against 16 respondents involved in the smuggling of diesel fuel, sugar and frozen fish.

• Launched in November 2004 the Customs Anti-Smuggling Group (CASG) Program which resulted in the apprehension of 24 shipments of various goods/articles valued at P221.8 million and the filing of criminal cases against 12 respondents involved in the importation of these goods.

• Privatized Government shares in the Philippine National Bank (PNB) as part of the continuing privatization program. The Department of Finance and the Philippine Deposit Insurance Corp. (PDIC) successfully bidded out in early August 2005 67% of PNB’s shares at P43.77 per share or a total of P8.14 billion. The 67% translates to 186,033,908 shares, broken down to 140,817,693 preferred shares for PDIC and 45,216,215 common shares for the National Government. The National Government share in the proceeds is P1.98 billion, which would be used for deficit reduction, while the P6.16 billion share of PDIC would be used to pay off liabilities to the Bangko Sentral ng Pilipinas.

• Increased the revenue program of the national government from the sale of Malampaya by P1.83 billion in 2005.

• Privatized six power plants with total combined proceeds of US$567 million. The Masinloc plant alone has a purchase price of US$561.74 million that will be paid 40% upfront with the balance to be paid in the next seven years, using a deferred payment facility at 12% interest rate. The winning bidder, YNN Pacific Consortium, has been given until 31 March 2006 to pay the US $222 million upfront payment or risk forfeiting its US $11 million performance bond.

• Awarded the contract for the development of Philippine properties in Kobe, Japan. The winning developer, Berg Corporation, Ltd. shall pay the Philippine government a total of P413.94 million (Y827.9 million) for the Naniwa Cho property and P245.09 million (Y490.196 million) for the Obanayama Cho property.

IMPROVED MACROECONOMIC GROWTH PERFORMANCE

The Philippine economy grew at a respectable pace under generally stable macroeconomic conditions. Notwithstanding internal and external challenges, the economy is expected to continue its notable performance.

• Sustained economic growth in the midst of adverse internal and external factors such as rising global oil and commodity prices. GDP growth increased from 3% in 2001 to 6.1% in 2004 while GNP growth increased from 3.5% in 2001 to 6.2% in 2004. The expansion in 2004 is the strongest since the economy registered its last peak growth of 5.8% in 1996 and exceeded the Medium-Term Philippine Development Plan target of 4.9–5.8%. For the first three quarters of 2005, GDP grew at a moderate pace of 4.6% and GNP increased by 5.47%, despite the mild El Nino, high crude oil prices, high inflation rates, tight fiscal situation, sluggish performance of the farm sector and the weak external demand. This growth was slower compared to the GDP and GNP growth of 6.5% and 6.2%, respectively, in 2004.

• Managed inflationary pressures and maintained inflation at single-digit levels. Inflation for 2004 eased up to 6.0% driven largely by supply-side factors, such as the increases in the prices of food and energy-related items. For the first 11 months of 2005, inflation averaged 7.7% largely due to volatile world oil prices, the increases in wages, electricity and transport fares.

• Maintained interest rates at single-digit levels. Interest rates based on the 91-day Treasury bills, which is used by banks and other lending institutions as benchmark for lending rates, for the first 11 months of 2005 was at 6.36%. This is a marked improvement from the 7.43% rate in 2004 and from the 9.87% rate in 2001. The lower interest rate regime made credit and loans more affordable and supported economic growth.

• Philippine Peso was the world’s best performing currency in 2005. The Peso-Dollar exchange rate remained generally stable with the peso appreciating by 5.6% from P56.199 to US$1 on 3 January 2005 to P53.234 to US$1 on 15 December 2005, the Peso’s strongest level in the last two and a half years.

• The Philippine Stock Exchange index improved by about 12% since the start of the year until the third week of December, making it the best performer in Southeast Asia. On March 7, 2005, the index closed at its highest since 2000 at 2,166.10 points. The implementation of the revised VAT also made an impact on the Phisix, as the index closed in an 11-week high on the 1^st day of trading on 3 November 2005 after the RVAT was implemented.

• Maintained a Balance of Payments (BOP) surplus of US$2.324 billion for the first 10 months of 2005, a complete reversal from the full-year 2004 BOP deficit of US$280 million. The surplus meant more goods and services have been exported rather than imported, earning sufficient supply of foreign exchange, which would be beneficial to further investment and assurance of obtaining steady supply of essential imports.

• Posted double-digit growth in remittances from overseas Filipino workers (OFWs) coursed through formal channels all through out the year and posted an all time high of US$973 million in August 2005. For the first 10 months of 2005, OFW remittances totaled US$8.8 billion, or a growth of 27.1% compared to the same period last year. The continued increase in remittances from Filipinos working abroad was attributed to the double-digit growth in deployment of workers and improved efficiency and aggressive promotion of banks’ remittance services. The USA, Saudi Arabia, Italy, Japan, Hong Kong, UAE, and Singapore remained to be the major sources of OFW remittances.

We aim to generate more investments through an aggressive campaign in the following eleven priority areas to support our job creation goal: agribusiness, healthcare and wellness products and services, information and communications technology, electronics, motor vehicle products, energy, infrastructure, tourism, shipbuilding/shipping, jewelry and fashion garments.

• Net inflows of foreign direct investments (FDI) into the country for the period January to September 2005 reached US$812 million, a growth of 68.8% from the US$481 million registered last year. An influx of new investments flowed into the manufacturing (US$506 million), real estate (US$91 million), and services (US$16 million) sectors, mainly from Hong Kong and the US.

• Foreign Portfolio Investments surged to US$2.1 billion for the first 11 months of 2005, more than four times the US$486.8 million total for the whole of 2004.

• BOI and PEZA approved a total of P183.88 billion in investments for the year 2004, or 224% higher than the P56.74 billion approved in 2003. Total approved investments under BOI and PEZA reached P153.27 billion for the first nine months in 2005, or just 1.21% lower than the P155.15 billion registered during the same period last year. Among the big ticket items in 2005 were the petrochemical projects of the PNOC and JG Summit and Kepco Cebu’s 200-MW coal-fired power plant amounting to a total of P76.29 billion. Briggs & Stratton, the world’s largest producer of air-cooled gasoline engines for outdoor power equipment, is relocating its manufacturing plant from China to the Philippines to keep its prices more competitive. It has entered into partnership with local firm Allied Motors Manufacturing Phils., which has a facility at the Laguna International Industrial Park, to accommodate the production of single-cylinder gasoline engines.

• Total investments in IT services from January to September 2005 increased by P7.88 billion or 33% from P5.93 billion last year. Some 76 projects will engage in software development and business process outsourcing and are expected to generate 38,000 seats once fully operational. IT services investments reached P8.24 billion in 2004 with 28,564 seats.

• California Public Employees’ Retirement System (CalPERS) retained the Philippines in its permissible investment destinations. With some US$172 billion worth of assets, the CalPERS is maintaining some $85 million portfolio investments in the country. CalPERs assessed the Philippines based on factors such as transparency, productive labor practices, market liquidity and volatility, market regulation, legal system, investor protection, capital market openness and transaction costs.

Despite weakness in the international market, we registered continued growth in exports.

• Export earnings grew by 9.2% to US$39.68 billion in 2004 from US$36.23 billion in 2003. Exports from January to October 2005 grew by 3.2% from US$32.72 billion in 2004 to US$33.76 billion this year. Electronic products accounted for US $22.24 billion in revenues or 65.9% of total exports.

We entered into trade and trade-related policies to secure continued economic growth for the country. The Philippines reiterated its support for an open, transparent, predictable and competitive multilateral trading system by forging economic ties with China, the European Commission (EC), Association of Southeast Asian Nations (ASEAN) and the rest of the world.

• Achieved consensus in APEC’s 2005 Economic and Technical Cooperation (ESC) Work Plan to refer to the 1996 Manila Plan of Action (MAPA) as the basis for the work of the SOM Committee on Economic and Technical Cooperation. This would include expanding the definition of capacity building, the formulation and implementation of programs and projects that go beyond training, and the introduction of new expertise and technologies across and behind borders.

• Initiated and pursued negotiations on the establishment of an economic partnership agreement between RP and the Republic of Korea (ROK) which is now RP’s 9^th biggest trading partner and second (after Japan) among the top sources of approved FDIs with P9.6 billion invested during the first quarter of 2005 alone. ODA projects such as the Laguindingan Airport Development Project, the South Manila Commuter Rail Project (Phase 1), and the Naga, Cebu Power Plant projects are currently in the works.

• Signed a number of agreements with Saudi Arabia with the intent of increasing bilateral trade, investment and cooperation during the 2^nd Republic of the Philippines-Kingdom of Saudi Arabia (RP-KSA) Joint Commission Meeting held last 1-2 October 2005 in Riyadh, KSA:

• Agreement on Promotion, Encouragement and Protection of Investments
• MOU in the field of Technical Education and Vocational Training
• MOU on Academic and Educational Cooperation
• Loan Agreement for the Mindanao Roads Development Project

• Signed the Protocol on Cooperation between the DFA and the Ministry of Foreign Affairs of the Republic of Croatia on 24 January 2005, which would pave the way for trade and opportunities for overseas Filipino workers.

• Concluded the 2005 Philippine-Germany Negotiations on Development Cooperation with agreed projects and programs for implementation under the bilateral technical and financial cooperation frameworks for the years 2005-2007. The projects, costing Euro 48.3 million, are in the priority areas of economic reform and development of the market system; health, nutrition and family planning and HIV/AIDS; environmental policy, protection and sustainable use of natural resources; and drinking water, water management, and sanitation/waste management.

• Signed the Memorandum on the EC’s revised National Indicative Program for the Philippines (NIP) for 2002-2004 and 2005-2006, and the Financial Agreements of two EC-assisted programs on good governance. The two NIPs made available 63 million Euros to the Philippines to fund priority projects in health, trade and investment facilitation, good governance and counter-terrorism.

• Participated in the ongoing WTO negotiations particularly in the following areas: agriculture, non-agricultural market access (NAMA), services, development, freedom of transit, rules, trade facilitation, trade and environment, TRIPs, and dispute settlement.

• Established a consultative committee for bilateral relations with Gambia, which would serve as a forum in discussing issues of common interest. In this manner, a Memorandum of Understanding was signed during the visit of President Yahya A.J.J. Jammeh on 20-23 June 2005 along with two private sector agreements.

Agriculture posted a 1.7% increase in production during the first three quarters of 2005. The sector showed continuous growth as it soared to an annual average of 4% in gross value added in four years attaining the highest output in 2004 with an increase of 4.8%. The gross value of agriculture production in 2005 amounted to P580.8 billion at current prices, recording a 5.97% increase.

• Increased production of agricultural commodities to ensure availability of supply.

• Rice. Interest in adapting the hybrid rice technology increased as area planted with hybrid rice has improved to 179,446 has. in the previous Wet Cropping Season (May-October 2005), greater than the 130,880 has. recorded the same period last year. The program achieved a new record of 14.1 MT per hectare in the dry season and 12 MT per hectare in the wet season. Hybrid rice registered 33% more yield than certified seeds.

• Corn. Annual average corn production was 4.72 million MT in 2001-2004, higher than the 4.43 million MT in 1998-2000. For the first three quarters of 2005, corn production reached 4.18 million MT.

• Livestock. The government is working in earnest to export meat products, particularly fresh and processed chicken cuts, while undertaking necessary precautions to prevent the entry and/or spread of diseases such as avian flu, and ensure the safety and high quality of our meat products in local and foreign markets. Because of these efforts, livestock has recorded a 1.97% increase in output this year.

• Sugar. The country has been more than self-sufficient in sugar since 2003. To prevent the sudden plunge of sugar’s farmgate prices, excess production is exported.

• Fisheries. Growth of 8.4% in fisheries was achieved in 2004, and 5.54% for the first three quarters of 2005. It recorded a share of 24.85% in total agricultural production. With the renewed drive to boost aquaculture, bangus and tilapia production now meets 85% of the country’s needs compared with 81% in 2000. Fisheries grossed P109.1 billion at current prices or 5.53% higher than last year's earnings.

• Embarked on an agribusiness land development program that would develop two million hectares of idle and unutilized, new and existing, agricultural areas. As of October, a total of 138,862 hectares of agricultural land have been developed. We also strengthened LGU and private sector participation in agribusiness land development.

• Signed a Covenant of Support for the Development of New Lands for Agribusiness during the National Agribusiness Summit on 27 May 2005 participated in by the Department of Agriculture (DA), League of Provinces of the Philippines and the Regional Agricultural and Fishery Councils. The governors and the private sector pledged P602 million and P1.073 billion, respectively, in addition to DA’s commitment of P326 million, which totaled to P2 billion.

• Facilitated the establishment of business enterprises through tie-up with the private sector and institutional arrangement/convergence among government agencies.

- Tied up with the following corporations: San Miguel Corporation for the intercropping of cassava under 1,000 hectares of coconut in Sta. Lucia, Palawan; Festive Foods International, Four Seasons Fruits Corporation, Prime Fruit Corporation and four other companies for 7,565-hectare banana expansion in Davao del Norte; and Isarog Pulp and Paper Corporation for a 1,500-hectare abaca production in Caramoan, Camarines Sur.

- Forged institutional arrangements among agencies (i.e. DA and DND) for the development of 68,156 hectares of idle lands inside military reservations to augment the income of military personnel.

- Instituted DA-DLR-DENR Convergence for Sustainable Rural Development to maximize complementation of rural development efforts focused on the development of new agricultural lands in the countryside. The DLR identified 900,000 hectares for development within KALAHI Agrarian Reform Zones (KARZones) and DENR, 1.9 million hectares of Community-Based Forest Management areas.

• Provided market-oriented services to increase agricultural competitiveness and rural income through the implementation of Diversified Farm Income and Market Development Project (DFIMDP), a World Bank- assisted project. The project aims to strengthen the capacity in providing market-oriented services to increase agricultural competitiveness and rural income. Five components have been identified to achieve the objectives of the project. These are: Market Development Cluster, Regulatory Cluster, Planning and Budget Cluster, and Technology Cluster. The impact of the project is the greater participation of the farmers in agribusiness entrepreneurial activities with the assistance provided to the farmers such as training, price information, establishments of Bagsakan Centers in major market outlets in Metro Manila, and full operation of the Roll-on-Roll-off (RORO) from Mindanao to Metro Manila.

The Arroyo Administration continued to develop tourism as a major contributor to socio-economic development. Towards this end, campaigns to promote the Philippines as a preferred tourist destination were intensified. As a result, tourism continued to be one of the fastest growing sectors of the economy.

• Visitor arrivals from January to October 2005 reached 2,114,197, an increase of 14% from the 1,861,497 visitor arrivals registered during the same period in 2004. Except for the months of January and April, the other months recorded double-digit growth rates, with May and July posting the highest growth of 18.1% in terms of arrivals. Continuous growth in arrivals is further expected during the last quarter of 2005, with the arrival of SEA Games participants in November and Balikbayans in December for the holiday season.

• The East Asian region maintained its position as the largest contributor of arrivals by region, accounting for 48% of the overall traffic base. This region posted an increase of 14.5%, from 886,839 arrivals in January to October 2004 to 1,015,790 arrivals for the same period in 2005. Such increase can also be attributed to the aggressive promotion in the Chinese Market, which maintained a triple digit increase since April. The North American region, the second biggest source of visitors, grew by 11.6% arrivals from January to October 2005 vis-ā-vis 437,353 arrivals in the same period in 2004. The Philippines also counted on the Balikbayan or Overseas Filipino Market as a major contributor to the international arrivals accounting for 96,809 visitors representing 4.6% of the total visitor arrivals and growing by 14.2% compared to the 84,745 arrivals from January to October 2004.

• The increase in tourist arrivals in 2005 was attributed to the government’s aggressive marketing efforts to promote the Philippines as a multi-faceted tourist destination. Marketing task forces aggressively promoted the country through travel fairs, innovative advertising and production of collateral materials in different languages, which brought about a new dimension for increased awareness in the tourist markets. Aggressive marketing promotion of the Philippines in China led to the participation of China Marketing Task Force in the China International Travel Mart (CITM) in November 2004, improving China’s rank as one of the top tourist contributors for the Philippines. Priority tourist destinations such as Cebu, Bohol, Boracay, Palawan, Manila, Laoag, Davao, Baguio, Subic and Clark experienced increases in business volume. Master plans are being formulated to develop new tourist destinations in areas such as Camiguin, Guimaras, Samar and Pangasinan in close consultation with LGUs.

• The following efforts were also undertaken to further promote the Philippines as a premier tourist destination:

• Meet-and-Assist program at the NAIA International Airport, which provides efficient port entry officers who can communicate properly with non-English speaking visitors, especially from China, Japan and Korea. The visa-upon-arrival policy was also implemented to facilitate the entry of Chinese tourists, which yielded an increase in the number of arrivals from China.

• "Biyahe Na" Campaign to boost domestic travel. The campaign highlights a sports tourism project dubbed Island Paradise Adventure Race where participants go through a series of challenges bringing them all over the country. With the success of the initial Luzon race, similar programs are being prepared for Visayas and Mindanao in December 2005 and 2006, respectively.

• The government continued to liberalize the airline industry through the implementation of a liberalized charter program which encourages foreign budget carriers to use unutilized entitlements of their home country.

• Air services negotiations with China, Japan, and Nepal added about 8,000 additional seats per week to the RP traffic right entitlements.

• Flights at the Diosdado Macapagal International Airport (DMIA) are currently servicing six Southeast and Northeast Asian cities averaging 30-35 flights per week. Flights are projected to increase to 50 flights per week servicing 10 cities by end of 2005. There are currently nine charter operators flying to and from Clark namely: Asiana Airlines, Air Philippines, Air Asia Berhad, Cebu Pacific Air, Far Eastern Air Transport Corp, Yangtze’s River Express Airlines, Hong Kong Express Airways, Volga Dnepr Airlines and Tiger Airways.

The Administration moved towards energy independence as it accelerated the exploration, development and utilization of indigenous energy resources; intensified renewable energy development; increased the use of alternative fuels; and enhanced energy efficiency and conservation measures. The 2005 Philippine Energy Plan (PEP) provided for a steady increase in the country’s energy self-sufficiency level from 56.5% in 2005 to the desired level of 60% in 2010. The government target is 61.5% energy self-sufficiency in terms of total aggregate energy mix and only 28% dependence on oil by year 2010.

Provided adequate energy supply

• Energy supply was increased to 268.3 million barrels of fuel oil equivalent (MMBFOE) in 2004, up 4.7% from the 256.4 MMBFOE in 2003. The minimum inventory requirement of petroleum products of 15 days for in-country stocks for refiners and seven days for the bulk and Liquefied Petroleum Gas suppliers was maintained.

• In the total power generation mix for Luzon, a 40% share of natural gas was recorded which translates to a total displacement in imported oil for power equivalent to US$38 million.

• Revitalized oil, gas and coal exploration and development (indigenous energy sources). A good number of private investors participated in the Philippine Energy Contracting Round (PECR) held on 31 August 2005, which offered promising sites for energy resource exploration and development which included petroleum, geothermal and coal resources.

• Four petroleum contract areas were offered for the PECR 2005 - two in East Palawan, and one each in Southwest Palawan and Sulu Sea.

• The PECR 2005 offered eleven geothermal prospect areas for exploration, development and direct utilization: Daklan, Benguet; Natib, Bataan; Mabini, Batangas; Tiwi, Albay; Montelgao, Mindoro Oriental; Camiguin, Camiguin Province; Biliran, Biliran Province; Malabuyoc, Cebu; Amacan, Compostela Valley; Sta. Lucia-Iwahig, Puerto Princesa, Palawan; and Mambucal, Murcia, Negros Occidental.

• The PECR 2005 also offered seven coal prospect areas for exploration, development and production: Polillo Island and Tagkawayan in Quezon; Calatrava, Negros Occidental; Candoni/Bayawan, Negros Oriental; Malangas, Zamboanga Sibugay; Gigaquit, Surigao del Norte; and, Tandag-Tago-Lianga-Bislig, Surigao del Sur.

• For oil and gas, 13 service contracts have been signed since December 2004. These service contracts have committed financial resources amounting to US$169.11 million.

• Aggressively developed renewable energy potential. To temper the impact of oil price hikes on power costs, the government veered away from oil-fired plants. The development of renewable energy potential such as biomass, solar, wind and ocean resources significantly reduced the country’s dependence on oil to less than half. The operation of the natural gas-fired power plant also significantly decreased the share of oil-based plants. Consequently, oil in the power mix dropped from 41% in 1998 to only 15% in 2004.

• The 1^st Wind contracting round was launched last March 2005. Out of the 16 offered, Pre-Commercial Contract (PCC) had been issued for the first five areas, and expressions of interest have been received for the next eleven sites. Additional 17 sites with a total capacity of 500 MW will be offered in Pangasinan, Isabela, Cavite, Palawan, Sorsogon, Catanduanes, Iloilo, Cebu, Siquijor, Northern Samar, Southern Leyte, Surigao del Norte in the 2nd Wind contracting round.

• The 25-MW Bangui Bay Wind Power Plant in Ilocos Norte, the first wind power plant in the Philippines and South East Asia, was commissioned in June 2005. The wind power plant has an installed capacity of 25 MW.

• Four mini-hydro projects in Bohol, Dinagat Island, Aurora and Romblon commenced construction in 2005.

• Increased use of alternative transport fuels. To reduce dependence on imported fossil fuels, the commercial utilization of alternative transport fuels such as compressed natural gas, biofuels (coco bio-diesel and fuel ethanol) and LPG Autogas is being promoted.

• On compressed natural gas (CNG), an initial filling station was put up in Biņan for inauguration in 2006. Two bus companies namely, RRCG Transport System, Inc., and BBL Trans System, Inc. signed up Agreements with Samsung Corporation for the initial purchase of ten Daewoo CNG Self-Drive Away.

• The implementation of the coco-biodiesel program commenced with the issuance of Memorandum Circular No. 55 in February 2004 mandating all government agencies to use coco methyl ester to replace at least 1% of their diesel requirement. For the general public, offered in some local oil stations at present are the packaged 200 milliliters to one liter of the product after its launching last 11 August 2005. The E10 or gasoline fuel blended with 10% fuel ethanol is now offered in selected retail outlets of local oil companies in Metro Manila.

• There are 110 vehicles/taxis in Metro Manila, 258 taxis in Cebu, and two taxis in Cagayan de Oro running on autogas. As regards the supply infrastructure, there are now eight dispensing pumps in Metro Manila and Cebu, and one in Cagayan de Oro. Ten dispensing stations and two garage-based pumps are projected to be installed soon in Metro Manila and Luzon.

• Forged strategic alliances with other countries. To further energy independence, strategic alliances were forged with other countries including the following:

• Cooperation with Thailand on biofuels development

• Joint development efforts on upstream exploration with neighboring countries

• Bilateral arrangements for oil supply with Russia and other countries

• Strengthened energy efficiency and conservation programs. The National Energy Efficiency and Conservation Program was launched in August 2004 to achieve an annual energy savings of 23 MMBFOE and carbon dioxide equivalent emissions avoidance. This was complemented by the Galing ng Pilipino Energy Efficiency and Conservation Program, a joint government-private sector initiative to promote energy conservation. In implementing the program, a total energy savings of 8.1 MMBFOE, equivalent to US$295 million or P16.2 billion, was achieved and bunker and diesel consumption of NPC was reduced by 470 million liters.

• Among the energy conservation measures strongly promoted included the Palit-Ilaw program to encourage the shift from 40-watt to 36-watt linear fluorescent lamps and replacement of incandescent bulbs with more energy efficient compact fluorescent lamps or CFLs; vehicle-use reduction schemes such as car-pooling, car-less days and anti-idling; and restriction in the use of neon lights for advertisements.

• Energy audits of 49 commercial, industrial and government establishments (with potential savings of about 2 million liters of oil equivalent amounting to about P24 million) were conducted, based on guidelines issued by the President on energy conservation. Plaques of appreciation were awarded to eight agencies for being the top-five star awardees in the Energy Efficiency Spot Check of Government Agencies: Philippine Economic Zone Authority (PEZA) and the National Transmission Corporation (TransCo), DA, DPWH Region XI, Land Bank of the Philippines and National Power Corporation (Napocor), DOST, and National Electrification Administration.

• Removed cross subsidies to reflect the true cost of electricity being rendered by each type of customers, each grid, and areas within the regional grid. As of September 2005, 11 private distribution utilities and 115 electric cooperatives have implemented the removal of all cross-subsidies.

• Promulgated the rules for the whole electricity spot market (WESM), where trading of electricity will take place to give consumers the power to choose the cheapest and most reliable electricity suppliers. The WESM market management prototype started operations on 28 May 2004 while the registration of WESM participants commenced in January 2005. Market trial operation started in April 2005 to test the rules, systems, and procedures of the WESM, as well as to ensure market participants’ readiness. The commercial operation of the WESM in Luzon will take place in January 2006.

• Condoned the loans of 115 ECs, which translated to an average reduction of P0.3676/kwh in their electricity rates.

• Continued to implement the lifeline rates to provide subsidy to the marginalized end-users or low-income group. The total number of MERALCO customers under the lifeline rate threshold consumption level has reached 1.7 million or 40% of the total customers.

Transport and digital INFRASTRUCTURE AND SUBIC-CLARK development

The Arroyo Administration aims to spur inter-island farm trade, improve the distribution of food and agricultural products in the countryside, reduce travel time and transportation cost, and promote local tourism through an efficient network of transport and digital infrastructure that will link the entire country.

The Nautical Highway System, an inter-modal transport system connecting the islands of the entire archipelago using roll-on/roll-off (RoRo) vessels, was expanded to maximize the use of the RoRo system in transporting passengers and produce from Mindanao to Luzon.

Infrastructure such as rail projects, highways and expressways were developed to decongest Metro Manila and to allow the people to work within the metropolis while living in nearby provinces. Said projects were initiated with the end view of providing opportunities for growth in other regions.

The Subic and Clark corridor is also being strengthened and developed as the country’s major transshipment point of goods and services for the domestic and regional foreign distribution through the development of adequate infrastructure that will enhance its competitive advantage as prime investment areas.

To serve as gateways to tourism destinations, the government embarked on the development of new seaports and airports.

Along with the development of transport infrastructure, the government also accelerated and rationalized the progressive development of a digital infrastructure to interconnect the entire country, with the private sector playing a major role in this effort. The government focused on reducing cost of interconnectivity (including Voice-Over-Internet Protocol), regulatory and legal framework, and human resource development.

Enhanced Transport Infrastructure

The country’s transport system relies heavily on the road network which handles the movement of passengers and freight.

• Strengthened the road network through the construction/improvement/ rehabilitation of 6,640.387 kilometers of national roads from January 2005 to October 2005. The road network includes, among others, C-5/Boni Serrano Avenue/Katipunan Avenue Interchange in Quezon City, Mamburao-Abra-de Ilog Road in Occidental Mindoro, Kalibo-Nabas Road in Aklan, Sultan-Gumander-Dobliston Road in Lanao del Norte, Calamba-Barcelona Road and Barcelona-Katipunan Road in Misamis Occidental and Zamboanga del Norte, Iligan-Aurora Road in Lanao del Norte and Zamboanga del Sur, and Kabasalan-Ipil Road and Ipil-Licomo Road in Zamboanga del Sur.

• Completed about 79,140 lineal meters of national bridges, which include, among others Pamatawan and Lipay in Zambales and Tarlac, Anyatam, Camias, Matungao and Labangan in Bulacan, Pantar and Caba in La Union and Pangasinan, Mamaparan in Nueva Vizcaya, San Pedro Gutad in Pampanga, and Linapawan in Palawan.

Expanded the Nautical Highway System

The Strong Republic Nautical Highway (SRNH) or Western Nautical Highway was expanded to include the Central Nautical Highway and Eastern Nautical Highway. All ports and road connections along these RoRo routes are in place, regular services in all routes are being ensured and port facilities are being expanded as needed.

• The Western Nautical Highway (Strong Republic Nautical Highway) provides the link from Manila in Luzon to Dipolog in Mindanao. This part of the highway system is RoRo capable and ferries are plying the routes on regular schedules. The route covers Manila-Batangas-Calapan-Roxas-Caticlan-Iloilo-Bacolod-Dumaguete-Dapitan. This system decreased transport cost by 37%-43% for passengers and 24%-34% for cargo, and reduced travel time by 12 hours.

• The Central Nautical Highway connects Donsol, Sorsogon to Balingoan, Misamis Oriental, passing through Central Visayas and connects to the East-West trunk routes at Cataingan, Masbate and San Carlos City. As of end-2005, all seaports are RoRo capable, except the Ports of Aroroy in Masbate and Pilar in Sorsogon, which are pipelined under the 2006 Capital Expenditure Program of the Philippine Ports Authority. RoRo vessels are presently plying the following routes on regular schedule: Balingoan-Guinsiliban (daily); Balingoan-Benoni (daily); Mambajao-Cebu (twice a week).

• The Eastern sea link connects Biliran, Leyte to Surigao City (northwestern tip of Mindanao) and connects to the Central trunk route at Cataingan, Masbate. The Lipata Port in Surigao and Liloan Port in Southern Leyte are RoRo capable, while Naval Port in Biliran, Leyte and Cataingan Port in Masbate are to be upgraded with the construction of RoRo ramps.

Financing worth P30 billion was provided to entice shipping companies to expand and modernize, and local governments to invest in RoRo facilities. The financing program under the Development Bank of the Philippines’ Sustainable Logistics Development Program has allocated funds for three main components: the creation of a Road RoRo Transport System (RRTS) network (P7.5 billion), grains bulk handling chain (P16 billion), and the cold chain (P6.5 billion). As of 30 September 2005, a total of P1.8 billion has been approved to fund 12 RRTS projects. Six projects, estimated at P320 million, for RoRo vessel acquisition and port construction and development are in the funding pipeline.

To efficiently transport the products of Mindanao to Luzon, via Visayas and vice versa, road networks were improved/maintained along the Strong Republic Nautical Highway System.

• On the Western Nautical Highway, 479 kms. out of 1,185 kms. of road sections are already improved in Iloilo, Negros, Cebu and Misamis Occidental; 456 kms. are being improved in Iloilo, Capiz, Mindoro and Cebu; and 250 kms. are proposed for improvement in Mindoro, Capiz and Cebu.

• On the Central Nautical Highway, 285 kms. out of 488 kms. of road sections are already improved in Davao del Sur, Camiguin and Masbate; 100 kms. are being improved in Bohol, Cebu and Masbate; and 103 kms. are proposed for improvement in Bohol, Davao and Surigao del Sur.

• On the Eastern Nautical Highway, 364 kms. out of 513 kms. of road sections have been improved in Agusan del Norte, Davao del Norte and Surigao del Sur while 149 kms. in Agusan del Sur, Davao del Norte and Davao del Sur are undergoing improvements.

To decongest Metro Manila, reduce travel time, and open up new economic opportunities, infrastructure projects such as rail projects, highways and expressways are being developed.

• Completed the North Luzon Expressway (NLEX) Expansion Project (Phase I) in February 2005, effectively cutting by half the travel time along the whole 84-kilometer stretch to only a one-hour drive. The reduced travel time eased up traffic and ensured the efficient movement of goods, people and service to and from Central and Northern Luzon to Metro Manila.

• Pursued the construction of the Southern Luzon Expressway Extension Project, which consists of the following segments:

• Toll Road I (TR1), involving the full rehabilitation and upgrading of the existing one-km six-lane Alabang Viaduct in Muntinlupa City, is targeted to commence in August 2006.

• Toll Road 2 (TR 2) involves the full rehabilitation, upgrading and widening from four to six lanes (28.6 kms.) of the Alabang-Calamba section from 2007 to 2008 at a cost of P2.7 billion.

• Toll Road 3 (TR 3) involves the construction of a two-lane 7.8-km new toll road extension connecting South Luzon tollway in Calamba to Southern Tagalog Arterial Road (STAR) in Sto Tomas, Batangas. The project is expected to be finished by February 2006.

• Commenced construction works for the P1.7 billion STAR Extension from Lipa City to Batangas City under the build-operate-transfer scheme on 25 April 2005 which will be completed in 12 months. The interchanges, overpasses and related toll facilities will be finished in 24 months. Right of way is 81.29% accomplished and targeted for completion by March 2006.

• Undertook the Manila-Cavite Expressway Extension Project to link the existing R-1 Expressway to Noveleta, Cavite and C-5. Road Right-of-Way (ROW) acquisition is 70% accomplished and project construction will start in March 2006 to be completed within two years.

• Commenced construction in June 2005 of the following packages of the MacArthur Highway (Manila North Road) from Meycauayan to Tarlac City to decongest the North Luzon corridor and accommodate traffic diverted from the North Luzon Expressway. The project will be completed in March 2006.

• Package I – Meycauayan-Marilao-Bocaue Section, Bulacan
• Package II – Balagtas-Guiguinto Section, Bulacan
• Package III – Malolos-Calumpit Section, Bulacan
• Package IV – Pampanga Section, including Mabalacat

The remaining Package V – Tarlac Section will commence next year.

• Pursued the construction of the Plaridel Bypass from NLEX towards the east to address the traffic and accessibility problems of Guiguinto and other towns affected by the closure of temporary exits at the NLEX. Detailed engineering has been completed and ROW acquisition is ongoing with LGU assistance. As of end-October 2005, the project is 59.25% accomplished.

• Initiated the construction of Marikina Bridge and Access Road Project, a new interchange and river bridge connecting Marcos Highway to C-5 by-pass. The project is 27% completed as of June 2005 and will be finished by January 2007.

• Completed and inaugurated in February 2005 the P678.83-million C-5/Boni Serrano Avenue/Katipunan Avenue Interchange Project to decongest traffic in Quezon City.

• Implemented the Subic-Clark-Tarlac Expressway Project (SCTEP), which has a total cost of P27.405 billion, to provide a direct link among industrial, economic and tourism zones in the Central Luzon region, specifically Clark Special Economic Zone, Subic Bay Freeport Zone, Luisita Industrial Park in Tarlac and the Bataan Technology Park.

• BCDA inked a P1.5 billion loan with the Philippine National Bank, Development Bank of the Philippines and Allied Banking Corp. early August 2005 to complete the P6.2 billion counterpart funding requirement for the Subic-Clark-Tarlac Expressway project. The Japan Bank for International Cooperation (JBIC) will finance the remaining P21 billion construction cost.

• Civil works on the SCTEP commenced on 21 April 2005. Contract Package 1 is expected to be completed by 16 November 2007, while Contract Package 2 is targeted to be completed by 18 August 2007.

Rail Projects

• Fast-tracked clearing of areas for the construction of the Northrail Project, a US$503 million commuter system that will run from Caloocan to Malolos (Phase 1, Section 1) and from Malolos to Clark (Section 2).

• The DOF and China Eximbank signed an MOU on 27 April 2005 for the utilization of the US$500 million loan. Preliminary survey, site reconnaissance and subsoil investigation up to the Bulacan segment of the project by engineers of China National Machinery and Equipment Corporation Group are underway.

• PNR right-of-way has been cleared and affected informal settlers were relocated:

• The Metro Manila alignment (Caloocan North-Malabon-Valenzuela segments) of 8,127 informal settler families has been cleared. A total of 798 families were relocated to Towerville, San Jose del Monte, Bulacan; 252 families to Canumay, Valenzuela City; and 2,351 families to Barangay Bignay, Valenzuela City. A P50,000 housing financial assistance was granted to each of the availing 3,280 families to be used as down payment to purchase properties either in Malabon or Bulacan.

• In the Bulacan section, 11,300 families were relocated to six relocation sites in the towns of Meycauayan, Marilao, Bocaue, Balagtas, and Guiguinto and Malolos City. 60 squatting commercial establishments have been demolished within the right-of-way in Meycauayan and Bocaue.

• A beneficiary-led in-town relocation policy for affected families along the Bulacan alignment was adopted. Organization of Local Inter-Agency Committees or LIACs, census tagging and verification are completed while beneficiary selection and consultation activities are ongoing. A total of 296 affected informal settler families in Balagtas, Bulacan and 66 in Meycauayan were relocated to in-town resettlement sites.

• Social preparation activities are ongoing in the Pampanga alignment, which will affect 19,500 informal settler families.

• Pursued the US$50 million Northrail-Southrail Interconnectivity Project, which involves the rehabilitation of the existing 34-km. PNR Commuter Service Line from Caloocan to Alabang (Phase 1).

• The Loan agreement between PNR and Export-Import Bank of Korea (KEXIM) was signed on 7 May 2004 and the Notice of Loan Effectivity from KEXIM was secured on 18 March 2005. KEXIM has completed on 22 September 2005 their evaluation of the ranking of Consultants for Design and Construction Supervision. Civil works for the project shall commence in March 2006.

• The implementation of the MRT 3, Phase II Project was pushed to close the MRT 3-LRT Line 1 loop to facilitate commuter needs from Monumento to EDSA and vice-versa, and at the same time connect MRT 3 to Northrail. When completed, EDSA MRT 3 (Phases I and II) will form the railway transport backbone, complementing the operation of radial lines LRT 1, MRT 2, MRT 7 and Northrail. The project, which will be implemented through the build-operate-transfer scheme, is targeted to commence in 2007.

The government embarked on the development of new airports which shall serve as gateways to tourism destinations such as Cebu-Bohol-Camiguin, Palawan and Boracay. The new airports are located in Negros Occidental (Silay City), Iloilo (Sta. Barbara/Cabatuan), and Bohol (Panglao). The Diosdado Macapagal International Airport in Pampanga and Busuanga Airport in Palawan were upgraded. Corollary to this, the airports in Naga, Guiuan, and Siargao were improved in support of the Integrated Surfing Tourism Development Program in Siargao Island, Surigao, Guiuan in Eastern Samar and Caramoan Peninsula in Camarines Sur.

• The New Bacolod (Silay) Airport Development Project involves the construction of a new airport at Silay City in Negros Occidental at a cost of P4.437 billion. A total of 186.83 hectares out of the total area of 187.02 hectares have been acquired and paid, while the procurement of crash fire and rescue, security and maintenance equipment has been completed. Civil works on the new airport commenced in August 2004. The project is expected to be completed by January 2007.

• The project site (188 has.) for the Iloilo Airport Development Project has been fully acquired. Civil works for the project, which costs P6.19 billion, started in April 2004 and is expected to be completed by October 2006.

• The capability of the Diosdado Macapagal International Airport (DMIA) to operate and handle aircraft movement was improved with the P513.7-million terminal radar approach control (Tracon) project as part of a strategy to improve the country’s competitiveness in the international aviation market. The project is expected to be completed by June 2006. The radar is currently being tested for factory acceptance before being shipped to the country. To accommodate increasing passenger activity within DMIA, plans are being finalized by the CDC, DMIA and MIAA for the proposed expansion/modernization of the airport.

The Subic Bay Port Development Project was implemented to promote the economic growth of Subic Bay Freeport Zone (SBFZ) and the development of Central Luzon.

• The P5.217-billion Subic Bay Port Development Project involves the construction of a new container terminal at Cubi Point, the rehabilitation of selected existing wharves and the procurement of necessary facilities, to be implemented between 2004 and 2015. Civil works on the Subic Bay Port Development Project started on 3 May 2005. As of end October 2005, actual progress is at 34.72%.

To facilitate the growth of the digital infrastructure sector and eventually interconnect the entire country, major policy and regulatory reforms are being pursued. Government and private sector initiatives were consolidated to push the development of information and communications technology.

• The development of the Philippine CyberServices Corridor which shall provide a variety of cyberservices at par with global standards was pursued. The Corridor, which is connected by a US$10 billion high bandwidth fiber backbone and digital network, shall serve as a "one destination" for investors, stretching 600 miles from Baguio to Zamboanga. Certain areas have been declared as ICT hubs with high-speed networks and connectivity: (Pasig-Ortigas, Makati, UP-Ateneo-Eastwood, Alabang-Paranaque, Subic-Clark, Cebu-Asia Town Park, University Belt, Davao). Additional 9 areas have been identified as potential ICT hubs: Leyte, Camarines Sur, Pangasinan, Iloilo City, Baguio City, Davao, Zamboanga, General Santos City and Cagayan de Oro.

• Community Access Points were established around the country, allowing remote community access to online services through Community e-Centers (CeCs), and enhancing local governance through the eLGU Development Project. As of September 2005, sixty six (66) CeCs and twenty six (26) eLGUs have been established nationwide.

• The e-Real Property Tax System was installed in 132 LGUs with 403 local government officials trained to run the system. Technical assistance was provided to 332 LGUs on information systems planning and 507 LGUs on change management.

• The implementation of the eGovernment Portal was pursued to provide a one-stop electronic gateway for government services and information and harmonized various agency numbering systems which will facilitate database linkages (i.e. NSO, SSS, GSIS, BIR, PhilHealth, LTO).

• An e-Government fund of P4 billion was established for the seamless processing of business registration, OFW processing, and the development of a single government portal. Twenty-four projects have been approved/endorsed for funding amounting to some P2.98 billion aimed to: 1) enhance service delivery of government services; 2) promote transparency and accountability in government operations; and 3) facilitate the streamlining and standardization of inter-agency processes and the sharing of information within and among national government agencies.

• A Technology Support Program for e-Governance (SUPRE-GOV) was designed to provide technology support to jumpstart e-governance in the country by establishing linkages between the academe, the private sector, and government units.

- National Computer Center’s (NCC) monitoring study as of 30 June 2005 showed that 90% of 375 NGAs and 44% of 111 state universities and colleges have websites. As of March 2005, NCC survey showed that 100% of 79 provinces, 97.4% of 115 cities and 98.9% of 1,500 municipalities have websites.

• ICT use was increased by establishing high speed connectivity through the "Philippine Research, Education, and Government Information Network" (PREGINET), a nationwide broadband network interconnecting government, the academe, and the private sector and enabling them to undertake collaborative research and development.

• The Philippines is being promoted as a center for ICT development.

• Internet connectivity cost was reduced to 1/3 of what it used to be – from $12,000 in 2002 for an E-1 connection to US$2,000 - $3,000 in January 2005 - fueling growth of the IT sector. Costs of local internet connections were reduced from P24 per hour in 2000 to P5 per hour today.

• Policies were set for systematic and accelerated ICT advancement on:

- Retail pricing, to address the artificial oversupply of local telephone lines (3.6 million) by allowing local exchange carriers to design price packages which may include local measured service pricing to suit particular market segment.

- Public calling stations and telecenters to address uneven distribution of fixed telephone lines in the regions and ensure universal access; provide lending windows for small, medium and micro enterprises seeking to invest in the provision of public calling stations and telecenters, particularly in unserved rural areas.

- Pursuant to RA 7925 (Public Telecommunications Act of the Philippines), the National Telecommunications Commission (NTC) issued MC 05-08-2005 on 23 August 2005 which promulgated the guidelines on Voice Over Internet Protocol (VOIP) where voice communication is provided using Internet Protocol technology instead of traditional circuit switched technology, and classified VOIP as a Value Added Service (VAS). The promulgation of the VOIP guidelines is expected to reduce telecom charges from 40 cents per minute of international call to 10 cents.

- The NTC also issued, through MC No. 07-08-2005, the rules and regulations on the allocation and assignment of Third Generation Mobile Telecommunications system (3G) radio frequency bands. 3G systems feature higher data transmission speeds and advanced services, such as application downloading, position location, streaming of audio and video content such as sports replays, news headlines, music videos and movie trailers; video conferencing; enterprise connectivity; and Internet connectivity, among others.

SOCIAL JUSTICE AND BASIC NEEDS

The Arroyo Administration intensified its efforts to alleviate poverty through adequate and responsive basic services delivery. The President’s pro-poor agenda is clearly manifested in the inclusion of programs in her 10-Point program of governance such as the generation of 6 to 10 million jobs, increasing access to quality education, and provision of electricity and water to all barangays.

The government also prioritized its interventions on the immediate needs of the poor, particularly in the areas of housing, health and nutrition, labor relations and workers’ welfare. The government further strengthened the capacity of the poor to engage in productive enterprises through the provision of microfinance and business development services resulting in job generation.

Poverty among Filipino families dropped by almost three percentage points from the 27.5% revised estimate for 2000 down to 24.7% in 2003 as earnings rose across all income levels except among the top 10 percent of families, and across all regions except in Metro Manila, CALABARZON, and Northern Mindanao.

The latest official poverty data indicate that in 2003, about 3.97 million families or less than a quarter of the country’s total families were living below the poverty line. These figures represent a decrease from the 4.138 million families trying to make both ends meet in 2000.

GENERATED JOBS AND LIVELIHOOD OPPORTUNITIES

The government aims to generate six to 10 million jobs in the next six years by accelerating growth and job creation in the following key components:

• Agribusiness – Two million hectares of idle and unutilized lands, new and existing agricultural areas, and offshore and inland bodies of water are targeted for agribusiness development to generate at least two million jobs.

• Micro, small and medium enterprises – Loans, technology and marketing support shall be provided to three million microfinance clients to generate three million jobs, and loans to SMEs shall be tripled from P24 billion in 2004 to P72 billion in 2010.

• Tourism – Tourism promotion shall be intensified in focused areas and air liberalization shall be pursued to increase tourist arrivals that would create three million new jobs.

• Information and communication technology – By promoting ICT and improving the environment for ICT-enabled businesses, one million new workers are expected to be employed in the ICT sector from 2005-2010.

• Housing program – Housing and its related enterprises are expected to generate one million new jobs by 2010 through the Strong Republic Housing Program and measures to facilitate private sector financing.

• Infrastructure projects – Public construction and maintenance are expected to generate employment in local communities.

• Economic zones – Enterprises in the economic zones shall provide employment opportunities.

• Apprenticeship program – Absorption of apprentices into the regular workforce shall be facilitated by giving opportunities for beginners to earn while on training.

Based on the 2005 Labor Force Survey (LFS), the average employment increase reached 699,000.

New Jobs Created in 2005 (in thousands)

For the period January to September 2005, 1.99 million jobs were generated. These jobs were generated in the following programs:

Developed new lands for agribusiness

• Generated at least 234,910 new jobs from January to September 2005 by developing 138,862 hectares of new agricultural lands and linking them with corresponding markets in all regions. Developed areas are either planted to crops, grown with forage for pasture, stocked with animals, seeded with fingerlings or established seaweeds farms. In general, it is assumed that one hectare of land developed generates one job but in some commodities, one hectare may be equivalent to as high as 27 jobs.

Increased viability of micro, small and medium enterprises through credit, technology and marketing support

• Strengthened the capacity of the poor to engage in productive enterprises through microfinance and business development services, resulting in job generation. Under this program, the livelihood/employment needs of the microfinance clients are addressed through employment facilitation/generation, microfinance/capital assistance, technical/skills training, production technology development, and marketing/market linkages.

• Created 509,802 jobs from January to September 2005 through loan releases of P8.33 billion in micro-finance, based on the assumption that any loan, regardless of amount, creates one job

• Supported 293,843 jobs by releasing P23.5 billion loans to SMEs from January to October 2005 on the assumption that an average loan size of P80,000 supports 1 job.

• Increased inbound tourists through aggressive tourist promotions, particularly in China, which translated into new jobs. Jobs generated in tourism are computed based on the results of the study conducted by management consulting firm McKinsey & Co. for the Department of Tourism that 1.22 jobs are created for every tourist arriving in the country. From January to October 2005, a total of 308,294 new jobs were created during the period.

Promoted information and communication technology

• Ushered ICT-related job opportunities by promoting ICT and improving the environment for ICT-enabled businesses. A total of 41,000 jobs were generated from January to May 2005 from ICT-related services, such as business process outsourcing (e.g. customer care, accounting, data base management), medical transcription, animation and software development.

Revitalized the mining sector

• Shifted government policy on mining from tolerance to promotion which created 3,580 jobs for the period January to September 2005. Executive Order No. 270 or the National Policy Agenda on Revitalizing Mining in the Philippines issued on 16 January 2004 promotes responsible mining while adhering to the principle of sustained development, i.e., economic growth, environmental protection and social equity.

• Identified 24 large-scale new and expansion mineral development projects nationwide with potential to generate US$6.37 billion in foreign direct investments and 63,800 employments. As of October 2005, $349 million have been invested and actual employment totaled 7,098.

• Accelerated housing unit construction and site development resulting in 52,805 units constructed and 404,080 jobs created from January to September 2005. Computation of jobs generated from housing is based on the assumption that a completed house construction requires 8.3 persons working for three weeks, service lot area or development of sites for resettlement requires 5 persons per lot, and a small housing unit for the affected families of the North Rail Project requires 3.3 persons.

• Identified housing programs which provide opportunities for employment such as Core Housing (National Housing Authority), End-user Financing (Home Development Mutual Fund or Pag-IBIG), Institutional/Developmental Financing (Pag-IBIG), Bahay Ko Program (Government Service Insurance System), Retail and Developmental Guaranty (Home Guaranty Corporation), and SSS Housing Loan Program (Social Security System).

• Hired about 74,900 people in public construction and maintenance from January to November 2005. These include community-based workers hired in the construction of government projects by contractors pursuant to RA 6685, in "Kalsada Natin, Alagaan Natin" (KNAN) and Project OYSTER (Out-of-School Youth Serving Towards Economic Recovery), and in patronizing products and services of persons with disability.

• RA 6685 requires all private contractors and sub-contractors of national and local public works projects to hire at least 50% of the unskilled and 30% of the skilled labor requirements from the unemployed bona fide and actual residents of the locality where the projects are to be undertaken.

• KNAN is a community-level road system maintenance program funded from the maintenance account of the Motor Vehicle Users Charge funds. One to four workers are tasked to maintain a one- kilometer stretch and paid on a daily basis. Activities include planting of trees and ornamental plants, drainage cleaning, clearing of sidewalks and removal of obstructions within the road right-of-way. Project OYSTER was launched by the Philippine National Police on 3 July 2002 as a crime prevention strategy and support mechanism for economic development for out-of-work and out-of-school youth.

Expanded operation of enterprises in economic zones

• Generated a total of 146,533 new jobs in the economic zones from January to October 2005: 102,484 jobs in Philippine Economic Zone Authority areas, 34,373 jobs in Subic Bay Metropolitan Authority area and 9,676 jobs in Clark Special Economic Zone. Total jobs include direct and indirect employment. PEZA employment was generated by enterprises providing inputs and services to economic zone export-producers and service exporters (e.g. subcontractors, brokers, cargo handlers/forwarders, canteen/restaurants, banks, utilities, janitorial and maintenance services).

• Under the Kasanayan at Hanapbuhay (KASH) Apprenticeship Program, 79,694 apprentices were trained from January to November 2005 in occupations officially approved for apprenticeship by TESDA (e.g., electric repairman, furniture maker, mechanic) There are 1,048 registered programs and 766 registered companies from January to October 2005. The said Program was re-launched in September 2004 to provide opportunities for beginners to earn while on training and to facilitate the absorption of apprentices into the regular workforce.

PROVIDED QUALITY EDUCATION FOR ALL

In line with the thrust of the government to increase access to education especially the poor, the Arroyo administration included Education For All in its 10-Point Legacy Agenda which it hopes to achieve by 2010. The Agenda involves the construction of more school buildings to ensure that everyone of school age will be in an uncrowded classroom, the provision of scholarships to poor families and distribution of computers for every public secondary school. In line with this, the government pursued efforts to reduce the backlog on school resources such as classrooms, textbooks, equipment and materials to make learning and teaching more effective. Other efforts in education include the launching of the Early Childhood Care Development curriculum standards for 5-year olds; provision of new teacher positions; and the formulation of the Philippine National Qualification Framework for easy transition between technical-vocational education to higher education.

Classroom/School Building Program

To address the classroom backlog, 3,000 school buildings (6,000 classrooms) a year shall be constructed and additional 50,000 Educational Service Contracting (ESC) vouchers shall be provided annually under the Government Assistance to Students and Teachers in Private Education (GASTPE) program to accommodate in private schools students who will not be able to avail of free public secondary education.

• From July 2004 to May 2005, 8,800 classrooms were built or 47% higher than the annual target of 6,000 and from June 2005 to October 2005, 4,516 classrooms or 75% of the annual target were constructed. This brings the total of classrooms built from July 2004 to October 2005 to 13,316 under the various school building programs, namely: Regular School Building Program of DepEd and DPWH, Foreign-assisted School Building Projects (Third Elementary Education Project or TEEP), Secondary Education Development Improvement Project, and Social Expenditure Management Project II), Adopt-a-School Program), Classroom Galing sa Mamamayang Pilipino Abroad (CGMA) Program and other school building programs funded by DTI-NDC, Federation of Filipino Chinese Chambers of Commerce and Industry Inc., and from the Priority Development Assistance Fund (PDAF) of legislators.

• Under the GASTPE program, 356,951 students were granted tuition subsidies for SY 2004-2005, while 359,283 students benefited from the program for SY 2005-2006

Scholarship Programs

The government aims to broaden the access of poor and qualified students to higher education through scholarship programs.

• The Student’s Assistance Fund for Education for a Strong Republic (SAFE-4 SR) or Enhanced Student Financial Assistance Program (E-STUFAP) provides loans to needy 3^rd, 4^th and graduating college students to enable them to finish their college education. Since June 2004, more than P100 million financial assistance was given to 17,177 student-borrowers.

• The Iskolar Para sa Mahihirap na Pamilya (IMP) Program entitles a qualified indigent family to send one child to college or technical-vocational course through a grant of P20,000 for a two-year vocational course or P40,000 for a four-year college course. The President has awarded 1,979 Certificates of Educational Assistance (CEA) to families in Regions I, III, IV-A, VI, X and XI which can be availed of at any time by beneficiaries who are qualified to enroll in either TESDA-administered institutions or state colleges and universities nationwide. Of this number, 135 grantees availed of the scholarship in SY 2004-2005, and for SY 2005-2006, 74 availed of the scholarship in State Colleges and Universities (SUC) and 43 in Technical Vocational Education and Training (TVET)

Computers for Every High School Program

To enhance school learning environment and minimize the digital divide, wider use of computers in schools was pursued to support teaching-learning processes.

• At present, about 3,512 (73%) public secondary schools have computer and computer labs. Of this number, 1,057 (30%) have internet access and 513 (15%) schools have networked PCs. All the 4,830 public secondary schools are targeted to have computers with internet connectivity by 2010.

Early Childhood Education Program

Recognizing that Early Childhood Education (ECE) is the first crucial step in enhancing pupil learning and memory retention, especially in the early grades of elementary education, the government has initiated the expansion of the Early Childhood Care and Development (ECCD) programs to reach all five-year-old children, with priority to children in the poorest households, by 2010.

• DepEd has finalized the ECCD curriculum standards for 5-year olds and oriented pre-school supervisors on the administration of the School Readiness Assessment Tool and the ECCD standards for 5-year olds. It also administered the pre-school Readiness Assessment Tool to determine incoming Grade 1 pupils’ readiness for formal education.

• DSWD has accredited 26,224 out of 44,122 day care centers (59%) together with 26,208 out of 43,940 day care workers (60%)

Textbook Program

In her first SONA, the President targeted to have a 1:1 textbook-pupil ratio in the lower elementary grades and in the first two years of high school through procurement of more textbooks and teacher’s manuals in the five core subjects of English, Filipino, Math, Science, and Sibika/HeKaSi/Araling Panlipunan.

• From January 2004 to November 2005, DepEd has procured and delivered a total of 14.6 million textbooks and 307,000 teacher’s manuals for all public schools for the priority subjects, benefiting 17 million students. This procurement, coupled with the previous purchases of textbooks, has resulted in a textbook-pupil ratio of 1:1 to 1:1.42, except for High School English III and IV which have a ratio of 1:2.

Provision of New Teachers

Teacher-pupil ratio improved under the Arroyo Administration.

• From the 1:50 to 1:60 ratio in previous administrations, teacher-pupil ratio in the elementary level is now 1:36. In the secondary level, the teacher-pupil ratio is 1:41 for SY 2004-2005.

• To address the annual increase in students, 7,574 new teacher positions were created for SY 2004-2005 and another 6,475 new teacher positions for SY 2005-2006.

Ladderized Interface between Technical Vocational Education and Training (TVET) and Higher Education (HE) Program

The government aims to develop and implement a unified national qualifications framework that establishes equivalency pathways and access ramps that allow easier transition and progression between TVET and HE. This would allow technical-vocational graduates to pursue higher educational courses offered in colleges and universities without having to lose credits earned or completed in technical-vocational program. Similarly, the ladderized system would allow graduates of higher education courses to gain appropriate credits in pursuing technical and vocational education.

• TESDA and CHED have identified Agriculture, Health, Tourism, Engineering, Education, Maritime and Information Technology as the sectors for pilot implementation of the ladderization interface program. Likewise, they have chosen 21 pilot institutions, including Philippine Women’s University, University of Cebu, Don Bosco Technical College and Mindanao Polytechnic State College, that will participate in the initial implementation. The new ladderized curricula for the 7 sectors to be adopted by 21 pilot institutions are being finalized.

In recognition of the importance of providing power and water to all Filipinos, regardless of their social standing, the Administration aims to attain 100% barangay-level electrification by 2008 through the provision of electricity to the remaining 3,182 unenergized barangays as of end-2004 and provision of potable water to all waterless areas by 2010.

• Provided electricity to 1,333 barangays from January 2004 to October 2005 under the Expanded Rural Electrification Program, bringing the total number of energized barangays to 39,081 out of 41,945 barangays and attaining 93.17% barangay-level electrification.

• In Luzon, 19,841 out of 20,476 barangays or 96.90% have been energized.

• In the Visayas, 10,741 out of 11,443 barangays or 93.87% have been energized.

• In Mindanao, 8,499 out of 10,026 barangays or 84.77% have been energized.

• Implemented the President’s Priority Program on Water (P³W) which targets to provide potable water to 210 waterless communities within the National Capital Region not yet adequately served by MWSS concessionaires and 432 waterless municipalities outside Metro Manila with less than 50% of households having access to potable water based on the 2000 Census on Population and Housing.

• Provided wat