Lying on the western rim of the Pacific Ocean, the Philippines is the world's second-largest archipelago-state after Indonesia. Of its 7107 islands, 4600 are named and 1000 inhabited. There are three main island groupings: Luzon, Visayan, and the Mindanao and Sulu islands. The country is subject to frequent earthquakes and volcanic activity, being located on the Pacific "ring of fire." Economic growth outstripped population increase in the 1990s, until the 1997–1998 "Asian crisis," but efforts to build a stable democracy have been compromised by high-level corruption, leading to the ouster of President Estrada in 2001.

The Philippines encompasses more than 100 distinct ethnic groups. The national language, Filipino, is based on Tagalog, spoken by the largest of the various groups of Malay origin. Other Malay groups include Cebuano, Ilocan, Longgo, Bicolano, Waray, Pampangan, and Pangasinan. They are concentrated on the main island, Luzon, and are also a majority on Mindanao. Most Muslims live on Mindanao, but many are also found in the Sulu archipelago. The Chinese minority, which was well established by 1603, has remained significant in business and trade. More than 120 Chinese schools have ensured that it has retained a distinct identity.

There are also a number of cultural minorities who practice animist religions. They include the Ifugaos, Bontocks, Kalingas, and Ibalois on Luzon, the Manobo and Bukidnon on Mindanao, and the Mangyans on Palawan. Many of these groups speak Malayo-Polynesian dialects. Limited intermarriage with other peoples has meant that groups in the more remote regions have managed to retain their traditional ways of life.

The Philippines is the only Christian state in Asia; over 80% of Filipinos are Roman Catholics and the Church is the dominant cultural force in the country. It opposes state-sponsored preventive family planning programs, which are designed to curb accelerating population growth. Abortion is illegal but widespread.

Women have traditionally played a prominent part in Philippine public and professional life. Inheritance laws give them equal rights to men. Many go into politics, banking, and business, and in several professional sectors they form a majority.

Strengths

Now fully open to outside investment. Agricultural productivity rising. Strong pineapple and banana export industries. Substantial remittances from Filipinos working overseas.

Weaknesses

Power failures limit scope for expansion. Rudimentary infrastructure. Low domestic savings rates mean reliance on foreign finance. Low productivity in subsistence agriculture.

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Once one of Asia's strongest economies, the Philippines has now fallen behind once much poorer countries such as Thailand, Malaysia, and South Korea. Around 50% of the rural population live on the poverty line, fueling many of the secessionist movements undermining the stability of successive governments.

The financial successes of the early 1990s – opening up to foreign investment, cutting back private monopolies – were effectively nullified by the crippling 1997–1998 Asian crisis. The government of Joseph Estrada failed to shore up the economy, running up a crippling budget deficit, and investor confidence vanished amid political scandals. His successor, President Arroyo, has done much to restore the faith of the IMF and the international community, mostly through further deregulation and privatization. Although growth is back on track, despite the global slowdown in 2001, many public works projects have simply been put on hold.

The Philippines is a multiparty democracy.

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The 21-year dictatorship of Ferdinand Marcos was shown by 1986 to have no popular legitimacy as "people power" massed in support of his opponent Corazon Aquino, who was declared the true winner of the presidential elections. Losing the backing of the USA, Marcos was forced into exile. Aquino succeeded in handing over power to Fidel Ramos through fair elections in 1992. His dependence on loose coalition arrangements in Congress slowed the economic liberalization program. His successor in 1998, the populist flamboyant former film star Joseph Estrada of LAMP, was accused of links to a gambling syndicate, and impeachment proceedings began in late 2000. A repeat of the mass "people power" demonstrations of 1986 toppled him in 2001. Vice President Gloria Macapagal Arroyo of the NUCD led the united political opposition to Estrada, and was appointed to the presidency on his downfall.

Main Political Issues

Political stability

The downfall of the Marcos regime through popular demonstration ensured a return to democracy. The subsequent two presidents passed on power smoothly to an elected successor, but Estrada was quickly mired in corruption scandals. Moves for his impeachment were overtaken by mass rallies in Manila. Forced from office in January 2001, he retained widespread support among the rural poor, questioning the legitimacy of Vice President Arroyo's constitutional assumption of the presidency.

Insurgency and separatism

Communists and Muslim separatists have been fighting Manila-based governments for over 30 years, with more than 10,000 armed confrontations with rebels recorded by the army. Much of the support for secession has been fueled by the failure of successive governments to alleviate poverty.

Since 1992, the government has been seeking peace with all armed groups. The communist New People's Army (NPA), once regarded as a heroic army of the oppressed and as an alternative to traditional politics, has declined in significance, but launched new offensives in 2000. The Moro National Liberation Front (MNLF), representing secessionist Muslim rebels on Mindanao, signed a peace agreement in 1996. A militant breakaway Muslim Islamic Liberation Front (MILF) continued fighting, its clashes with troops forcing the government to abandon a massive irrigation project. Fighting peaked in 2000, and the MILF joined the peace process in mid-2001. The smaller, but internationally backed, Abu Sayyaf continues low-level fighting in the Sulu region.

Regional relationships are paramount, despite sporadic frictions with Malaysia. Manila's claim to the Spratly Islands conflicts notably with Beijing's. The 1998 Visiting Forces Agreement with the USA, and resumption of US naval visits since 1999, have improved security cooperation. US troops provided logistical support against Muslim separatists from 2001.

The military retains political influence. The armed forces are undergoing modernization with US assistance.

The historic tie to the USA has been translated in modern times into a close strategic relationship. President Arroyo quickly pledged her country's support for the US-led "war on terrorism" in 2001, and US forces were deployed to help the government combat Muslim rebels in the south.

The Philippines is the world's biggest supplier of refractory chrome. Copper is also a significant export. Substantial gold reserves have been mined since 1996. However, more than 90% of mineral potential remains undeveloped. Oil production off Palawan began in 1979. The Philippines is the world's second-biggest user of geothermal power after the USA. Almost 25% of electricity on Luzon is provided by this method. Although timber exports were halted in 1989, illegal logging continues to cause deforestation.

The environment has become a major issue in the Philippines. Most of the tropical rainforest has been destroyed, except for pockets such as the island of Palawan. Fishermen have dynamited unique coral habitats, and continue to use cyanide and muro-ami (reef-hunting) techniques to increase the size of their catches.

The government recognizes the costs of environmental damage, as soil run-off silts rivers and reduces the power generated by hydroelectric dams, and fast-depleting coral habitats reduce the attraction of the Philippines for tourists.

Logging has been banned, but enforcement is difficult; many loggers have their own private armies. In addition, continued use of slash and burn farming has contributed to deforestation.

Basic infrastructure lacks investment and many main roads are in desparate need of repair. Chronic traffic congestion in Manila holds back economic growth.

Air travel is the only means of getting around the islands quickly. Philippines Airlines, privatized in 1992, has invested heavily in new aircraft and in expanding its regional route network. Work began in 2000 on a spectacular new terminal at Manila's international airport, nearly trebling its capacity.

Subic Bay, a massive US naval base until 1992, is now being exploited as a commercial asset, thanks to its prime location. Opening on to the South China Sea, its deep natural harbor has been developed as a free port and enterprise zone. The Taiwanese are the biggest investors in this project.

Most general hospitals are privately run. Malaria, which was once a major problem, has been eradicated in all but remote areas. Poor sanitation and disease are common in the sprawling slums around Manila.

The Philippines has one of the highest literacy rates among developing countries. The education system is based on the US model, but with a higher proportion of private schools. The main teaching languages are English and Filipino/Tagalog.

Although there is a national curriculum up to age 15, sectarianism is common; the Chinese community has its own schools. Most colleges and universities are also run privately. The universities of San Carlos in Cebu city and Santo Tomas in Manila are Spanish colonial foundations, dating from 1595 and 1611 respectively.

The death penalty, reinstated in 1993, was suspended again in 2000, but President Arroyo made an exception for 95 kidnappers in 2001.

The contrast between extremes of wealth and poverty is particularly marked. Wealth remains highly concentrated in a few select business families which are based in Manila.

Tourism remains a smaller business in the Philippines than in the regional NICs. Dubious images conveyed by sex-tourism have become a liability. International pressure to end this abuse has intensified. Muslim secessionists have seized tourists on neighboring Malaysian islands as hostages.

The tiny island of Boracay, off Panay, is a popular resort, and Palawan retains most of its tropical rainforest and coral lagoons, although coral reefs elsewhere are badly damaged. The rice terraces of northern Luzon are another attraction.

Ceded to the USA by Spain in 1898, the Philippines became self-governing in 1935. After Japanese occupation in World War II, in 1946 it became an independent republic.

• 1965 Ferdinand Marcos president.
• 1972 Marcos declares martial law. Opposition leaders arrested, National Assembly suspended, press censored.
• 1977 Ex-Liberal Party leader Benigno Aquino sentenced to death. Criticism forces Marcos to delay execution.
• 1978 Elections won by Marcos's New Society (KBL). He is named president and prime minister.
• 1980 Aquino allowed to travel to USA for medical treatment.
• 1981 Martial law ends. Marcos reelected president by referendum.
• 1983 Aquino shot dead on return from USA. Inquiry blames military conspiracy.
• 1986 USA compels presidential election. Result disputed. Army rebels led by Gen. Fidel Ramos, and public demonstrations, bring Aquino's widow, Corazon, to power. Marcos exiled to USA.
• 1987 New constitution. Aquino-led coalition wins Congress elections.
• 1988 Marcos and wife Imelda indicted for massive racketeering.
• 1989 Marcos dies in USA.
• 1990 Imelda Marcos acquitted of fraud charges in USA. Earthquake in Baguio City leaves 1600 dead.
• 1991 Mt. Pinatubo erupts. USA leaves Clark Air Base.
• 1992 Ramos wins presidential election. USA withdraws from Subic Bay base.
• 1996 Peace agreement with Muslim MNLF secessionists.
• 1998 Joseph Estrada president.
• 2000 Tourists kidnapped by Islamic extremists.
• 2001 Estrada overthrown by popular protest. Gloria Macapagal Arroyo assumes presidency. August, Muslim MILF joins peace process.
• 2002 Local elections, described as "peaceful" despite 86 deaths.