The Philippines achieves medium overall compliance with international standards and codes, with a score of 52.5 out of 100 in our Standards Compliance Index. Philippine compliance in the area of macroeconomic fundamentals is high, as is compliance with accounting and auditing principles, and in the securities regulation area. However, in the areas of corporate governance, insolvency framework, money laundering, and payment systems, the legal framework is either inadequate or weakly enforced. The Philippines has declared its intent to harmonize its insurance supervision with international standards and is updating its banking supervisory practices to conform to the Basel Core Principles.

Macroeconomic Policy and Data Transparency

The Philippines subscribed to the Special Data Dissemination Standard (SDDS) in August 1996 and thereafter started posting its metadata on the International Monetary Fund's (IMF) Dissemination Standards Bulletin Board (DSBB). Based on information provided on the DSBB, the Philippines satisfies the SDDS requirements for timeliness, periodicity, and coverage for all but three data categories and fulfills the access criteria as well. However, regarding SDDS requirements on Integrity and Quality of data, the Philippines fails to meet many of those prescribed by the SDDS. Based on information provided on the DSBB, the terms and conditions for dissemination of data for many categories are unclear. Furthermore, the IMF in its 2004 assessment indicates that there is room for improvement in the quality of data reported, and a 2007 report by the IMF also refers to shortcomings in the quality of data for national accounts and balance of payments. More »

According to the Oxford Analytica (OA) Monetary Policy Transparency report of 2006, the overall rating of "Compliance in Progress" for the Philippines has remained unchanged from previous years, but there has nonetheless been evidence of significant improvements. For instance, there has been the reduction of the time lag for the publication of Monetary Board meeting minutes from six weeks to four, beginning in 2006. Monetary and financial data compilation standards are currently being reconciled to the standards set out in the International Monetary Fund's (IMF) Monetary Financial Statistics Manual, as well, and it is expected that the standard for compiling government financial statistics will soon be brought into line with those set by the Government Finance Statistics Manual of 2001. The New Central Bank Act of 1993 provides the Philippines Central Bank (BSP) with autonomy as the nation's monetary authority. It provides the mission of the BSP, which is to maintain price and currency stability, and maintain economic growth. Inflation targeting has been adopted by the BSP as its essential monetary policy framework. Long awaited legislation aimed at improving monetary policy transparency in the Philippines is still in the draft stage. The BSP is a subscriber to the IMF's Special Data Dissemination Standard (SDDS). More »

In its yearly update on fiscal transparency, the Oxford Analytica 2006 report stated that the Philippines overall score of "Compliance in Progress" remained unchanged from prior years. Progress toward increasing transparency practices and the availability of data, and enhanced efforts to tackle corruption and increase the efficiency of revenue collection have been made, but there has been a deterioration of transparency in some areas, particularly with regard to the Government Owned and/or Controlled Corporations (GOCCs). Of specific concern is the continued reliance on obligations-based budget reporting and less than fully harmonized methods of data compilation across national and local government agencies as well as for the GOCCs. In recent years, there have been movements toward improving tax collection procedures, modernizing and computerizing fiscal data reporting, and improvements in the estimation of revenues. The Philippines is a subscriber to the International Monetary Fund's Special Data Dissemination Standard and meets requirements for coverage, periodicity, and timeliness, but the International Monetary Fund's 2006 Article IV Consultation (published in 2007) suggests that more improvement in this area would be welcome. More »

Institutional and market infrastructure

The insolvency legal framework in the Philippines is perceived to be very weak by independent observers including the Asian Development Bank (ADB) and the U.S. Department of Commerce (U.S. DoC). The ADB 2005 Private Sector Assessment Report, as well as the U.S. DoC 2007 Country Commercial Guide, found the laws and judicial pronouncements governing insolvency procedures to be outdated and sometimes inconsistent. The Government of the Philippines realizes the need to introduce changes to the current regime and has launched a reform program. The adoption of the Securities Regulation Code of 2000, which transferred the jurisdiction over rehabilitation from the Securities and Exchange Commission of the Philippines (SEC) back to the regular courts, and the Supreme Court's Interim Rules on Rehabilitation represent a step forward towards compliance with international standards, although some important gaps in legislation still exist. It is envisioned that the Draft Corporate Recovery Act will harmonize the antiquated insolvency law with world's best insolvency practices. However, progress on adoption of the new law has been somewhat slow, according to the U.S. DoC. As of 2007, adoption of the law was still pending. More »

In 2001, the World Bank conducted an assessment of the accounting and auditing framework in the Philippines in order to evaluate the weaknesses and strengths of the accounting and auditing requirements, and to review the reporting requirements against actual practices. International Financial Reporting Standards (IFRSs) and International Standards on Auditing (ISAs) were used as the benchmarks for assessing the national standards. According to the subsequent Update released by the World Bank in 2006, most of the shortcomings identified in the 2001 assessment have been addressed. In 2005, the Philippine Accounting Standards Council (ASC), later superseded by the Financial Reporting Standards Council (FRSC), completed adoption of new IFRSs and the revised versions of previously adopted International Accounting Standards (IASs). According to the FRSC, new IFRSs and amendments to IFRSs will be adopted in the country as they are finalized and issued by the International Accounting Standards Board (IASB). Non-publicly accountable entities (NPAEs) are given the option not to apply the new standards that became effective in 2005, but to apply instead the accounting standards that were effective in 2004. The World Bank commended the Philippine authorities for the progress achieved; however it was noted that there were certain problems with the actual implementation of the accounting requirements. It was recommended that an oversight board for quality control be created, and the technical strength and resources of the Philippine Institute of Certified Public Accountants (PICPA) be built up to improve compliance with the accounting requirements. More »

The equity market in the Philippines is very small and illiquid. At the end of 2003, 62% of the market capitalization of the Philippine Stock Exchange was composed of 23 family-controlled groups. This underdeveloped capital market, combined with highly concentrated ownership, results in poor corporate governance practices, as both a 2006 World Bank assessment and a 2005 Asian Development Bank report attest. Both assessments agree, however, that the Philippine regulators have undertaken significant legal and regulatory reforms over the past decade, hoping to establish the foundations for good corporate governance. In 2002, the Securities and Exchange Commission of the Philippines issued its own Code of Corporate Governance for Registered Issuers and Public Companies. In combination with the 2000 Securities Regulation Code, the adoption of International Financial Reporting Standards for financial reporting, and the establishment of new requirements for training directors, the components of a legal and regulatory framework for corporate governance can now be considered to be largely in place. Nonetheless, the implementation and enforcement of this framework still falls short, because it fails to provide incentives for a transparent and efficient market. The World Bank report highlights the importance of private and non-government initiatives in this context, to overcome the shortcomings in the promotion of a corporate governance culture and to encourage enforcement. More »

Auditing practices in the Philippines were assessed by the World Bank in 2001 in order to evaluate the weaknesses and strengths of the auditing requirements, and to review the reporting requirements against actual practices. The team conducting the assessment concluded that there was a need to strengthen regulation of auditing profession, enforcement powers and coordination among the regulators, adopt International Standards on Auditing (ISAs), and to improve auditors' performance, among other issues. According to the 2006 Update to the assessment, most of the shortcomings identified in 2001 were addressed. In 2004, the PICPA adopted with only minor modifications the International Federation of Accountants (IFAC) Code of Professional Ethics, and the Accountancy Act was revised the same year. By 2005, ISAs had been also fully adopted. The World Bank commended the Philippine authorities for the progress achieved; however it was noted that there were certain problems with the actual implementation of the auditing requirements. It was recommended that an oversight board for quality control be created, and the technical strength and resources of the Philippine Institute of Certified Public Accountants (PICPA) built up to improve compliance. More »

The Financial Action Task Force (FATF), in its 2006 report "Annual Review of Non-Cooperative Countries and Territories 2005-2006," indicates that owing to amendments in the 2001 Anti Money Laundering Act (AMLA), the FATF removed the Philippines from its list of Non-Cooperative Countries and Territories in 2003. The report adds that subsequent changes enacted by the Philippines' authorities resulted in the FATF ending its formal monitoring of the Philippines in 2006. In its 2004 Article IV Consultation report (published in 2005), the International Monetary Fund points to a number of laws and amendments that are in place in order to prevent the financial sector from being used as a conduit of money laundering. The U.S. Department of State, in its 2007 "International Narcotics Control Strategy Report," notes that the Philippines has made significant progress in recent years, but points to several deficiencies in the anti-money laundering/combating the financing of terrorism regime, most notably the lack of an anti-terrorism law. Furthermore, the report notes that terrorist financing is only broadly criminalized and the Philippines has no comprehensive legislation on freezing of assets used for criminal activity. The AMLA established a Financial Intelligence Unit (FIU), the Anti Money Laundering Council (AMLC), which is part of the Egmont Group. According to the FATF's 2006 report, the AMLA has signed Memoranda of Understanding with other foreign FIUs. However, there is insufficient information publicly available as to Philippines compliance with the FATF's 40 Recommendations and 9 Special Recommendations. More »

In a 2005 Report on Observance of Standards and Codes (ROSC), the International Monetary Fund (IMF) notes that the Philippines has three systemically important payment systems (SIPS), namely, the Multi-transaction Inter-bank Payment System (MIPS2), check clearing, and the PDDTS - U.S. dollar gross systems. However, in 2002, a Real Time Gross Settlement (RTGS) system called the Philippine Payments and Settlements System (PhilPaSS) replaced the MIPS2 as the interbank settlement system. According to information provided on the Central Bank of Philippines (BSP) website, the BSP, in its design and operation of PhilPaSS, adheres closely to the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS). However, apart from this statement by the BSP, there is insufficient information publicly available regarding this system's compliance with the CPSIPS. The 2005 IMF ROSC notes that the BSP has established the legal and regulatory framework for interbank clearing facilities, however, the legal language for finality of settlement is unclear. Furthermore, the 2005 ROSC notes that the responsibility of the BSP with regard to payment systems oversight and supervision is also unclear. More »

Financial Regulation and Supervision

In 2001, the International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP) of the Philippines and published its findings in a 2004 Report on the Observance of Standards and Codes (ROSC). The ROSC does not explicitly address the Philippines' overall compliance with the Basel Core Principles, but it does mention that the Central Bank of the Philippines (BSP) is updating its supervisory practices based on the principles set forth by the Basel Committee on Banking Supervision. The report further suggests that, although compliance is very high, major deficiencies still exist in the supervisory and enforcement framework. The BSP's 2006 Annual Report (published in 2007) notes that the BSP continued to undertake measures to align banking practices in the Philippines with international standards. It can therefore be said that the Philippine authorities have exhibited a strong intention to comply. However, the degree to which the Philippines has enacted or implemented the Basel Core Principles cannot be surmised from the reports. The BSP functions as the central bank of the Philippines and is an independent authority. Its functions and responsibilities are stated in the BSP Charter. The results of the IMF's 2006 Article IV Consultation (published in 2007) disclose that, subsequent to the 2001 FSAP, the authorities did undertake several reforms to the banking sector and have revised its risk-based supervision with the intention of implementing Basel II. However, the report also notes that the banks are still plagued with nonperforming assets. In addition, the report recommends that amendments to the BSP Charter addressing the legal protection of supervisors and increasing their sanctioning capabilities over problem banks be passed without further delay. More »

The Securities and Exchange Commission (SEC) is the primary regulatory authority over the capital markets and their participants. A joint World Bank and International Monetary Fund (IMF) mission visited the Republic of the Philippines in 2002 and concluded that overall, the Philippines scores "very well" against the International Organization of Securities Commissions (IOSCO) Principles, which the mission attributed to regulatory and legislative efforts in the recent past. Improvements were encouraged in the areas of collective investment schemes and secondary market regulation, which were partially thought to be addressed with the Revised Investment Company Act, which has been in the draft stage since 2001, but as of August 2007, is still awaiting parliamentary approval. Also, despite the positive assessment of regulatory conditions in the Philippines, more needs to be done to make its capital markets an efficient source of funding for economic growth. In recognition of these limitations to effective private sector growth, the Philippine government has made capital market development a priority. The 2006 Article IV consultations with the IMF noted that the authorities are promoting the development of domestic capital markets through their public debt management as well as legislative initiatives, including bills to create credit information bureaus and promote retirement saving vehicles. More »

In 2002, the IMF conducted a Financial System Stability Assessment (FSSA) of the Philippines, including the assessment of the insurance supervision in the country against International Association of Insurance Supervisors (IAIS) Supervisory Principles (later revised and renamed as Insurance Core Principles, or ICPs). The results of the assessment were published in a number of Reports on Observance of Standards and Codes (ROSCs) covering different aspects of the Philippines' financial system. However, the ROSC on insurance supervision has not been released. The FSSA concluded that overall the supervisory regime in the Philippines had improved, although important challenges remained. The Philippine authorities were aware of the shortcomings and requested technical support to further improve the compliance. In November 2006, the Asian Development Bank (ADB) approved "The Republic of the Philippines: Financial Market Regulation and Intermediation Program," or (FMRIP) which objective is to increase efficiency of the financial sector in the Philippines. Reforms of the insurance sector are a part of the FMRIP which includes, among other policy actions, developing a strategy for full implementation of ICPs. The ADB reported that, as of 2006, the Insurance Commission (IC) was not compliant with the above-mentioned principles; however it declared its support for harmonization and the draft Insurance Code was intended to bring the legal framework in line with ICPs. As of November 2006, the revised Insurance Code had been submitted to the DoF. In 2006, the DoF also approved the reorganization plan of the IC. More »

Legend:

Credit Ratings

Moody's B1/Positive

Fitch BB/Stable

Standard & Poor's BB+/Stable

Macroeconomic Data

2007 GDP (Current Prices): 144.1 billion USD (IMF)

2007 GDP (Per Capita): 1,625 USD (IMF)

2008 GDP (Growth Forecast): 5.8% (IMF)

2008 Inflation (CPI): 4.4% (IMF)

2007 Unemployment: 7.3% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 2.3 billion USD (UNCTAD)

FDI (Outward): 0.1 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 562 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)